EMPLOYMENT AGREEMENT
AGREEMENT made as of the 14th day of April, 1997, by and between
ENVIROTEST SYSTEMS CORP., a Delaware corporation with an office at 000 Xxxxxxxx
Xxx, Xxxxxxxxx, Xxxxxxxxxx 00000 (hereinafter referred to as the "Company"), and
XXXXXXX X. XXXX, an individual residing at 000 Xxxxxxxxxx Xxxx, Xxxxxxxxxx,
Xxxxxxxxxxx 00000 (hereinafter referred to as the "Employee").
W I T N E S S E T H:
WHEREAS, the Company desires to retain the services of the Employee, and
the Employee desires to be employed by the Company, upon the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements hereinafter contained, the parties hereby agree as follows:
1. Employment and Term.
(a) The Company shall employ the Employee, and the Employee shall
serve the Company, upon the terms and conditions hereinafter set forth.
(b) The employment of the Employee by the Company hereunder shall
commence as of the date hereof and, unless sooner terminated in the manner as
herein provided, shall terminate on the second anniversary hereof (the "Term").
2. Duties. During the Term, the Employee shall serve as Executive Vice
President and Chief Operating Officer of the Company, faithfully and to the best
of his ability, and perform such duties and have such responsibilities and
authority as are consistent with (i) his position and status as Executive Vice
President and Chief Operating Officer of the Company and (ii) the practices and
policies of the Company generally applicable to executive employment
arrangements.
3. Salary. During the first year of the Term of his employment hereunder,
the Company shall pay to the Employee a salary for his services at a rate of
$275,000 per annum, payable in accordance with the regular payroll practices of
the Company. For the second year of the Term, the Company shall pay a salary for
the Employee's service at a rate of the previous year's salary for the
immediately preceding year, increased by the greater of (i) five percent (5.0%)
or (ii) the aggregate monthly percentage increase in the Consumer Price Index
for all Urban Consumers (CPI-U) for the United States, All Items (1982-1984 =
100), published by the U.S. Department of Labor, after taking into account any
revisions, for the most recent twelve months for which the Consumer Price Index
data is published prior to the first day of such
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additional year.
4. Bonus Arrangement; Stock Options.
(a) In addition to the salary provided for in Paragraph 3 of this
Agreement, the Employee is eligible to participate in the Company's bonus and
other compensation plans for the Company's employees of like classification
during the term of employment hereunder. The Employee shall not be eligible for
payment under such a plan if his employment is terminated for cause. The
Employee shall have the opportunity to earn an annual target bonus of up to one
hundred percent (100%) of the salary provided for in paragraph 3 of this
Agreement, measured against objective financial criteria to be determined by the
Board.
(b) The Company shall recommend to the Compensation Committee of the
Board, which administers the Company's stock option plan, that, as of the date
hereof, the Company grant to the Employee options with respect to 200,000 shares
of Company's common stock. Such options shall be granted at an exercise price
equal to the closing Nasdaq National Market quotation on the most recent trading
date prior to the date of grant. Such options shall vest according to the
following schedule:
(i) 50% of such options shall vest on the first year
anniversary of the date of grant; and
(ii) the remaining options shall vest on the second year
anniversary of the date of grant.
The options shall expire, if not exercised, on the tenth anniversary
of the date of grant. Said options shall be granted pursuant to a subscription
agreement or other instrument, as determined by the Compensation Committee. Such
options shall also be subject to all of the terms and conditions imposed upon
stock options granted under the Company's Stock Option Plan.
(c) In the event that a "change of control" of the Company occurs
during the Term, one hundred percent (100%) of all options granted to the
Employee prior to the date on which such change of control occurs shall vest
upon such change of control and may be exercised by the Employee at any time
during the ninety (90) day period commencing upon the date such change of
control occurs. Change of control shall have the meaning set forth in Exhibit I
hereto.
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5. Employee Benefits and Perquisites. During the Term, the Company will
provide to the Employee the following benefits and/or perquisites:
(a) The Employee shall be a participant in all benefit programs
provided for the Company's management executives of like classification,
including, but not limited to, insurance, retirement, tax-deferred plans, health
and other benefit plans (including the Medical Reimbursement Program) for which
he qualifies.
(b) The Employee shall be entitled to receive fringe benefits and
perquisites (other than the above-mentioned employee benefit plans and programs)
in the aggregate substantially equivalent to those provided to the Company's
management executives of like classification, including vacation time and
reasonable sick leave.
(c) During the Term, the Company shall furnish to the Employee an
automobile of the Company's reasonable choice. The Company shall pay for all
expenses associated with the use, operation and enjoyment of the automobile
(including insurance coverage but exclusive of gasoline expense).
(d) During the Term, the Employee shall be resident in the
Sunnyvale, California area or such other area where the Company's headquarters
are located. Within the terms of the Company's Relocation Policy, the Company
will make arrangements to keep Employee whole for a period of at least one year
as a result of expenses associated with the relocation from his current home,
including payment of rent by the Company for a home in the Sunnyvale area. The
Company and Employee agree to negotiate in good faith the relocation-related
arrangements for the second year of the Term.
6. Permanent Disability. In the event of the permanent disability (as
hereinafter defined) of the Employee during the Term, the Company shall have the
right, upon written notice to the Employee, to terminate his employment
hereunder, effective upon the giving of such notice. Upon such termination, the
Company shall be discharged and released from any further obligations under this
Agreement, except for the obligation to pay salary and other benefits pursuant
to Paragraph 8(b) of this Agreement. Disability benefits due under applicable
plans and programs of the Company shall be determined under the provisions of
such plans and programs. For purposes of this Paragraph 6, "permanent
disability" shall be defined as any physical or mental disability or incapacity
which renders the Employee unable to execute his duties hereunder for 180
consecutive days or an aggregate period of more than 210 days in any twelve (12)
month period.
7. Death. In the event of the death of the Employee during the Term, the
salary and other benefits to which the Employee is entitled pursuant to
Paragraph 8(b) hereof shall be paid to the beneficiary so designated by the
Employee by written notice to the Company, or, failing such designation, to his
estate. The Employee shall have the right to name, from time to time, any one
person as beneficiary hereunder or, with the consent of the Board, he may make
other
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forms of designation of beneficiary or beneficiaries. The Employee's designated
beneficiary or personal representative, as the case may be, shall accept the
payments provided for in this Paragraph 7 in full discharge and release of the
Company of and from any further obligations under this Agreement. Any other
benefits due under applicable plans and programs of the Company shall be
determined under the provisions of such plans and programs.
8. Termination and Expiration of Employment.
(a) The Employee's employment hereunder may be terminated by the
Company for "cause" at any time. Termination of employment for "cause" shall
mean termination upon (1) the willful failure by the Employee to materially
perform his duties with the Company or to follow the instructions of the Board
(other than any such failure resulting from his incapacity due to physical or
mental illness), (2) the willful engaging by the Employee in conduct that is
materially injurious to the Company, monetarily or otherwise, (3) the commission
of any act of fraud, theft or dishonesty by the Employee against the Company,
(4) the conviction of the Employee of (or the pleading by the Employee of nolo
contendere to) any felony, fraud or embezzlement or (5) any willful breach by
the Employee of the terms of this Agreement, unless any such breach of this
Agreement by the Employee that is capable of being corrected is corrected in all
material respects within thirty (30) days following written notification by the
Company to the Employee that the Company intends to terminate the employment of
Employee hereunder by reason of a willful breach of this Agreement for cause as
specified in such written notice to the Employee.
If the Employee is terminated for "cause," the Company shall have no
further obligations under this Agreement, except for the obligation to pay all
salary and other benefits earned but unpaid to the date of termination, and all
options granted to the Employee and not exercised prior to the date of such
termination shall be extinguished on the date of such termination.
(b) If (i) the Company terminates the employment of the Employee
during the Term other than for "cause" (as defined in Paragraph 8(a) of this
Agreement), or (ii) during the Term there is a change in control of the Company
and the successor entity (or purchaser) does not accept an assignment of this
Agreement, or (iii) the terms of the Employee's employment are materially
adversely changed or his duties and responsibilities are materially diminished,
following a change of control or otherwise (including, by way of example and not
by limitation, by reason of the Employee ceasing to be an Executive Vice
President and Chief Operating Officer of the Company), whereupon, in the case of
this clause (iii), the Employee shall have the right to consider his employment
hereunder to have been terminated by the Company by giving written notice to the
Company within 10 business days after the date on which the Employee believes
that such adverse change has occurred, the action(s) constituting such adverse
change or diminution, and the fact that he is terminating this Agreement
pursuant to this Paragraph 8(b)(iii), then (A) the Company shall retain Employee
and Employee agrees to serve as a consultant to the Company for the longer of
the remainder of the Term or six (6) months ("Consulting Period");
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(B) the Employee's options shall vest as set forth in Section 4(c) above; and
(C) the Employee shall be entitled to continue to receive (1) on the same
schedule as was in existence prior to such termination, payment of his base
salary and all other benefits to which he is entitled for the Consulting Period
and (2) the pro rata portion of any bonus earned by the Employee for the fiscal
year in which the termination occurred.
9. Confidentiality; Injunctive Relief.
(a) Recognizing that the knowledge, information and relationship
with customers, suppliers and agents, and the knowledge of the Company's
business methods, systems, plans and policies which he may hereafter receive or
obtain as an employee of the Company, are valuable and unique assets of the
Company, the Employee agrees that, during and after the Term, he shall not
(otherwise than pursuant to his duties hereunder) disclose, without the prior
written approval of the Board, any such knowledge or information pertaining to
the Company, its business, personnel or policies, to any person, firm,
corporation or other entity, for any reason or purpose whatsoever. The
provisions of this Paragraph 9(a) shall not apply to (i) information which is or
shall become generally known to the public or the trade, or information which is
or shall become available in trade or other publications (except by reason of
the Employee's breach of his obligations hereunder) and (ii) information which
the Employee is required to disclose by law or by a governmental entity or by an
order of a court of competent jurisdiction or pursuant to a subpoena from such a
court or agency. If the Employee is required by law or a court order to disclose
such information, he shall notify the Company of such requirement and provide
the Company an opportunity to contest such law or court order.
(b) The Employee acknowledges that the services to be rendered by
him are of a special, unique and extraordinary character and, in connection with
such services, he will have access to confidential information vital to the
Company's business. By reason of this, the Employee consents and agrees that if
he violates any of the provisions of this Agreement with respect to
confidentiality, the Company would sustain irreparable harm and, therefore, in
addition to any other remedies which the Company may have under this Agreement
or otherwise, the Company shall be entitled to apply to any court of competent
jurisdiction for an injunction restraining the Employee from committing or
continuing any such violation of this Agreement, and the Employee shall not
object to any such application.
10. Representation, Warranty and Covenant of the Employee. The Employee
represents, warrants and covenants to the Company that he is not and will not
during the Term become a party to any agreement, contract or understanding,
whether employment or otherwise, which would in any way restrict or prohibit him
from undertaking or performing his employment in accordance with the terms and
conditions of this Agreement.
11. Representation and Warranty of the Company. The Company represents and
warrants that this Agreement constitutes a valid and legally binding obligation
of the Company, enforceable in accordance with the terms herein set forth,
except to the extent that the
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enforceability of this Agreement may be affected by bankruptcy, insolvency,
reorganization, moratorium, or similar laws affecting creditors' rights and
remedies generally and subject, as to enforceability, to general principles of
equity, including principles of commercial reasonableness, good faith and fair
dealing (regardless of whether enforcement is sought in a proceeding at law or
equity).
12. Deductions and Withholding. The Employee agrees that the Company shall
withhold from any and all payments required to be made to the Employee pursuant
to this Agreement, all federal, state, local and/or other taxes which the
Company determines are required to be withheld in accordance with applicable
statutes and/or regulations from time to time in effect.
13. Entire Agreement. This Agreement, together with the other agreements
specifically referred to herein, sets forth the entire agreement and
understanding of the parties, and cancels and supersedes any and all prior
agreements and understandings (whether written or oral) between the parties
hereto, with respect to the employment of the Employee by the Company, and no
statement, representation, warranty or covenant has been made by either party
with respect thereto except as expressly set forth herein.
14. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be delivered personally or sent by
registered or certified mail, return receipt requested, to the other party
hereto at his or its address as set forth at the beginning of this Agreement.
Either party may change the address to which notices, requests, demands and
other communications hereunder shall be sent by sending written notice of such
change of address to the other party.
15. Assignability, Binding Effect and Survival. This Agreement shall inure
to the benefit of and shall be binding upon the heirs, executors,
administrators, successors and legal representatives of the Employee, and shall
inure to the benefit of and be binding upon the Company and its successors and
assigns. Notwithstanding the foregoing, the obligations of the Employee may not
be delegated and, except as expressly provided in Paragraph 7 hereof relating to
the designation of beneficiaries, the Employee may not assign, transfer, pledge,
encumber, hypothecate or otherwise dispose of this Agreement, or any of his
rights hereunder, and any such attempted delegation or disposition shall be null
and void and without effect. The provisions of Paragraphs 6, 7, 8, 9, 21 and 22
hereof shall survive termination of this Agreement.
16. Amendment. This Agreement shall not be altered, modified, amended or
terminated except by written instrument signed by each of the parties hereto.
Waiver by either party hereto of any breach hereunder by the other party shall
not operate as a waiver of any other breach, whether similar to or different
from the breach waived.
17. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF
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CALIFORNIA WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW.
18. Paragraph Headings. The paragraph headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
19. Severability. If any provision of this Agreement or the application of
any such provision to any party or circumstances shall be determined by any
court of competent jurisdiction to be invalid and unenforceable to any extent,
the remainder of this Agreement or the application of such provision to such
person or circumstances other than those to which it is so determined to be
invalid and unenforceable, shall not be affected thereby, and each provision
hereof shall be validated and shall be enforced to the fullest extent permitted
by law.
20. Arbitration. The parties agree that any disputes that may arise in
connection with, arising out of or relating to this Agreement, or any dispute
that relates in any way, in whole or in part, to the Employee's employment with
the Company, the termination of that employment or any other dispute by and
between the parties or their successors or assigns, will be submitted to binding
arbitration in Los Angeles, California according to the rules and procedures of
the American Arbitration Association and California Code of Civil Procedure
Section 1283.05. The parties agree that each will bear his or its own attorney's
fees and costs in connection with any such arbitration and each party will pay
half of any costs associated with the arbitration. This arbitration obligation
extends to any and all claims that may arise by and between the parties or their
successors, assigns or affiliates, and expressly extends to, without limitation,
claims or causes of action for wrongful termination, impairment of ability to
compete in the open labor market, breach of an express or implied contract,
breach of any collective bargaining agreement, breach of the covenant of good
faith and fair dealing, breach of fiduciary duty, fraud, misrepresentation,
defamation, slander, infliction of emotional distress, disability, loss of
future earnings, and claims under the California Constitution, the United States
Constitution, and applicable state and federal fair employment laws, federal
equal employment opportunity laws, and federal and state labor statutes and
regulations, including, but not limited to, the Civil Rights Act of 1964, as
amended, the Fair Labor Standards Act, as amended, the Americans With
Disabilities Act of 1990, the Rehabilitation Act of 1973, as amended, the
Employee Retirement Income Security Act of 1974, as amended, and the Age
Discrimination in Employment Act of 1967.
21. Consulting Services.
(a) For a period of one (1) year after the Employee ceases to be
employed by the Company (the "Additional Consulting Period"), at the discretion
of the Company (which discretion should be exercised within 30 days following
the end of the Term), the Company may elect to retain Employee and Employee
agrees to serve as a consultant to the Company. During the Additional Consulting
Period, Employee shall be available to provide such consulting services to the
Company as the Company may reasonably desire.
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(b) During the Additional Consulting Period, if the Company has
elected to retain the Employee to serve as a consultant to the Company, the
Employee shall receive consulting fees in an amount equal to Employee's base
salary then in effect, less any appropriate deductions, that shall be paid in
accordance with the Company's ordinary payroll practices.
22. Noncompetition. During (i) the Term of this Agreement, (ii) the
Consulting Period, if any, under Paragraph 8(b) hereof, and (iii) the Additional
Consulting Period, if the Company has elected to retain the Employee to serve as
a consultant to the Company, the Employee shall not, directly or indirectly,
without the prior written consent of the Company, provide consultation services
or otherwise provide services to (whether as an employee or a consultant, with
or without pay), own, manage, operate, join, control, participate in, or be
connected with (as a stockholder, partner, or otherwise), any business,
individual, partner, firm, corporation, or other entity that is then a
competitor of the Company, including any entity engaged in the business of
providing vehicle emissions testing services or services directly related
thereto that comprise a material portion of the Company's business or any other
business that is definitely planned by or that is under development by the
Company or any of its affiliates during the Employee's employment (if Employee
is currently employed) or at the time of the Employee's date of termination
(each such competitor a "Competitor of the Company"); provided, however, that
the "beneficial ownership" by the Employee, either individually or as a member
of a "group" (as such terms are used in Section 13(d) of the Securities Exchange
Act of 1934 (the "Exchange Act") and Regulation 13D under the Exchange Act) of
not more than five percent (5%) of the voting stock of any publicly held
corporation shall not alone constitute a violation of this Agreement.
It is further expressly agreed that the Company will or would suffer
irreparable injury if the Employee were to compete with the Company or any
subsidiary or affiliate of the Company in violation of this Agreement and that
the Company would by reason of such competition be entitled to injunctive relief
in a court of appropriate jurisdiction, and the Employee further consents and
stipulates to the entry of such injunctive relief in such a court prohibiting
the Employee from competing with the Company or any subsidiary or affiliates of
the Company in violation of this Agreement.
IN WITNESS WHEREOF, the parties hereto set their hands as of the day and
year first above written.
ENVIROTEST SYSTEMS CORP.
By: /s/ Xxxxxxx X. Xxxxxxxxx
------------------------------
Its: Chairman
/s/ Xxxxxxx X. Xxxx
------------------------------------
Xxxxxxx X. Xxxx, Individually
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EXHIBIT I
"Change of Control" means (i) any sale, transfer or other conveyance
(other than to the Company or a wholly owned Subsidiary of the Company), whether
direct or indirect, of all or substantially all of the assets of the Company, on
a consolidated basis, in one transaction or a series of related transactions,
if, immediately after such transaction, any "person" or "group" becomes the
"beneficial owner," directly or indirectly, of more than 50% of the total voting
power entitled to vote in the election of directors, managers, or trustees of
the transferee, (ii) any "person" or "group" is or becomes the "beneficial
owner," directly or indirectly, of more than 50% of the total voting power of
the Voting Stock then outstanding, or (iii) during any period of 24 consecutive
months, individuals who at the beginning of such period constituted the Board of
Directors of the Company (together with any new directors whose election by such
Board or whose nomination for election by the shareholders of the Company was
approved by a vote of a majority of the directors then still in the office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved), cease for any reason to
constitute a majority of the Board of Directors of the Company then in office.
For purposes of this definition, (i) the terms "person" and "group" shall
have the meanings used for purposes of Rules 13d and 13d-5 of the Exchange Act,
whether or not applicable; provided that no Excluded Person and no person or
group controlled by Excluded Persons shall be deemed to be a "person" or "group"
and (ii) the term "beneficial owner" shall have the meaning used in Rules 13d-3
and 13d-5 under the Exchange Act, whether or not applicable, except that a
person shall be deemed to have "beneficial ownership" of all shares that any
such person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time or upon the occurrence of certain
events.
"Voting Stock" means the Capital Stock of the Company having generally the
right to vote in the election for a majority of the directors of the Company.
"Excluded Person" means any beneficial holder of 5% or more of any class
of common stock of the Company outstanding immediately prior to the consummation
of the initial underwritten public offering by the Company of 3,400,000 shares
of the Company's Class A Common Stock in April 1993.
