EXHIBIT 10.5
EMPLOYMENT AGREEMENT
AGREEMENT dated as of August 2, 2004 by and between Sparta Commercial
Services, Inc., a Nevada corporation with an address at X.X. Xxx 00, Xxx Xxxx,
Xxx Xxxx 00000 (the "Company") and Xxxxx Xxxxxxxx ("Executive") with an address
at 00 Xxxxx Xxxx, Xxxxxxxx, Xxx Xxxx 00000.
WHEREAS, the Company and Executive wish to enter into an agreement
relating to the employment of Executive by the Company;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein and for other good and valuable consideration, the parties agree as
follows:
1. Term of Employment. Subject to the provisions of Section
8 of this Agreement, Executive shall be employed by the Company for a
period commencing on August 2, 2004 (the "Commencement Date") and
ending on the second anniversary of the Commencement Date (the
"Employment Term"), on the terms and subject to the conditions set
forth in this Agreement. Notwithstanding the preceding sentence, the
Employment Term shall be automatically extended for an additional
two-year period followed by further one-year periods, unless the
Company or Executive provides the other party hereto 3 months prior
written notice before the expiration of the Employment Term that the
Employment Term shall not be so extended. "Employment Term" shall
include any extension that becomes applicable pursuant to the
preceding sentence.
2. Position.
(a) During the Employment Term, Executive shall serve as the
Company's Chief Financial Officer. In such position, Executive shall
have the powers, duties and responsibilities that are customary for a
Chief Financial Officer of a corporation of the size, type and nature
of the Company and shall perform such other duties as the Company's
Board of Directors or Company's Chief Executive Officer ("CEO"), as
the --- case may be, shall determine in their reasonable discretion.
Executive shall report exclusively to the CEO. Executive shall comply
with all federal, state and local laws applicable to his duties and
also shall comply with the rules and regulations of any
self-regulatory organization (as such term is defined in Rule 3(a)(26)
of the Securities Exchange Act of 1934, as amended) having
jurisdiction over the Company.
(b) During the Employment Term, Executive will devote his
full business time to the performance of his duties hereunder and will
not engage in any other business, profession or occupation for
compensation or otherwise which would conflict with the rendition of
such services either directly or indirectly, without the prior written
consent of the CEO. Nothing contained herein shall preclude Executive
from (i) serving on corporate, civic and charitable boards or
committees and (ii) managing his personal investments; provided that
none of the activities set forth in clauses (i) and (ii) interferes in
any material respect with the performance of Executive's employment
hereunder or conflict in any material respect with the business of the
Company.
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3. Base Salary. During the Employment Term, the Company shall pay
Executive a base salary (the "Base Salary") at the annual rate of $140,000
payable in regular installments in accordance with the Company's usual payment
practices. Executive shall be entitled to such annual increases in his Base
Salary, if any, as may be determined in the sole discretion of the Company's
Board of Directors or of the Compensation Committee thereof.
4. Additional Compensation
In addition to salary and other compensation specified in this
agreement, Executive may from time to time, receive such additional compensation
from the Company in such form or forms as may be determined by the Company's
Board of Directors or the Compensation Committee thereof from time to time in
order to more fully compensate Executive for the true value of his services to
the Company.
5. Equity Arrangements.
(a) Executive shall be entitled to an initial grant on the
Commencement Date (the "Initial Grant") of 4,545,455 shares of the Company's
Common Stock, $.001 par value per share (the "Initial Compensation Shares"),
subject to stock splits. Subject to Section 8, Executive's rights to such
shares of stock shall vest as follows:
(i) 20% of the Initial Compensation Shares on January 1, 2005;
and
(ii) 20% of the Initial Compensation Shares on July 1, 2005; 20%
of the Initial Compensation Shares on July 1, 2006; 20% of the Initial
Compensation Shares on July 1, 2007; and 20% of the Initial Compensation Shares
on July 1, 2008; provided that Executive is still employed by the Company on the
date on which any such 20% portion shall vest. If Executive's employment
hereunder is terminated for any reason prior to an Anniversary Date, Executive
shall be entitled to receive that percentage of the Initial Compensation Shares
which would have vested in the year ending on such Anniversary Date equal to the
number of days Executive served in such year divided by three hundred sixty-five
(365).
(b) Following the termination of Executive's employment
hereunder, if Executive determines to sell all or any portion of his vested
Initial Compensation Shares Executive shall first offer to sell such Shares to
the Company by providing written notice to the Company setting forth the number
of Initial Compensation Shares to be sold. If the Company elects to purchase all
of such Initial Compensation Shares so offered the purchase price per share
therefor shall equal 90% of the average daily bid price per share of the
Company's Common Stock during the 7-trading day period following receipt by the
Company of such notice. If the Company elects to purchase less than all of the
Initial Compensation Shares so offered, the purchase price per share shall be
100% of the average daily bid price per share of the Company's Common Stock
during the 7-trading day period following receipt by the Company of such notice.
The Company shall notify Executive in writing of its decision whether to
purchase any or all of the Initial Compensation Shares so offered within three
days of the end of such 7-trading day period. If the Company elects to purchase
such Shares, the Company shall pay the full purchase price therefor within
thirty (30) days of the Company's election to so purchase. If the
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Company does not so elect or fails to notify Executive of its election within
the time specified herein, Executive shall be permitted to sell such Initial
Compensation Shares in the open market in accordance with the applicable rules
and regulations of the Securities and Exchange Commission.
6. Employee Benefits. During the Employment Term, Executive shall be
provided, in accordance with the terms of the Company's employee benefit plans
as in effect from time to time, health insurance and short term and long term
disability insurance, retirement benefits and fringe benefits (collectively
"Employee Benefits") on the same basis as those benefits are generally made
available to other senior executives of the Company. Executive shall be entitled
to paid vacation of three (3) weeks, pro rated, during the first calendar year
within the Employment Term, and four (4) weeks during the remaining years of the
Employment Term. Such vacation shall be taken at times consistent with the
proper performance by the Executive of his duties and responsibilities and with
the approval of the CEO. Vacation not taken in any calendar year shall not carry
forward to any future year.
7. Business Expenses. During the Employment Term, reasonable business
expenses incurred by Executive in the performance of his duties hereunder shall
be reimbursed by the Company in accordance with Company policies.
8. Termination. Notwithstanding any other provision of this Agreement:
(a) By the Company for Cause or By Executive Resignation without
Good Reason.
(i) The Employment Term and Executive's employment hereunder
may be terminated by the Company for Cause (as defined below) or
by Executive's resignation without Good Reason (as defined in
Section 8(c)).
(ii) For purposes of this Agreement, "Cause" shall mean (A)
the Executive's willful and continued failure to substantially
perform the duties of his position or breach of material terms of
his Agreement, after notice (specifying the details of such
alleged failure) and a reasonable opportunity to cure if such
breach can be cured; (B) any willful act or omission which is
demonstrably and materially injurious to the Company or any of
its subsidiaries or affiliates; (C) conviction or plea of nolo
contendere to a felony or other crime of moral turpitude other
than involving acts of negligence; or (D) willful failure to
carry out the legitimate directives of the Company's Board of
Directors or the CEO. No act or failure to act will be deemed
"willful" (i) unless effected without a reasonable belief that
such action or failure to act was in or not opposed to the
Company's best interest; or (ii) if it results from any physical
or mental incapacity.
(iii) If Executive's employment is terminated by the Company
for Cause, or if Executive resigns without Good Reason, Executive
shall be
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entitled to receive (A) any accrued but unpaid Base Salary through the
date of termination; (B) the opportunity to exercise vested stock
options for 30 days following such termination; (C) such compensation
and Employee Benefits, if any, as to which Executive may be entitled
under the employee compensation and benefit plans of the Company and
any other long-term incentive or equity program pursuant to the terms
thereof through the date of termination; and (D) any reimbursable
business expenses incurred; and (E) any accrued but unpaid Additional
Compensation through the termination date. Following such termination
of Executive's employment by the Company for Cause or resignation by
Executive without Good Reason, except as set forth in this Section
8(a), Executive shall have no further rights to any compensation or
any other benefits under this Agreement.
(b) Disability, Death or Retirement.
(i) The Employment Term and Executive's employment hereunder
shall terminate (A) upon his death; (B) if Executive becomes
physically or mentally incapacitated for a period of indefinite
duration and is therefore unable for a period of three (3) consecutive
months or for an aggregate of six (6) months, or such longer period as
the Company's Board of Directors in its sole discretion may determine,
in any twelve (12) consecutive month period to perform his duties,
(such incapacity is hereinafter referred to as "Disability"); and (C)
upon his Retirement (as defined below). Any question as to the
existence of the Disability of Executive as to which Executive and the
Company cannot agree shall be determined in writing by a qualified
independent physician mutually acceptable to Executive and the
Company. If Executive and the Company cannot agree as to a qualified
independent physician, each shall appoint such a physician and those
two physicians shall select a third who shall make such determination
in writing. For purposes of this Agreement, "Retirement" shall mean a
Participant's voluntary resignation any time after attaining age 65
(or at any earlier date with the permission of the Board).
(ii) Upon termination of Executive's employment hereunder
for death, Disability or Retirement, Executive or his estate (as the
case may be) shall be entitled to receive (A) any accrued but unpaid
Base Salary through the end of the month in which such termination
occurs, (B) a pro rata portion of any Additional Compensation that the
Executive would have been entitled to receive pursuant to Section 4
hereof in such year based upon the percentage of the calendar year
that shall have elapsed through the date of Executive's termination of
employment, payable when such Additional Compensation would have
otherwise been payable had the Executive's employment not terminated,
(C) the opportunity to exercise vested stock options and Executive's
stock options scheduled to vest during the year following such
termination (i) in the case of death or Disability, for one year
following such termination or (ii) in the case of Retirement, for four
years following such termination, (D) a pro rata portion of any long
term incentive granted to the Executive and (E) such compensation and
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Employee Benefits, if any, as to which he may be entitled under the
employee compensation and benefit plans and arrangements of the
Company, (F) any reimbursable business expenses incurred; and (G) any
accrued but unpaid Additional Compensation through the termination
date. Following such termination of Executives employment due to
death, Disability or Retirement, except as set forth in this Section
8(b), Executive shall have no further rights to any compensation or
any other benefits under this Agreement.
(c) By the Company without Cause or Resignation by Executive for
Good Reason.
(i) The Employment Term and Executive's employment hereunder
may be terminated by the Company without Cause or by Executive's
resignation for Good Reason.
(ii) For purposes of this Agreement, "Good Reason" shall
mean:
(A) assignment of duties to Executive inconsistent with his
status as Chief Financial Officer or otherwise inconsistent with
the terms of Section 2 of this Agreement;
(B) Executive's relocation by the Company beyond 75 miles of
his current place of residence;
(C) any material breach of the Agreement by the Company;
(D) failure of any successor to all or substantially all of
the business of the Company to assume the Agreement; or
(E) any situation where Executive is asked to take, certify
or sanction any course of action that, as a licensed Certified
Public Accountant, is prohibited from doing by virtue of his
profession's rules, regulations or code of ethics, as determined
by an opinion of competent counsel presented by Executive to the
Company and confirmed by the Company's counsel, and such action
or refusal to take such action in any way leads to his dismissal
by the Company or his resignation.
(iii) If Executive's employment is terminated by the Company
without Cause (other than by reason of death or Disability) or if
Executive resigns for Good Reason, Executive shall be entitled to
receive (A) any accrued but unpaid Base Salary through the date
of termination payable in accordance with the Company's standard
payroll policy, (B) unpaid Additional Compensation for the fiscal
year prior to termination payable when such Additional
Compensation would have been payable if Executive's employment
had not terminated, (C) a pro rata portion of any Additional
Compensation that the Executive would have
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been entitled to receive pursuant to Section 4 hereof in the year of
termination based upon the percentage of the fiscal year that shall
have elapsed through the date of Executive's termination of
employment, payable when such Additional Compensation would have
otherwise been payable had the Executive's employment not terminated,
(D) payment equal to the Severance in accordance with Section 9
hereof; (E) continued coverage under the Company's welfare benefit
plans available to senior executives for the lesser of (i) the time
Executive is not covered by a comparable welfare benefit plan or (ii)
a period of 24 months, (F) accelerated vesting of all equity awards
(including, but not limited to, Executive's stock options and the
Initial Compensation Shares) and the opportunity to exercise such
awards on or before the earlier of (i) one year following such
termination or (ii) the date of termination of such award and (G) such
vested compensation and Employee Benefits, if any, as to which
Executive may be entitled under the employee compensation and benefit
plans and arrangements of the Company, (H) any reimbursable business
expenses incurred through the termination date.
(iv) If the Executive resigns for Good Reason or is
terminated without cause within 12 months after a Change in
Control (as defined below), Executive shall be entitled to
receive, in addition to his entitlements in (iii) above, and (A)
within 30 business days after such termination, an additional
lump sum payment equal to the greater of the Severance payment in
accordance with Section 12 hereof or the balance of Executive's
base salary hereunder for the balance of the Employment Term had
this Agreement not been terminated and (B) continued coverage
under the Company welfare benefit plans available to senior
executives for an additional 12 month period and (C) the value of
full vesting of the Executive's account balance under the
Company's 401(k) plan.
(v) For purposes of this Agreement, "Change in Control"
shall mean:
(A) any Person (as defined in Section 3(a)(9) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")
who becomes the Beneficial Owner (as defined in Rule 13d-3 of the
Exchange Act) (except that a Person shall be deemed to be the
Beneficial Owner of all shares that any such Person has the right
to acquire pursuant to any agreement or arrangement or upon
exercise of conversion rights, warrants or options or otherwise,
without regard to the sixty day period referred to in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of
the Company or any Significant Subsidiary (as defined below),
representing 50% or more of the combined voting power of the
Company's or such Significant Subsidiary's then-outstanding
securities and is the largest shareholder of the Company;
(B) during any period of two consecutive years, individuals
who at the beginning of such period constitute the Board, and any
new
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director whose election by the Board or nomination for
election by the Company's stockholders was approved by a vote of
at least two-thirds of the directors then still in office who
either were directors at the beginning of the two-year period or
whose election or nomination for election was previously so
approved but excluding for this purpose any such new director
whose initial assumption of office occurs as a result of either
an actual or threatened election contest (as such terms are used
in Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act) or other actual or threatened solicitation of proxies or
consents by or on behalf of an individual, corporation, or
partnership, group, associate or other entity or Person other
than the Board (the "Continuing Directors"), cease for any reason
to constitute at least a majority of the Board;
(C) the consummation of a merger or consolidation of the
Company or any subsidiary owning directly or indirectly all or
substantially all of the consolidated assets of the Company (a
"Significant Subsidiary") with any other entity, other than a
merger or consolidation which would result in the voting
securities of the Company or a Significant Subsidiary outstanding
immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving or resulting entity) more than 50% of
the combined voting power of the surviving or resulting entity
outstanding immediately after such merger or consolidation;
(D) the Company disposes of all or substantially all of the
consolidated assets of the Company (other than such a sale or
disposition immediately after which such assets will be owned
directly or indirectly by the shareholders of the Company in
substantially the same proportions as their ownership of the
common stock of the Company immediately prior to such sale or
disposition) in which case the Board shall determine the
effective date of the Change in Control resulting there from; or
(vi) If the Company elects to terminate this Agreement by
not renewing this Agreement at the end of the Employment Term,
Executive shall be entitled to receive Severance equal to six (6)
months of his Base Salary if such nonrenewal occurs at the end of
the first two (2) years of Executive's employment by the Company
and if such renewal occurs after the end of the first 2 years of
employment, Executive shall be entitled to receive Severance
equal to the sum of (i) six (6) months of his Base Salary plus
(ii) one (1) additional month of Base Salary for each year of
service by Executive following such first 2 years, up to an
aggregate of twelve months, such Severance to be payable in
accordance with the Company's standard payroll policy.
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Executive shall be entitled to receive (A) any accrued but
unpaid Base Salary through the date of termination; (B) the
opportunity to exercise vested stock options for 90 days
following such termination; (C) such compensation and Employee
Benefits, if any, as to which Executive may be entitled under the
employee compensation and benefit plans of the Company and any
other long-term incentive or equity program pursuant to the terms
hereof through the date of termination; and (D) any reimbursable
business expenses incurred; and (E) any accrued but unpaid
Additional Compensation through the termination date; and (F) a
pro rata portion of any Additional Compensation that the
Executive would have been entitled to receive pursuant to Section
4 hereof in such year based upon the percentage of the fiscal
year that shall have elapsed through the date of Executive's
termination of employment, payable when such Additional
Compensation would have otherwise been payable had the
Executive's employment not terminated,.
(d) Notice of Termination. Any purported termination of
employment by the Company or by Executive (other than due to
Executive's death or in accordance with the provisions of Section 1
hereof) shall be communicated by written Notice of Termination to the
other party hereto in accordance with Section 12(i) hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of
employment under the provision so indicated.
9. Severance. Subject to the provisions of Section 8(c)(vi) of this
Agreement, Executive shall earn additional "Severance" compensation based on
Executive's base salary according to Executive's length of service with the
Company. Executive shall earn three months of Severance for up to six months of
service; six months of Severance during the seventh through the twelfth month of
service and one year of Severance for one year or more of service. All Severance
payments will be paid in accordance with the Company's regular payroll policy.
10. Confidentiality. Executive will not at any time (whether during or
after his employment with the Company), unless required by a court or
administrative agency, disclose or use for his own benefit or purposes or the
benefit or purposes of any other person, firm, partnership, joint venture,
association, corporation or other business organization, entity or enterprise
other than the Company and any of its subsidiaries or affiliates, any trade
secrets, information, data, or other confidential information relating to
customers, development programs, costs, marketing, trading, investment, sales
activities, promotion, credit and financial data, manufacturing processes,
financing methods, plans, or the business and affairs of the Company generally,
or of any subsidiary or affiliate of the Company, provided that the foregoing
shall not apply to information which is not unique to the Company or which is
generally known to the industry or the public other than as a result of
Executive's breach of this covenant.
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Executive shall not disclose the existence or terms of this Agreement to
any person except the CEO or the Board of Directors of the Company and to its
auditors and counsel and to Executive's own personal financial advisor,
accountant and counsel unless otherwise required by applicable law.
11. Noncompetition. During the term of Executive's employment with the
Company and for a period of two (2) years after he ceases to be employed by the
Company, Executive shall not engage directly or indirectly in competition with
the Company or its Affiliates (as such term is defined in Rule 501(b) of the
Securities Act of 1933, as amended) in the business of motorcycle leasing or
finance. Competition shall include, without limitation, any role as a sponsor,
consultant, employee, partner or stockholder which aids or abets any business to
compete or prepare for competition with the Company or its Affiliates in any
business in which any of them is engaged or planning to engage. Executive
further acknowledges that competitive activities in violation of this Section
could cause irreparable injury to the Company and that such injury would be
difficult or impossible to measure. Accordingly, the Company shall be entitled
to an injunction and other equitable remedies for any violation without limiting
the Company's rights to pursue monetary or other damages or remedies.
12. Miscellaneous.
(a) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York,
without regard to conflicts of laws principles thereof.
(b) Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be resolved by binding
arbitration held in New York and conducted in accordance with the
commercial arbitration rules of the American Arbitration Association
("AAA") in effect at the time of the arbitration before a single
arbitrator appointed by the President of the AAA; provided that such
arbitrator shall be an expert in the field of finance and shall not
have had any previous dealings or relationships with either party. The
Company shall reimburse Executive's legal fees of one counsel and
costs incurred to enforce his rights under this Agreement if Executive
substantially prevails in any dispute or controversy.
(c) Entire Agreement. This Agreement contains the entire
understanding of the parties with respect to the employment of
Executive by the Company. There are no restrictions, agreements,
promises, warranties, covenants or undertakings between the parties
with respect to the subject matter herein other than those expressly
set forth herein. This Agreement may not be altered, modified, or
amended except by written instrument signed by the parties hereto.
(d) No Waiver. The failure of a party to insist upon strict
adherence to any term of this Agreement on any occasion shall not be
considered a waiver of such party's rights or deprive such party of
the right thereafter to insist upon strict adherence to that term or
any other term of this Agreement.
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(e) Severability. In the event that any one or more of the
provisions of this Agreement shall be or become invalid, illegal or
unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions of this Agreement shall not
be affected thereby.
(f) Assignment. This Agreement shall not be assignable by
Executive. This Agreement may be assigned by the Company to a company
which is a successor in interest to substantially all of the business
operations of the Company. Such assignment shall become effective when
the Company notifies the Executive of such assignment or at such later
date as may be specified in such notice. Upon such assignment, the
rights and obligations of the Company hereunder shall become the
rights and obligations of such successor company, provided that any
assignee expressly assumes the obligations, rights and privileges of
this Agreement.
(g) Mitigation. Executive shall not be required to mitigate
damages or the amount of any payment to Executive provided for under
this Agreement by seeking other employment or otherwise, nor, except
as otherwise provided herein, shall the amount of any payment provided
for under this Agreement be reduced by any compensation earned by
Executive as a result of employment after termination.
(h) Successors; Binding Agreement. This Agreement shall inure to
the benefit of and be binding upon personal or legal representatives,
executors, administrators, successors, heirs, distributes, devises and
legatees.
(i) Notice. For the purpose of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing
and shall be deemed to have been duly given when delivered by
facsimile or United States registered mail, return receipt requested,
postage prepaid, or by recognized overnight courier service addressed
to the respective addresses set forth on the execution page of this
Agreement or such other address as either party may have furnished to
the other in writing in accordance herewith, except that notice of
change of address shall be effective only upon receipt.
If delivery is by facsimile:
If to the Company, at 000 000-0000
If to Executive, at 000-000-0000.
(j) Counterparts. This Agreement may be signed in counterparts,
each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
(l) Survival. The provisions of Section 10, 11, 12(b) and 12(g)
shall survive the expiration or termination of this Agreement
regardless of the reason or reasons therefor.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
/s/ Xxxxx Xxxxxxxx
----------------------
Xxxxx Xxxxxxxx
SPARTA COMMERCIAL SERVICES,
INC.
By: /s/ Xxxxxxx X. Xxxxxx
-------------------------
Name: Xxxxxxx X. Xxxxxx
Title: Chief Executive Officer