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EXHIBIT 10.16
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made and
entered into as of the 18th day of July, 1996, by and between Mac Frugal's
Bargains o Close-outs Inc., a Delaware corporation (the "Company"), and Xxxx X.
Xxxxxxxx ("Executive").
WHEREAS, the Company desires to employ Executive as its Senior
Vice President, Chief Financial Officer on the terms and conditions set forth
herein and Executive desires to accept such employment with the Company;
NOW, THEREFORE, in consideration of the foregoing premises,
the terms and conditions set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
1. Employment and Duties. The Company hereby engages
Executive in the capacity of Senior Vice President, Chief Financial Officer.
Executive shall perform such duties and functions as shall be specified from
time to time by the Company's President and Chief Executive Officer. Executive
hereby accepts such employment and agrees to perform such duties. During the
term of this Agreement, Executive shall not be required without his consent to
undertake responsibilities not commensurate with his position as the Company's
Senior Vice President, Chief Financial Officer.
2. Compensation.
(a) Base Salary. For all services to be rendered
by Executive hereunder, Executive shall be paid a base salary at the rate of
two hundred twenty five thousand dollars ($225,000) per year. Executive's base
compensation shall be reviewed at least annually and may be increased at the
discretion of the Board of Directors of the Company (the "Board"), but during
the term of this Agreement may not be decreased below the then-effective base
salary. Executive's salary shall be paid on such basis as is the normal
payment pattern for executive officers of the Company. The base salary payable
under this Section 2(a) shall be in addition to and exclusive of any payments
to Executive from time to time under formal or informal bonus, incentive
compensation or similar plans now in effect or
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which hereafter may be adopted.
(b) Performance Bonus. With respect to each full
fiscal year of the Company during which Executive is employed by the Company
pursuant to this Agreement throughout (each, a "Bonus Year"), Executive shall
be entitled to participate in a performance bonus plan approved annually for
executive officers of the Company by the Compensation Committee of the Board.
The calculation and payment to Executive of a performance bonus contemplated by
this Section 2(b), if any, shall be made as soon as practicable in the fiscal
year of the Company immediately succeeding such Bonus Year, following
preparation of the Company's annual audited financial statements for such Bonus
Year. For the fiscal year of 1996, the Executive will be given a full year's
bonus, if a bonus is paid, which will not be pro-rated based on Executive not
being employed for a full year in 1996.
3. Payment in Event of Termination. In the event of the
termination of Executive's employment hereunder pursuant to Section 8(d) during
the first six months of this Agreement, the Company shall continue to make the
payments provided for in Section 2(a) at the rate then being paid to Executive
and shall provide Executive with COBRA medical and dental insurance benefits for
one hundred eighty (180) days. After the first six months, the Company shall
make payments for three hundred sixty-five (365) days from the date of such
termination. Executive shall not be required or obligated to obtain other
employment to mitigate the payments due hereunder. Executive may, at his sole
option, terminate this Agreement and receive the payments provided for in this
Section 3 following the occurrence of either of the following events (a "Company
Breach"): (a) Executive's authority to function as a Senior Vice President shall
be removed or limited in any material
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respect, unless such removal or limitation was a result of one or more events
that would permit the termination of Executive's employment For Cause (as
defined in Section 8(c)), or (b) the Company shall have breached in any material
respect any of its covenants and agreements in this Agreement, or (c) the
Executive is forced to relocate due to a move or consolidation of the corporate
headquarters. Notwithstanding the foregoing, Executive shall not be entitled to
terminate this Agreement unless Executive provides written notice to the Company
specifying in reasonable detail the nature of the Company Breach, and the
Company shall have failed to cure such Company Breach within 45 days thereafter.
4. Options. Executive shall be entitled to participate
in any performance stock option plan approved annually for other executive
officers of the Company by the Compensation Committee of the Board. To the
maximum extent permitted by the Internal Revenue Code of 1986, as amended (the
"IRC"), including the rules and regulations thereunder, all such options shall
be incentive stock options, and the remainder of such options shall be
non-qualified stock options.
5. Benefits.
(a) Executive shall be entitled to such fringe
benefits and perquisites as are generally made available to executive officers
of the Company, and such other fringe benefits as may be approved by the Board
for executive officers of the Company during the term hereof including, without
limitation, medical, dental and disability insurance, group term life insurance
in face amount of the base salary payable pursuant to Section 2(a) and annual
vacation time of three weeks.
(b) During the term of Executive's employment,
the Company shall furnish Executive with a motor vehicle of his choice to use
for business purposes in accordance with the Company's policies in effect from
time to time.
(c) Nothing contained herein is intended or shall
be deemed to be granted to Executive in lieu of any rights or privileges to
which Executive may be entitled as an employee of the Company under any
medical, dental, disability, life insurance, retirement, stock option, stock
bonus or purchase, incentive compensation or other plan of the Company which
may now be in effect or which may hereafter be adopted, it being understood
that Executive shall have the same rights and
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privileges to participate in such plans as any other executive officers of the
Company.
6. Reimbursement of Expenses. The Company shall
reimburse Executive for all reasonable business expenses incurred by Executive
in connection with the performance of his duties hereunder, provided that
Executive furnishes to the Company receipts and other documentation reasonably
acceptable to the Company evidencing such expenditures.
7. Performance of Duties.
(a) In consideration of the payments to be made
hereunder, Executive agrees to devote his entire business time and attention to
the performance of his duties hereunder, to serve the Company diligently and to
the best of his abilities and not to compete with the Company or any of its
Affiliates (as defined below) in any manner whatsoever. Without limiting the
generality of the foregoing, Executive shall not, during the term of his
employment by the Company, directly or indirectly (whether for compensation or
otherwise), alone or as an agent, principal, partner, officer, employee,
trustee, director, shareholder or in any other capacity, own, manage, operate,
join, control or participate in the ownership, management, operation or control
of or furnish any capital to or be connected in any manner with or provide any
services as a consultant for any business which competes directly or indirectly
with any of the businesses of the Company or any of its Affiliates (as defined
below) as they may be conducted from time to time; provided, however, that
notwithstanding the foregoing, nothing contained in this Agreement shall be
deemed to preclude Executive from owning not more than one percent of the
publicly-traded capital stock of an entity which is in competition with any of
such businesses. Affiliate of the Company means any person, association or
entity: (a) that, in whole or in part, owns or is owned by, or otherwise has a
material interest (whether debt, equity or otherwise) in, the Company; (b) that
controls or is controlled by the Company; (c) that is a subsidiary (whether
owned in whole or in part) of the Company; or (d) to which the Company is a
"related tax payer" as defined in Section 1313(c) of the IRC.
(b) Executive may continue his civic, educational and
charitable activities and serve on boards of directors of other companies, if
consistent with this Section 7 and if otherwise approved by the Board.
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8. Term and Termination.
(a) The term of Executive's employment with the
Company hereunder shall commence on the date hereof and shall continue until
Executive resigns or is terminated under this Section 8 or under Section 9 of
this Agreement.
(b) In the event of Executive's death or in the
event of Executive's total disability for any consecutive six-month period
during the term of this Agreement, the Company may at its sole option
thereafter (unless Executive, in the case of disability, shall have resumed his
duties in full prior to such termination) terminate this Agreement, and in such
event the sole right hereunder of Executive, Executive's widower or Executive's
legal representative, as the case may be, shall be to: (i) receive the base
salary due Executive through the last day of the twelfth full calendar month
following the month in which his death or disability shall have occurred; (ii)
have any and all previously accruing bonuses or options or other rights vest in
Executive or in his estate immediately (unless Executive or his estate shall
elect to the contrary); and (iii) in the event of termination by reason of
disability, have the Company continue to maintain in effect at its sole
expense, COBRA medical and dental for three hundred sixty-five (365) days
following the date of any such termination.
(c) The Company, upon 30 days prior written
notice to Executive, may terminate this Agreement For Cause (as defined
herein). For the purposes of this Agreement, the term "For Cause" shall mean:
(i) Executive's breach of the covenants contained in Sections 7, 11 or 13(a)
hereof; (ii) Executive's conviction by, or entry of a plea of guilty or nolo
contendere in, a court of competent jurisdiction for any crime involving moral
turpitude or any felony punishable by imprisonment in the jurisdiction
involved; or (iii) Executive's commission of any act of fraud or dishonesty in
connection with, or related to, his duties hereunder. Upon termination of
Executive For Cause, this Agreement shall immediately terminate, and Executive
shall not be entitled to any further rights or payments hereunder (other than
payment under Section 2(a) for services rendered prior to the date of such
termination). Without limiting the generality of the foregoing, Executive
shall have no right on or after the date of such termination to any of the
benefits set forth in Section 5 hereof (other than payment for accrued
vacation), any payment of base salary pursuant to Section 2(a), any payment of
performance
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bonus pursuant to Section 2(b) for the Bonus Year in which such termination
occurs or any other benefit or payment of any kind whatsoever.
(d) Subject to the payment of amounts, if any,
required by Sections 2(b) and 3, the Company shall be entitled to terminate
Executive's employment without cause at any time upon thirty days written
notice.
9. Change in Control. If a Change in Control (as
defined below) of the Company occurs during the term of this Agreement, the
provisions of this Section 9 shall become operative. For the purposes of this
Agreement, a Change in Control of the Company shall be deemed to have occurred
if any "person" (as defined in Section 13(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act) directly or indirectly of
securities of the Company representing more than 35% of the combined voting
power of the Company's then outstanding securities, as a result of purchases
which are not expressly approved by the Board. For purposes of this Section 9,
the Board expressly approving the 35% or more voting power ownership must
consist of individuals who for the previous consecutive twenty-four (24) month
period, constituted at least a majority of the Board.
For a period of two months after a Change in Control of the
Company, Executive shall have the right to terminate his employment with the
Company pursuant to this Section 9, and the Company shall pay Executive the
following amounts no later than the 15th business day after the date of
termination of Executive's employment:
(i) A lump sum severance payment equal to 2
multiplied by the sum of (A) Executive's base annual salary at the highest rate
in effect during the fiscal year of the Company immediately preceding the date
Executive's employment terminates, and (B) the greater of the amount of any
incentive, bonus or other cash compensation that was paid to Executive during
either (x) the 12 months immediately preceding the date Executive's employment
terminates and (y) the 12 months immediately preceding the Change in Control;
and
(ii) A cash payment equal to the amount by which the
greater of (A) the closing price of the Company's Common
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Stock on the day before the date Executive's employment terminates or (B) the
highest price per share actually paid in connection with the Change in Control
of the Company, exceeds the per share exercise price of each then vested and
exercisable stock option held by Executive on the day before the date
Executive's employment terminates, multiplied by the number of shares covered
by each such option. In exchange for such payment, Executive will surrender
all such options to the Company without exercising them.
10. Deductibility of Payments to Executive. Notwithstanding
anything else to the contrary in this Agreement, in the event that the payments
to Executive under this Agreement, either alone or together with other payments
Executive has a right to receive from the Company, would be non-deductible (in
whole or in part) by the Company for Federal income tax purposes because of
Section 280G of the IRC, then the aggregate present value of amounts payable to
Executive pursuant to this agreement shall be reduced (but not below zero) to
the "Reduced Amount." The Reduced Amount shall be an amount expressed in
present value which maximizes the aggregate present value of all payments to be
made to Executive under this Agreement without causing any payment to be
non-deductible by the Company because of Section 280G of the Code. For purposes
of this Section 10, present value shall be determined in accordance with Section
280G(d)(4) of the IRC. The determination of the Reduced Amount shall be made
exclusively by the Company's outside auditors and in consultation with outside
counsel to the Company (each of whose fees and expenses shall be borne by the
Company), and such determination shall be conclusive and binding on the Company
and Executive.
11. Confidentiality.
(a) The Company (which for purposes of this Section 11
shall mean the Company and its Affiliates (as defined in Section 7(a)) and
Executive recognize that during the course of Executive's employment with the
Company he will accumulate certain crucial proprietary and confidential
information and trade secrets for use in the Company's business and will have
divulged to him certain crucial confidential and proprietary information and
trade secrets about the business, operations and prospects of the Company,
including, without limitation, confidential and proprietary information
regarding suppliers and employees of the Company, which constitute valuable
business assets providing the Company the opportunity to obtain an
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advantage over competitors who do not know or use such information or have
access to it without the investment of considerable resources. Executive
hereby acknowledges and agrees that such information (the "Proprietary
Information") is confidential and proprietary and a trade secret and that such
information shall include, without limitation:
(i) the identity and location of customers and
domestic and foreign suppliers of quality low-cost close-out merchandise that
can profitably be resold, and their buying and selling histories and
creditworthiness; information regarding the quantity, quality, frequency,
pricing and marketability of their supply offerings; and lists setting forth
the same;
(ii) processes, methods and techniques, including
but not limited to primary contact points in the Company's network; methods of
merchandising in the Company's stores; processes and methods of giving
directions and instructions to the Company's stores and its employees in
connection with merchandising moves; information, techniques, formulas and
judgments relating to the appropriate bidding, pricing and marketing of
close-out merchandise; and the price ranges and techniques by which such
merchandise can be profitably resold at substantial reductions from normal
retail rates; and designs, styles and methods of packaging and distributing
close-out merchandise distinctive to the Company;
(iii) records of research, including but not
limited to demographic studies conducted by the Company and its agents which
contribute to the Company's ability to locate retail store sites;
(iv) proposals and projections, including but not
limited to long-range plans for the Company's growth, expansion, development
and continued fostering of its relationships with its employees, suppliers and
customers; and
(v) files, reports, memoranda, computer software
or programming and budgets or other financial plans or information regarding
the Company and its business, properties or affairs.
(b) Executive agrees that he shall not, at any
time subsequent to the execution of this Agreement, whether during or after the
term hereof, disclose, divulge or make known,
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directly or indirectly, to any person, or otherwise use or exploit, any
Proprietary Information obtained by Executive at any time prior to or
subsequent to the execution of this Agreement, except to the extent required by
his performance of his duties hereunder for the Company. Executive agrees to
disclose to the Company the identity and nature of any contacts with any person
or entity soliciting from Executive disclosure of any Propriety Information or
soliciting Executive's involvement in any business venture competitive with the
Company. Executive shall not conceal from or fail to disclose to the Company,
or divert or exploit for his own personal profit or that of others, any
business opportunity or other opportunity to acquire an interest in or a
contractual relationship with any person or entity where such person or entity
is in the Company's line of business or where such contractual relationship
involves the acquisition of real estate and which would be considered a
feasible and advantageous opportunity or acquisition for the Company. Upon
termination of this Agreement, Executive will deliver to the Company all
tangible displays and repositories of customer and supplier lists, files,
records of research, proposals, reports, memoranda, business methods and
techniques, computer software and programming, budgets and other financial
plans and information and other materials or records or writings of any other
type (including all copies thereof) made, used or obtained by, or provided to,
Executive, containing any Proprietary Information, whether obtained prior to or
subsequent to the execution of this Agreement.
12. Non-Solicitation of Employees.
(a) Executive hereby agrees that for the two-year period
following the date of termination of this Agreement he will not (i) authorize
his name to be used by any person, partnership, corporation or other business
entity, or (ii) engage in or carry on, directly or indirectly, whether as
advisor, principal, agent, partner, officer, director, employee, stockholder,
associate or consultant of any person, partnership, corporation or other
business entity which is in competition with the bargain close-out business
(i.e. "Consolidated Stores", "99c Stores", "All for $1.00", "Building 19", and
"Dollar General") carried on by the Company or any of its Affiliates in Los
Angeles, Orange, Riverside, San Bernardino, Ventura, Santa Xxxxxxx or San Diego
Counties in the State of California, or any other county in California where
business is then carried on or conducted by the Company or any of its
Affiliates, or in the States of Alabama, Arizona, Colorado, Florida, Georgia,
Idaho, Illinois, Indiana, Louisiana, Missouri,
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Nevada, New Mexico, Tennessee, Texas, Utah or any other State in which business
is then carried on or conducted by the Company or its Affiliates. Stores not
considered a competitor are discount chains (Wal-Mart, KMart, Target) and
off-price retailers (i.e. "Mervyn's", "TJ Maxx", "Staples", "Comp USA",
"Circuit City").
(b) Executive further agrees that during the
period from the date of this Agreement until two years after the termination of
this Agreement he shall not contact or recruit any employee of the Company or
any of its Affiliates without advising the Company of such contact and he shall
not participate in any endeavor or activity which would disrupt the Company's
or any of its Affiliate's good business relationships with its employees.
13. Miscellaneous.
(a) Executive represents and warrants to the Company that
he is not now under any obligation of a contractual or other nature to any
person, firm or corporation which is inconsistent or in conflict with this
Agreement, or which would prevent, limit or impair in any way the performance by
him of his obligations hereunder.
(b) The waiver by either party of a breach of any provision
of this Agreement must be in writing and shall not operate or be construed as a
waiver of any subsequent breach thereof.
(c) This Agreement constitutes the entire Agreement of
Executive and the Company and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations between the
parties with respect to the subject matter hereof.
(d) Any and all notices referred to herein shall be
sufficiently furnished if in writing, and sent by registered or certified mail,
postage prepaid, or by facsimile transmission (but only if confirmation of
receipt is subsequently received by the sender either orally or in writing), or
by overnight courier (if such overnight courier guarantees next day delivery and
such notice is sent for delivery on a day on which such courier guarantees such
overnight delivery), to the respective parties at
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the following addresses or such other address as either party may from time to
time designate in writing in the manner set forth in this Section 13(d):
The Company:
Mac Frugal's Bargains o Close-outs Inc.
0000 X. Xxx Xxx Xxxxxxxxx
Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: Board of Directors
and Chief Executive Officer
Telephone Number: (000) 000-0000
Executive:
Xxxx X. Xxxxxxxx
00000 Xxxxxx Xxxxx
Xxxxxx Xxxxx Xxxxxx, Xxxxxxxxxx 00000
(e) If any portion or provision of this Agreement shall be
invalid or unenforceable for any reason, there shall be deemed to be made such
minor changes (and only such minor changes) in such provision or portion as are
necessary to make it valid and enforceable. The invalidity or unenforceability
of any provision or portion of this Agreement shall not affect the validity or
enforceability of any other provisions or portions of this Agreement. If any
such unenforceable or invalid provision or provisions shall be rendered
enforceable and valid by changes in applicable law, then such provision or
provisions shall be deemed to read as they presently do in this Agreement
without change.
(f) The rights and obligations of the parties hereto shall
inure to and be binding upon the parties hereto and their respective heirs,
successors and assigns.
(g) The waiver by either party of a breach of a provision
of this Agreement shall not operate or be construed as a waiver of a subsequent
breach hereof.
(h) This Agreement is intended to and shall be governed by,
and interpreted under and construed in accordance with, the laws of the State of
California, without reference to any conflict of laws or principles.
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(i) If any litigation, arbitration or any other proceedings
is instituted in connection with or related to this Agreement, the
non-prevailing party in such litigation, arbitration or other proceeding shall
pay the expenses, including, without limitation, the attorneys' fees and
expenses of investigation, of the prevailing party.
(j) Arbitration.
(i) Any controversy, claim or dispute between the
parties directly or indirectly concerning this Agreement or the breach hereof,
or the subject matter hereof (except in instances where only injunctive relief
is sought by the Company), shall be finally settled by arbitration held in Los
Angeles, California. The Company and Executive shall each select an arbitrator
from a panel of seven (7) arbitrators (the "Arbitration Pool") obtained by the
Company from the Federal Mediation and Conciliation Service within thirty (30)
days of receiving written notice from either party demanding any such
proceeding. Such two chosen arbitrators shall agree on a third arbitrator from
the Arbitration Pool within fifteen days thereafter. In the event an agreement
has not been reached on the third arbitrator by the end of such fifteen-day
period, the third arbitrator shall be chosen by the American Arbitration
Association. The arbitration shall be held and a final decision reached within
30 days thereafter. The decision of a majority of the three chosen arbitrators
shall be final and conclusive on the parties, and there shall be no appeal
therefrom. A decision of the arbitrators may be enforced by the prevailing
party in a court of competent jurisdiction. All other issues in connection with
such arbitration shall be in accordance with the Rules of the American
Arbitration Association.
(ii) The parties hereto agree that an action to compel
arbitration pursuant to this Agreement may be brought in any appropriate court
and in connection therewith the laws of the State of California shall control.
Application may also be made to such court for confirmation of any decision or
award of the arbitrators but only if necessary to effectuate such decision or
award. The parties hereto hereby consent to the jurisdiction of the arbitrators
and of such court and waive any objection to the jurisdiction of such
arbitrators or court.
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(k) The Company and Executive expressly agree
that the provisions of Sections 11, 12 and 13 shall survive the termination of
this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
THE COMPANY: MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC.
By:_______________________________________
Xxxxxx X. Xxxxxx
President and Chief Executive Officer
EXECUTIVE:
_______________________________________
Xxxx X. Xxxxxxxx
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