HAPPY KIDS INC.
CHANGE IN CONTROL SEVERANCE PAY AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE PAY AGREEMENT (the "Agreement") is made
as of the 12th day of January, 1999, by and between Happy Kids Inc., a New York
corporation (the "Company"), and Xxxxxx Xxxxxx, an employee of the Company (the
"Employee").
Recitals:
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1. The Company is a designer and marketer of custom-designed, licensed and
branded children's apparel and produces high quality, coordinated apparel
programs. The Employee is currently employed by the Company as the Chief
Financial Officer.
2. The Company and the Employee desire to provide for the payment, in certain
instances, of severance pay to the Employee in the event of the
termination of Employee's employment following a change of control of the
Company, on the terms and conditions set forth in this Agreement:
Agreement:
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In consideration of the premises and the mutual covenants and conditions
set forth herein, the Company and the Employee agree as follows:
Section 1. Operation of Agreement. This Agreement shall be effective
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immediately upon its execution, but the provisions hereof shall not be operative
unless and until a "Change in Control" (as such term is defined in Section 2
hereof) has occurred. The provisions of this Agreement shall not be operative
and shall not apply to any termination of employment, for any reason, which
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occurs before the period beginning three months and one day prior to a Change in
Control or which occurs after the period beginning one year and one day after a
Change in Control.
Section 2. Change in Control. The term "Change in Control" as used in this
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Agreement shall mean the first to occur of any of the following:
(a) The effective date or date of consummation of any transaction or
series of transactions (other than a transaction to which only the Company
and one or more of its subsidiaries are parties) pursuant to which the
Company:
(i) becomes a subsidiary of another corporation; (ii) is merged or
consolidated with or into another corporation; (iii) engages in an
exchange of shares with another corporation; or (iv) transfers, sells
or otherwise disposes of all or substantially all of its assets to a
single purchaser (other than the Employee) or a group of purchasers
(none of whom is the Employee);
provided, however, that this Subsection (a) shall not be applicable to a
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transaction or series of transactions in which a majority of the capital
stock of the other corporation, following such transaction or series of
transactions, is owned or controlled by the holders of a majority of the
Company's outstanding capital stock immediately before such sale, transfer
or disposition; or
(b) The date upon which any person (other than the Employee), group of
associated persons acting in concert (none of whom is the Employee) or
corporation becomes a direct or indirect beneficial owner of shares of
stock of the Company representing an aggregate of more than fifty percent
(50%) of the votes then entitled to be cast at an election of directors of
the Company; and provided, however, that the acquisition of shares in a
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bona fide public offering or private placement of securities by an
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investor who is acquiring such shares for passive investment purposes only
shall not constitute a "Change in Control;" or
(c) The date upon which the persons who were members of the Board of
Directors of the Company as of the date hereof (the "Current Directors")
cease to constitute a majority of the Board of Directors; provided,
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however, that any new director whose nomination or selection has been
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approved by the affirmative vote of at least three (3) of the Current
Directors then in office shall also be deemed a Current Director.
Section 3. Severance Pay Upon Termination by Company Without Cause or By
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Employee for Cause. If, during the three-month period immediately preceding a
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Change in Control or during the one-year period immediately following a Change
in Control, the Employee's employment with the Company is terminated:
(a) By the Company for no reason or for any reason other than:
(i) death; (ii) disability (in the event that the Employee shall be
unable to perform Employee's duties for a period of ninety (90)
consecutive calendar days by reason of disability as a result of
illness, accident or other physical or mental incapacity or
disability); or (iii) the dishonest or willful misconduct of the
Employee, including but not limited to: misappropriating any funds or
property of the Company; attempting to willfully obtain any personal
profit from any transaction in which the Employee has an interest
which is adverse to the interests of the Company; any act or omission
which substantially impairs the Company's ability to conduct its
ordinary business in its usual manner; unreasonable neglect or refusal
to perform the duties assigned to the Employee; conviction of a
felony; or any other act or omission which subjects the Company or any
of its subsidiaries to substantial public disrespect, scandal or
ridicule; or
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(b) By the Employee as a result of, or within thirty (30) days of the
following:
(i) a reduction in Employee's rate of regular compensation from the
Company to an amount below the rate of Employee's regular compensation
as in effect immediately prior to Employee's termination or
immediately prior to the Change in Control, as applicable; (ii) a
requirement that the Employee relocate to a location more than
thirty-five (35) miles from the Employee's office location with the
Company immediately prior to Employee's termination or immediately
prior to the Change in Control, as applicable; or (iii) a change in
duties or job responsibilities from those in effect immediately prior
to Employee's termination or immediately prior to the Change in
Control, as applicable, which change results in the diminution of the
Employee's status, authority and duties, except for such subordination
in duties or job responsibilities as may normally be required due to
the Company's change from an independent business entity to being a
subsidiary or division of another corporate entity;
then, in the event such termination occurred during the three-month period
immediately preceding such Change in Control, the Company shall pay the
Severance Amount (hereinafter defined) within thirty (30) days of the occurrence
of the Change in Control, or, in the event such termination occurred during the
one-year period following the occurrence of the Change in Control, the Company
shall pay the Employee, within thirty (30) days after the effective date of
Employee's termination, the Severance Amount. For purposes of this Agreement,
Severance Amount shall mean an amount equal to three (3) times the sum of the
rate of Employee's annual regular compensation as in effect immediately prior to
Employee's termination or immediately prior to the Change in Control, as
applicable, plus an amount equal to the bonus, if any, paid to the Employee in
the year prior to such termination or Change in Control. The Company may
withhold from any such severance compensation any federal, state, city, county
or other taxes. If the Severance Amount is due to the Employee hereunder and the
termination occurred during the three-month period immediately preceding the
Change in Control, then the Company shall also be obligated to reimburse the
Employee, upon receipt of appropriate receipts for such payments, for actual
amounts which are otherwise unreimbursable or unfunded by any other employer and
which were or are expended by the Employee to obtain, for a maximum of six
months from the date of termination, comparable insurance benefits as are
customarily provided to employees of the Company. If the Severance Amount is due
to the Employee hereunder and the termination occurred during the one-year
period immediately following the Change in Control, then the Company shall also
be obligated to provide the Employee with insurance benefits for six months
following termination of Employee's employment; provided, however, that if the
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Employer begins employment with an employer other than the Company during such
six months, then such benefits shall cease to be owed or owing on the date the
Employee begins such employment with such other employer; and provided further,
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that in the event that the Employee's continued participation in any such plans
for such period is not possible under the general terms and provisions thereof,
the Company shall pay to the Employee benefits which are substantially similar
in content and value to those which the
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Employee was entitled under such plans or programs for such period.
Except as set forth in Section 5 hereto, with respect to options held by
the Employee, if any, if the Severance Amount is paid pursuant to this Section
3, such payment shall constitute the entire obligation of the Company to the
Employee and full settlement of any claim under law or equity that the Employee
might otherwise assert against the Company, or any of its employees, officers or
directors on account of the Employee's termination.
Section 4. No Severance Pay Upon Any Other Termination. Upon any
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termination of the Employee's employment with the Company other than as set
forth in Section 3 hereto, and except as set forth in Section 5 hereto, with
respect to options held by the Employee, if any, the sole obligation hereunder
of the Company shall be to pay Employee's regular compensation up to the
effective date of termination. In such event, however, the severance pay
provisions hereunder will not impact in any way the rights of the Employee or
the obligations of the Company under any employment agreement or any other
agreement for the payment of employment compensation between the Employee and
the Company, whether such agreement(s) are in existence now or come into
existence hereafter.
Section 5. Entire Obligation. Payment to the Employee pursuant to either
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of Section 3 or 4 of this Agreement (provided that if payment is made pursuant
to Section 4 hereof, the Company has met its obligations under any employment
agreement or any other agreement for the payment of employment compensation
between the Employee and the Company) shall constitute the entire obligation,
pursuant to each such respective Section, of the Company to the Employee and
full settlement of any claim under law or equity that the Employee might
otherwise assert against the Company, or any of its employees, officers or
directors on account of the Employee's termination; provided, however, that in
the event the Employee shall have options outstanding as of the date of
Employee's termination, such options shall continue to be governed by the terms
thereof, regardless of whether the Employee receives compensation pursuant to
Section 3 or 4 hereof.
Section 6. No Obligation To Continue Employment. This Agreement does not
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create any obligation on the part of the Company to continue to employ the
Employee following a Change in Control or in the absence of a Change in Control.
Section 7. Term of Agreement. This Agreement shall terminate and no longer
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be in effect on the earlier of: (i) December 31, 2008; (ii) the date upon which
the Employee ceases to be an employee of the Company, unless a Change in Control
occurs within three months after such termination date; or (iii) if a Change in
Control occurs while the Employee is employed by the Company, until the date one
year following the Change in Control.
Section 8. Severability. Should any clause, portion or section of this
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Agreement be unenforceable or invalid for any reason, such unenforceability or
invalidity shall not affect the enforceability or validity of the remainder of
the Agreement.
Section 9. Assignment: Successors in Interest. This Agreement, being
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personal to the Employee, may not be assigned by the Employee. The terms and
conditions of this Agreement
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shall inure to the benefit of and be binding upon the successors and assigns of
the Company, and the heirs, executors and personal representatives of the
Employee.
Section 10. Waiver. Failure to insist upon strict compliance with any of
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the terms, covenants or conditions of this Agreement shall not be deemed a
waiver of such term, covenant or condition, nor shall any waiver or
relinquishment of any right or power hereunder at any one or more times be
deemed a waiver or relinquishment of such right or power at any other time or
times.
Section 11. Governing Law. This Agreement shall be governed by and
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construed in accordance with the laws of the State of New York applicable in the
case of agreements made and to be performed entirely within such State.
Section 12. Arbitration. Any controversy or claim arising out of or in
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connection with this Agreement shall be settled by arbitration in accordance
with the rules of the American Arbitration Association then in effect in the
State of New York and judgment upon such award rendered by the arbitrator may be
entered in any court having jurisdiction thereof. The arbitration shall be held
in the State of New York. The arbitration award shall include attorneys' fees
and costs to the prevailing party.
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IN WITNESS WHEREOF, this Agreement has been executed by the undersigned as
of the date first above written.
HAPPY KIDS INC.
By: /s/ Xxxx Xxxxx
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Xxxx Xxxxx,
President and Chief Executive Officer
THE EMPLOYEE
/s/ Xxxxxx Xxxxxx
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Xxxxxx Xxxxxx
