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Exhibit 10.18
EMPLOYMENT AGREEMENT
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THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
effective May 5, 1999 (the "Effective Date"), by and between Earlychildhood.com
LLC, a California limited liability company (hereinafter referred to as, the
"Company"), and Ronald Elliott (hereinafter referred to as, "Employee").
1. TERM OF AGREEMENT
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Except as may otherwise be provided herein, the term of this Agreement
shall commence on the Effective Date and terminate on the third (3rd)
anniversary of the Effective Date (such date, giving effect to any extensions
thereof, the "Expiration Date"), unless sooner terminated as hereinafter
provided (such period of employment, the "Employment Period"). Notwithstanding
the foregoing, on May 5, 2002 and on each annual anniversary thereof, the
Expiration Date shall be extended for twelve (12) additional full calendar
months, unless, prior to March 1st of each such year, the Company shall deliver
to Employee or Employee shall deliver to the Company, written notice that the
term of employment hereunder shall end on the then-existing Expiration Date
(including any and all previous extensions thereof), in which case this
Agreement shall not thereafter be further extended without the agreement of the
Company and Employee.
2. DUTIES AND PERFORMANCE
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(a) During the term of this Agreement, Employee shall be employed by
the Company on a full-time basis as its President and Chief Executive
Officer and shall have such authority and shall perform such duties
consistent with his position as may be reasonably assigned to him and shall
report to the Management Committee of the Company (the "Management
Committee") or any other person designated by the Management Committee.
The Management Committee shall retain full direction and control of the
means and methods by which Employee performs the above services. Employee
shall use all reasonable efforts to further the interests of the Company
and shall devote substantially all of his business time and attention to
his duties hereunder.
(b) Except with the prior written approval of the Management
Committee (which the Management Committee may grant or withhold in its sole
discretion), Employee, during the term of this Agreement or any renewal
thereof, will not (i) accept any other employment, (ii) serve on the board
of directors or similar body of any other business entity, (iii) engage,
directly or indirectly, in any other business activity (whether or not
pursued for pecuniary advantage) that is or may be competitive with, or
that might place him in a competing position to, that of the Company or any
of its Affiliates (as hereinafter defined) or (iv) engage in any venture
presented to him by virtue of his position with the Company wherein the
profits of such venture are not made available to the Company.
(c) Employee shall be entitled to be reimbursed in accordance with
the policies of the Company, as adopted and amended from time to time, for
all reasonable
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and necessary expenses incurred by him in connection with the performance
of his duties of employment hereunder; provided that Employee shall, as a
condition of such reimbursement, submit verification of the nature and
amount of such expenses in accordance with the reimbursement policies from
time to time adopted by the Company.
3. BASE SALARY AND OTHER COMPENSATION
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(a) Base Salary. The Company shall pay to Employee a base salary at
the rate of Two Hundred Fifty-Six Thousand Dollars ($256,000.00) per annum
(the "Base Salary") through the term of this Agreement as specified in
Section 1 hereof, payable every two (2) weeks as per the normal pay
practices of the Company (e.g., standard employee deductions such as income
tax withholdings, social security, etc.). The Base Salary shall be
reviewed in connection with Employee's annual performance review and may be
adjusted in the sole discretion of the Management Committee.
(b) Automobile Allowance. In addition to the Base Salary, as an
executive benefit, the Company shall provide Employee with an automobile
allowance of an amount up to Eight Hundred Dollars ($800.00) per month
payable in accordance with the Company's normal pay procedures.
(c) Bonus Compensation. In addition to the Base Salary, Employee
shall be eligible during the term of this Agreement, upon the terms and
subject to the conditions set forth herein, to receive a bonus for each
year in an amount to be determined in the sole discretion of the Management
Committee (the "Bonus"). Employee's Bonus each year shall be determined
and, if appropriate, awarded, based upon meeting certain performance
objectives which will be set by the mutual agreement of the Management
Committee and Employee. Such performance objectives each year shall be
fixed at the beginning of each calendar year (or another date agreed upon
by Employee and the Management Committee) and shall be subject to any
adjustments thereof from time to time as agreed upon by Employee and the
Management Committee.
4. BENEFITS
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Employee shall be entitled to participate, in any group medical and
hospitalization, profit sharing, retirement, life insurance or other employee
benefit plan maintained by the Company for its full time employees (collectively
referred to herein as, "Benefits"). Nothing herein, however, is intended or
shall be construed to require the Company to institute or continue all, or any
particular, plan or Benefits. Employee shall be entitled to six (6) weeks of
vacation per year and leave in accordance with the Company's policies in effect
from time to time.
5. TERMINATION OF AGREEMENT
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(a) Termination. Employee's employment hereunder shall or may be
terminated, as the case may be, under the following circumstances:
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(i) Cause. The Company may terminate Employee's employment
hereunder for "cause" by delivery of a written notice to Employee
concerning the same. "Cause" shall mean by reason of any of the
following: (A) a material breach by Employee of the provisions of
this Agreement; (B) Employee's conviction of, or plea of nolo
contendere to, any felony or to any crime causing substantial harm to
the Company or any of its Affiliates (whether or not for personal
gain) or involving acts of theft, fraud, embezzlement, moral turpitude
or similar conduct; (C) misuse or diversion of the Company's or any of
its Affiliate's funds, embezzlement, or fraudulent misrepresentations
or concealments on any written reports submitted by Employee to the
Company or any of its Affiliates; (D) misconduct, failure to perform
the duties of Employee's employment or his habitual neglect thereof;
or (E) failure to follow or comply with the lawful directives of the
Management Committee of the Company; provided, however, that in the
case of the foregoing clauses (A), (D) and (E), if any such breach,
misconduct or failure is capable of cure, as determined in the
Management Committee's reasonable discretion, "Cause" shall mean any
continuation of such breach, misconduct or failure after a period of
(x) in the case of the foregoing clauses (A) and (D), thirty (30)
calendar days, and (y) in the case of the foregoing clause (E), ten
(10) calendar days, in each case, from the date on which Employee
shall first have been informed, in writing, thereof.
(ii) Disability. Employee's employment hereunder shall terminate
if, because of a mental or physical disability or infirmity, Employee
is unable to perform the essential functions of his duties, with or
without reasonable accommodation, for a consecutive period of one
hundred twenty (120) days or a non-consecutive period of one hundred
twenty (120) days during any twelve (12) month period, or such other
greater period as may be required by applicable employment laws.
(iii) Death. Employee's employment hereunder shall terminate
upon the death of Employee.
(iv) Employment-At-Will; Termination For Any Reason.
Notwithstanding anything to the contrary contained herein, including
in Section 1 of this Agreement, Employee's employment with the Company
is not for any specified term and may be terminated by the Company at
any time, for any reason, with or without cause, and without liability
except with respect to the payments provided for by Section 5(b)
hereof. In particular, and not by way of limitation, Employee
understands and acknowledges and hereby agrees that the Company may
terminate Employee's employment by delivery from the Company to
Employee of written notice of such termination, without regard (A) to
any general or specific policies (whether written or oral) of the
Company relating to the employment or termination of its employees, or
(B) to any statements made to Employee, whether made orally or
contained in any document, pertaining to Employee's relationship with
the Company.
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(v) Voluntary Resignation. Employee may voluntarily resign his
position and terminate his employment with the Company at any time by
delivery of a written notice of resignation to the Company (the
"Notice of Resignation"). The Notice of Resignation shall set forth
the date such resignation shall become effective (the "Date of
Resignation"), which date shall, in any event, be no more than thirty
(30) days from the date the Notice of Resignation is delivered to the
Company; provided that the Company shall, in its discretion and by
sending written notice to Employee, be entitled to deem Employee's
resignation effective at any time within such thirty (30) day period,
and such date specified by the Company shall then become the Date of
Resignation. Notwithstanding any such action by the Company,
Employee's severance and his rights thereunder shall be set as if
Employee voluntarily resigned on the Date of Resignation.
(vi) Resignation For Good Reason. Employee may terminate his
employment pursuant to this Agreement "for good reason" by delivery of
a Notice of Resignation to the Company at least thirty (30) days prior
to the Date of Resignation. For purposes of this Agreement the phrase
"for good reason" and variations of it shall mean any of the
following: (A) the assignment of Employee without his consent to a
position, responsibilities or duties of a materially lesser status or
degree of responsibility than his position, responsibilities or duties
at the Effective Date; (B) the failure to pay Employee the Base Salary
at a rate or in an amount at least equal to the amount or rate paid to
him at the Effective Date; (C) any material diminution in Employee's
aggregate Benefits; or (D) the relocation of Employee's place of
business at least thirty (30) miles from Employee's business location
as of the Effective Date; or
(vii) Expiration Date. If not terminated sooner pursuant to any
of Sections 5(a)(i) through 5(a)(vi) above, then Employee's employment
hereunder shall terminate on the Expiration Date.
(b) Compensation Upon Termination. In the event of the termination
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of Employee's employment:
(i) Cause. If Employee's employment shall be terminated for
Cause pursuant to Section 5(a)(i) hereof, then the Company shall pay
Employee the Base Salary through the Date of Termination (as
hereinafter defined), together with reimbursable business expenses
actually and reasonably incurred by Employee prior to the Date of
Termination and accrued but unpaid vacation compensation up to an
aggregate maximum amount equal to six (6) weeks of the Base Salary
(such amount being referred to herein as, the "Accrued Vacation
Payment") (each of which shall be paid consistent with the policies of
the Company in effect at such time). Employee and his dependents
shall also be entitled to any continuation of coverage rights required
by COBRA (as hereinafter defined).
(ii) Death or Disability. If Employee's employment shall be
terminated pursuant to Section 5(a)(ii) or 5(a)(iii) hereof, then the
Company shall
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pay Employee or his estate, as applicable, (A) the Base Salary through
the Date of Termination, (B) a bonus in an amount equal to a pro rata
portion of Employee's Bonus for the immediately preceding year, and
(C) reimbursable business expenses actually and reasonably incurred by
Employee prior to the Date of Termination and the Accrued Vacation
Payment (each of which shall be paid consistent with the policies of
the Company in effect at such time). By way of illustration, if, in
the immediately preceding year, Employee had received (or, in the case
where his employment is terminated prior to the end of one year, had
been eligible to receive) a Bonus of Fifty Thousand Dollars ($50,000),
and Employee's Date of Termination pursuant to Section 5(a)(ii) or
5(a)(iii) above occurs on the two hundredth (200th) day of the year,
Employee would be entitled to receive a pro rata bonus equal to Fifty
Thousand Dollars ($50,000) multiplied by a fraction, the numerator of
which is two hundred (200) and the denominator of which is three
hundred sixty-five (365). Notwithstanding the foregoing, if Employee's
employment is terminated prior to the end of Employee's first year of
employment, the Company shall pay Employee or his estate, as
applicable, in lieu of the pro rata bonus referenced in clause (B)
above, within sixty (60) days after completion of the Company's then
current fiscal year, a pro rata portion of any Bonus Employee would
actually have received for such year pursuant to Section 3(b) above.
In addition, the Company shall keep in force existing Benefits
covering Employee and his dependents for a period of eighteen (18)
months from the Date of Termination on the basis in effect at the Date
of Termination, subject to the Company's right to amend, modify or
terminate any such plan; provided, however, that such amendment,
modification or termination applies generally to all of the Company's
employees. Employee and his dependents shall also be entitled to any
continuation of coverage rights required by COBRA.
(iii) Other Terminations by the Company or Resignation for Good
Reason. If the Company shall terminate Employee's employment without
cause pursuant to Section 5(a)(iv) hereof or Employee resigns for good
reason pursuant to Section 5(a)(vi) hereof, then the Company shall pay
Employee (A) the Base Salary payable semi-monthly and in accordance
with the Company's normal pay practices for a period equal to the
lesser of two (2) years after the Date of Termination or the remaining
term hereunder, (B) a bonus in an amount equal to a pro rata portion
of Employee's Bonus for the immediately preceding year, and (C)
reimbursable business expenses actually and reasonably incurred by
Employee prior to the Date of Termination and the Accrued Vacation
Payment (each of which shall be paid consistent with the policies of
the Company in effect at such time). (See illustration of Bonus
calculation in Section 5(b)(ii) above). Notwithstanding the
foregoing, if Employee's employment is terminated prior to the end of
Employee's first year of employment, the Company shall pay Employee or
his estate (as applicable) in lieu of the pro rata bonus referenced in
clause (B) above, within sixty (60) days after completion of the
Company's then current fiscal year, a pro rata portion of any Bonus
Employee would actually have received for such year pursuant to
Section 3(b) above. In addition, the Company
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shall keep in force existing Benefits covering Employee and his
dependents for a period of eighteen (18) months from the Date of
Termination on the basis in effect at the Date of Termination, subject
to the Company's right to amend, modify or terminate any such plan;
provided, however, that such amendment, modification or termination
applies generally to all of the Company's employees. Employee and his
dependents shall also be entitled to any continuation of coverage
rights required by COBRA.
(iv) Voluntary Resignation. If Employee terminates his
employment with the Company pursuant to Section 5(a)(v) hereof, then
the Company shall pay Employee the Base Salary through the Date of
Termination together with reimbursable business expenses actually and
reasonably incurred by Employee prior to the Date of Termination and
the Accrued Vacation Payment (each of which shall be paid consistent
with the policies of the Company in effect at such time). Employee
and his dependents shall also be entitled to any continuation of
coverage rights required by COBRA.
(v) Expiration Date. If Employee's employment terminates
pursuant to Section 5(a)(vii) hereof, then the Company shall pay
Employee (A) the Base Salary through the Date of Termination, (B) a
bonus in an amount equal to a pro rata portion of Employee's Bonus for
the immediately preceding year, and (C) reimbursable business expenses
actually and reasonably incurred by Employee prior to the Date of
Termination and the Accrued Vacation Payment (each of which shall be
paid consistent with the policies of the Company in effect at such
time). Employee and his dependents shall also be entitled to any
continuation of coverage rights required by COBRA.
As used herein, "COBRA" shall mean Section 4980B of the Internal Revenue
Code of 1986, as amended, and Sections 601 through 608 of the Employee
Retirement Income Security Act of 1974, as amended, and any applicable
state law establishing employer requirements for continuation of health
care, life insurance or other welfare plan benefits for the benefit of
certain current and former employees or dependents thereof.
(c) The payments to Employee described in the foregoing Section 5(b)
shall sometimes be referred to herein as "Severance Payments" and the
period during which any Severance Payments are being made shall be referred
to herein as the "Severance Period."
(d) "Date of Termination" shall mean (i) if Employee's employment is
terminated pursuant to Section 5(a)(i), the date specified in the written
notice of termination delivered to Employee by the Company, (ii) if
Employee's employment is terminated pursuant to Section 5(a)(ii), the date
which is (A) the one hundred twentieth (120th) consecutive day of such
inability or (B) the one hundred and twentieth (120th) day in any twelve
(12) month period of such inability, (iii) if Employee's employment is
terminated pursuant to Section 5(a)(iii), the date of Employee's death,
(iv) if Employee's employment is terminated pursuant to Section 5(a)(iv),
the date specified in the written
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notice of termination delivered to Employee by the Company, (v) if
Employee's employment is terminated pursuant to Section 5(a)(v) or (vi),
the Date of Resignation and (vi) if Employee's employment is terminated
pursuant to Section 5(a)(vii), the Expiration Date.
(e) Termination Obligations. Employee hereby acknowledges and agrees
that all Personal Property (as hereinafter defined) and equipment furnished
to or prepared by Employee in the course of or incident to his employment,
belongs to the Company and shall be promptly returned to the Company upon
termination of Employee's employment hereunder. "Personal Property"
includes, without limitation, all books, manuals, records, reports, notes,
contracts, lists, encoded media, and other documents or materials, or
copies thereof (including computer files), and all other proprietary
information relating to the business of the Company. Following
termination, Employee will not retain any written or other tangible
material containing any proprietary information of the Company. Upon
termination of Employee's employment hereunder, Employee shall be deemed to
have resigned from all offices, directorships and management committee
positions then held with the Company or any Affiliate.
6. CONFIDENTIALITY; COVENANT NOT TO COMPETE
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(a) Confidentiality. Except as consented to by the Company and as and
to the extent required by law, Employee hereby agrees that Employee will
not, either during the Employment Period or any period thereafter,
directly, indirectly or otherwise, disclose, publish, make available to, or
use for his own benefit or the benefit of any person, firm, corporation,
association or other entity for any reason or purpose whatsoever, any
Confidential Information (as hereinafter defined). Employee agrees that,
upon termination of his employment hereunder, all Confidential Information
in his possession that is in written or other tangible form (together with
all copies or duplicates thereof, including computer files) shall be
returned to the Company and shall not be retained by Employee or furnished
to any third party, in any form, including, without limitation, any
document, record, notebook, computer program or similar repository of or
containing any such Confidential Information, except as provided herein;
provided, however, that Employee shall not be obligated to treat as
confidential, or return to the Company copies of any Confidential
Information that (i) was publicly known at the time of disclosure to
Employee, (ii) becomes publicly known or available thereafter other than by
any means in violation of this Agreement or any other duty owed to the
Company by any person or entity or (iii) is lawfully disclosed to Employee
by a third party. As used in this Agreement, the term "Confidential
Information" means information disclosed to Employee or known by Employee
as a consequence of, or through his relationship with, the Company, about
the customers, employees (including compensation paid to employees or other
terms of employment), operations, processes, products, inventions, business
methods, principals, marketing methods, costs, prices, contractual
relationships, regulatory status, trade secrets, public relations methods,
organization, procedures or finances, including, without limitation,
information of or relating to customer lists of the Company and its
Affiliates. The parties hereto stipulate and agree that the foregoing
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matters are important, material and confidential proprietary information
and trade secrets that affect the successful conduct of the business of the
Company (and any successor or assignee of the Company).
(b) Non-Solicitation. In addition, Employee hereby agrees that during
(i) the Employment Period and any Severance Period or (ii) the Employment
Period and for one (1) year thereafter, whichever is longer, Employee will
not, either on his own account or jointly with or as an advisor, director,
agent, representative, officer, manager, employee, principal, partner,
joint venturer, owner or security holder, consultant or otherwise on behalf
of any other person, firm, corporation, partnership, profit or non-profit
business or organization ("Person"), (A) in competition with the Company,
directly or indirectly carry on or be engaged or interested in, or solicit,
the manufacture or sale of goods or provision of services to any Person
which, at any time during the term hereof has been, is a customer of, is a
potential customer of, or is in the habit of dealing with the Company in
its business, (B) endeavor directly or indirectly to canvas or solicit in
competition with the Company or to interfere with the supply of orders for
goods or services from or by any Person which during the term hereof has
been or is a supplier of goods or services to the Company or (C) directly
or indirectly solicit or attempt to solicit away from the Company, or
otherwise interfere with the employment relationship with, any officer,
employee, representative, consultant or other agent of the Company or offer
employment to any person who, on or during the six (6) months immediately
preceding the date of such solicitation or offer, is or was an officer,
employee, representative, consultant or other agent of the Company;
provided, however, that Employee may own, directly or indirectly, solely as
a passive investment, equity securities of any entity which is required to
file periodic reports with the U.S. Securities and Exchange Commission
under Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended, the securities of which corporation are listed on any securities
exchange, quoted on the National Association of Securities Dealers
Automated Quotation System or traded in the over-the-counter market, if
such Employee is not a controlling person of, or a member of a group which
controls, such entity and does not, directly or indirectly, own five
percent (5%) or more of any class of securities of such entity.
(c) Covenant Not to Compete. Employee agrees that during (i) the
Employment Period and any Severance Period or (ii) the Employment Period
and for one (1) year thereafter, whichever is longer, Employee will not
directly or indirectly engage in, have any interest in, own, manage,
operate, join, control or otherwise participate in any activity with any
Person (whether as an advisor, director, officer, employee, agent,
representative, principal, partner, joint venturer, owner, security holder,
consultant or otherwise) which, directly or indirectly, competes with, or
in any way interferes with, the business of the Company or any of its
Affiliates (that engages or otherwise is in the business of selling
wholesale and retail school supplies or educational products), in any part
of the counties listed on Schedule 1 attached hereto or in the counties or
subdivision of any geographic area in which the Company now or shall then
be doing business; provided, however, that Employee may own, directly or
indirectly, solely as a passive investment, equity securities of any entity
which is required to file periodic reports with
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the U.S. Securities and Exchange Commission under Section 13 or 15(d) of
the Securities Exchange Act of 1934, as amended, the securities of which
corporation are listed on any securities exchange, quoted on the National
Association of Securities Dealers Automated Quotation System or traded in
the over-the-counter market, if such Employee is not a controlling person
of, or a member of a group which controls, such entity and does not,
directly or indirectly, own five percent (5%) or more of any class of
securities of such entity.
(d) Injunctive Relief and Enforcement. In the event of breach by
Employee of the terms of this Section 6, the Company shall be entitled to
institute legal proceedings to obtain damages for any such breach, or to
enforce the specific performance of this Agreement by Employee and to
enjoin Employee from any further violation of this Section 6, and to
exercise such remedies cumulatively or in conjunction with all other rights
and remedies provided by law. Employee expressly agrees and acknowledges
that the Company will or would suffer irreparable injury if Employee were
to compete with the Company or any Affiliate in violation of this
Agreement, that the remedies at law for any violation of this Section 6
would be inadequate and that the Company would by reason of such
competition be entitled to injunctive relief. In addition, in the event
that any provision of this Section 6 shall be determined by any court of
competent jurisdiction to be unenforceable by reason of extending for too
great a period of time or over too great a geographical area or by reason
of being too extensive in any other respect, it shall be interpreted to
extend over the maximum period of time for which it may be enforceable and
to the maximum extent in all other respects as to which it may be
enforceable, and enforced as so interpreted, all as determined by such
court in such action.
7. THE COMPANY'S RIGHT TO REPURCHASE MEMBERSHIP INTERESTS IN CERTAIN
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EVENTS
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(a) The provisions of this Section 7 supersede Section 9.6 of that
certain Amended and Restated Operating Agreement of the Company (as may be
further amended from time to time, the "Operating Agreement") relating to
Employee, it being understood and agreed that the provisions of Section 9.6
of the Operating Agreement shall not be applicable to Employee. If
Employee's employment with the Company is terminated pursuant to Sections
5(a)(i) through 5(a)(vi) hereof, the Company or its designee(s) (which
designee(s) may be any person or entity which shall have been approved by
the Management Committee pursuant to the Operating Agreement) shall have
the exclusive and irrevocable option (a "Call"), exercisable in its sole
discretion, to repurchase any or all of that portion of the ownership
interest of QTL Corporation, a California corporation ("QTL"), or its
successors and assigns in the Company that is proportionate to Employee's
ownership interest in QTL (the "Membership Interest"). The Call may be
exercised for all or any portion of the Membership Interest by delivering
written notice (a "Repurchase Notice") to QTL within one hundred twenty
(120) days of Employee's Date of Termination. The Repurchase Notice will
set forth the percentage of the total Membership Interest to be acquired
from QTL, the aggregate consideration to be paid for such Membership
Interest and the time and place for the closing of the
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repurchase. QTL and each transferee shall be obligated to resell the
Membership Interest as provided in this Section 7 in response to an
exercise by the Company of its Call under this Section 7.
The Membership Interest to be repurchased by the Company shall first
be satisfied to the extent possible from the Membership Interest held by
QTL. If the Membership Interest held by QTL is less than the total
Membership Interest the Company has elected to Call, the Company shall
purchase the remaining Membership Interest from QTL's transferees, pro rata
according to the Membership Interest held by such transferees as of the
Date of Termination.
The consummation of the purchase or purchases of such Membership
Interest pursuant to the Company's exercise of its Call shall take place on
the date and in the manner designated by the Company in the Repurchase
Notice, which date shall not be more than thirty (30) days after the
delivery of the Repurchase Notice; provided, however, that the Company may
consummate such purchase of the Membership Interest by delivering payment
for such Membership Interest along with the Repurchase Notice. The Company
will pay for the Membership Interest by delivery of a check in an amount
equal to the applicable repurchase price, as discussed below, for the
Membership Interest. The Company will, in connection with such repurchase,
be entitled to receive customary representations and warranties from the
seller(s) regarding such sale and to require that all such seller(s)'
signatures be guaranteed.
Notwithstanding anything to the contrary contained in this Section 7,
all repurchases of all or any portion of the Membership Interest by the
Company shall be subject to applicable restrictions contained in the
California Corporations Code, the Company's and its Affiliates' debt and
equity financing agreements, if any, and the Operating Agreement. If any
such restrictions prohibit the repurchase of the Membership Interest
hereunder which the Company is otherwise entitled to make, the Company may
designate a third party to make such repurchase and QTL and each transferee
shall be obligated to resell the Membership Interest to such third party on
the same terms and conditions as it is obligated to resell the Membership
Interest to the Company pursuant to this Section 7. If the Company does
not designate a third party to repurchase the Membership Interest, the
Company may make such repurchases as soon as it is permitted to do so (but
in any case, within one hundred fifty (150) days after the Date of
Termination). Under such circumstances, the Company shall pay interest on
any portion of the Membership Interest being repurchased subject to the
restrictions set forth in this paragraph, which interest shall accrue at an
annual rate of eight percent (8%) (beginning on the latest date that the
Company would otherwise be entitled to repurchase such Membership Interest
were it not for the restrictions set forth in this paragraph) and be paid
on the date such Membership Interest is repurchased.
(b) If Employee's employment with the Company is terminated pursuant
to Section 5(a)(i) or Section 5(a)(v) hereof, then the purchase price of
the Membership Interest (or a portion thereof) purchased pursuant to this
Section 7 shall be equal to the
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lesser of (i) the Original Cost (as hereinafter defined) of such Membership
Interest (or a portion thereof), or (ii) the Fair Market Value (as
hereinafter defined) of such Membership Interest (or a portion thereof) on
the Date of Termination as determined in good faith by the Management
Committee. "Original Cost" shall mean the fair market value of the
consideration paid or surrendered by Employee in exchange for the
Membership Interest, at the time Employee acquired the Membership Interest.
(c) If Employee's employment with the Company is terminated pursuant
to Section 5(a)(ii), 5(a)(iii), 5(a)(iv) or 5(a)(vi) hereof, then the
purchase for the Membership Interest (or a portion thereof) shall be equal
to the Fair Market Value on the Date of Termination. If Employee's
employment with the Company is terminated pursuant to Section 5(a)(vii),
then the Company shall not have the right to purchase any Membership
Interests pursuant to this Section 7.
(d) For purposes of this Section 7, "Fair Market Value" shall mean
the market value of the Membership Interest to be valued, as determined in
good faith by the Management Committee, based upon the fair market value of
one hundred percent (100%) of the Company if sold as a going concern and
without regard to any discount for the lack of liquidity or on the basis
that the relevant Membership Interest does not constitute a majority or
controlling interest in the Company and assuming, if applicable, the
exercise or conversion of all in the money warrants, options or other
rights to subscribe for or purchase any additional ownership interests of
the Company or securities convertible or exchangeable into such ownership
interests; provided, however, that if Employee disputes the Fair Market
Value as determined by the Management Committee, Employee may undertake to
have Employee, on the one hand, and the Company, on the other hand, retain
an Independent Expert (as hereinafter defined). The determination of Fair
Market Value by the Independent Expert shall be final, binding and
conclusive on the Company, QTL and Employee. All costs and expenses of the
Independent Expert shall be borne by Employee unless the determination of
Fair Market Value by the Independent Expert is more than five percent (5%)
higher than the Fair Market Value determined by the Management Committee,
in which event the cost of the Independent Expert shall be shared equally
by Employee, on the one hand, and the Company, on the other hand, or more
than ten percent (10%) higher than the Fair Market Value determined by the
Management Committee, in which event the cost of the Independent Expert
shall be borne solely by the Company. "Independent Expert" means a
consultant reasonably agreeable to Employee, on the one hand, and the
Company, on the other hand, who does not (and whose affiliates do not) have
a financial interest in the Company or any of its Affiliates.
(e) Notwithstanding anything in this Agreement to the contrary, if at
any time it is determined that the termination of Employee pursuant to
Section 5(a)(i) was not in accordance with the definition of Cause
contained therein, and if the Company has repurchased the Membership
Interest pursuant to the terms of Section 7(b) hereof, the Company shall,
as its sole obligation under this Agreement, pay to QTL the excess, if any,
of the Fair Market Value of such Membership Interest at the applicable Date
of
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<PAGE>
Termination over the Original Cost of such Membership Interest. If the
Company has not repurchased the Membership Interest pursuant to Section
7(b) above, the Company's repurchase obligation shall thereafter be as set
forth in Section 7(c).
(f) The right of the Company to repurchase the Membership Interests
as described in this Section 7 shall terminate upon the completion of both
(i) the conversion of the Company into a corporation or other entity for
the purposes of an initial public offering and (ii) the completion of the
initial public offering and the sale of the Company's ownership interests
therein.
8. AFFILIATES
----------
As used in this Agreement, "Affiliate" or "Affiliates" shall mean any
partnership, joint venture, limited liability company or corporation that,
directly or indirectly through one or more intermediaries Controls, or is
Controlled by, or is under common Control with, the Company. The term "Control"
includes, without limitation, the possession, directly or indirectly, of the
power to direct the management and policies of a partnership, joint venture,
limited liability company or corporation, whether through the ownership of
voting securities, by contract or otherwise.
9. NOTICE
------
For the purposes of this Agreement, notices, demands and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered, when transmitted by
telecopy with receipt confirmed, or one day after delivery to an overnight air
courier guaranteeing next day delivery, addressed as follows:
If to Employee: Ronald Elliott
-------------- Chief Executive Officer
c/o Earlychildhood.com LLC
1353 Dayton Street
Salinas, California 93901
Telephone: (831) 771-9000
Telecopy: (831) 771-5587
If to the Company: Earlychildhood.com
----------------- 1353 Dayton Street
Salinas, California 93901
Attn: Management Committee
Telephone: (831) 771-9000
Telecopy: (831) 771-5587
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<PAGE>
With copies to: William E. Simon & Sons, L.L.C.
-------------- 10990 Wilshire Boulevard, Suite 500
Los Angeles, California 90024
Attn: Robert P. Healy
Telephone: (310) 914-2410
Telecopy: (310) 575-4220
Latham & Watkins
633 W. Fifth Street, Suite 4000
Los Angeles, California 90071-2007
Attn: Paul D. Tosetti, Esq.
Telephone: (213) 485-1234
Telecopy: (213) 891-8763
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
10. DIVISIBILITY OF AGREEMENT
-------------------------
In the event that any term, condition or provision of this Agreement is for
any reason rendered void, all remaining terms, conditions and provisions shall
remain and continue as valid and enforceable obligations of the parties hereto.
11. CHOICE OF LAW
-------------
This Agreement shall be construed, interpreted and the rights of the
parties determined in accordance with the laws of the State of California
(without giving effect to the choice of law provisions thereof), except with
respect to matters of law concerning the internal corporate affairs of any
corporate entity which is a party to or the subject of this Agreement, and as to
those matters the law of the jurisdiction under which the respective entity
derives its powers shall govern.
12. ARBITRATION
-----------
Notwithstanding anything herein to the contrary, in the event that there
shall be a dispute among the parties arising out of or relating to this
Agreement or the breach thereof, other than Section 6 or Section 14 hereof, the
parties agree that such dispute shall be resolved by final and binding
arbitration before a sole arbitrator in San Francisco, California administered
by the American Arbitration Association ("AAA"), in accordance with AAA's Labor
Arbitration Rules then in effect. Depositions may be taken and other discovery
may be obtained during such arbitration proceedings to the same extent as
authorized in civil judicial proceedings. Any award issued as a result of such
arbitration shall be final and binding between the parties thereto, and shall be
enforceable by any court having jurisdiction over the party against whom
enforcement is sought. The fees and expenses of such arbitration (including
reasonable attorneys' fees) or any action to enforce an arbitration award shall
be paid as may be awarded by the arbitrator.
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<PAGE>
13. SERVICE OF PROCESS; CONSENT TO JURISDICTION
-------------------------------------------
(a) Service of Process. Each of the parties hereto irrevocably
consents to the service of any process, pleading, notices or other papers
by the mailing of copies thereof by registered, certified or first class
mail, postage prepaid, to such party at such party's address set forth
herein, or by any other method provided or permitted under California law.
(b) Consent to Jurisdiction. Each party hereto irrevocably and
unconditionally (i) agrees that any suit, action or other legal proceeding
arising out of this Agreement shall be brought in the United States
District Court for the Northern District of California or, if such court
does not have jurisdiction or will not accept jurisdiction, in any court of
general jurisdiction in the County of San Francisco, California, (ii)
consents to the jurisdiction of any such court in any such suit, action or
proceeding, and (iii) waives any objection which such party may have to the
laying of venue of any such suit, action or proceeding in any such court.
14. LIMITATION ON LIABILITIES
-------------------------
If Employee is awarded any damages as compensation for any breach or action
related to this Agreement, a breach of any covenant contained in this Agreement
(whether express or implied by either law or fact), or any other cause of action
based in whole or in part on any breach of any provision of this Agreement, such
damages shall be limited to contractual damages and shall exclude (a) punitive
damages, and (b) consequential and/or incidental damages (e.g., lost profits and
other indirect or speculative damages). The maximum amount of damages that
Employee may recover for any reason shall be the amount equal to all amounts
owed (but not yet paid) to Employee pursuant to this Agreement through its
natural term or through any period for which severance is due pursuant to
Section 5(b) hereof (including any amounts due to QTL in accordance with this
Agreement upon exercise of the Call pursuant to Section 7 hereof).
15. COMPLETE AGREEMENT
------------------
This Agreement contains the entire understanding of the parties with
respect to the employment of Employee and supersedes all prior arrangements or
understandings with respect thereto and all oral or written employment
agreements or arrangements between the Company (and any of its Affiliates) and
Employee. This Agreement may not be altered or amended except by a writing,
duly executed by the party against whom such alteration or amendment is sought
to be enforced.
16. ASSIGNMENT
----------
This Agreement is personal and non-assignable by Employee. It shall inure
to the benefit of any corporation or other entity with which the Company shall
merge or consolidate or to which the Company shall lease or sell all or
substantially all of its assets and may be assigned by the Company to any
Affiliate of the Company or to any corporation or entity with which such
Affiliate shall merge or consolidate or which shall lease or acquire all or
substantially all of the
14
<PAGE>
assets of such Affiliate; provided that as a condition to such sale of assets or
merger, the purchaser or surviving company, as the case may be, shall have
assumed all of the obligations and duties of the Company under this Agreement.
17. COUNTERPARTS
------------
This Agreement may be executed in counterparts, each of which shall be an
original and all of which together shall constitute one and the same instrument.
18. EMPLOYEE'S ACKNOWLEDGMENT
-------------------------
Employee acknowledges (a) that he has consulted with or has had the
opportunity to consult with independent counsel of his own choice concerning
this Agreement and has been advised to do so by the Company, and (b) that he has
read and understands the Agreement, is fully aware of its legal effect, and has
entered into it freely based on his own judgment.
[Signature Page Follows]
15
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
as of the day and year first above written.
"EMPLOYEE"
/s/ Ronald Elliott
------------------------------
Ronald Elliott
"COMPANY"
EARLYCHILDHOOD.COM LLC,
a California limited liability company
/s/ Robert P. Healy
------------------------------
By: Robert P. Healy
Title: Vice President
16
<PAGE>
SCHEDULE 1
----------
PROHIBITED COUNTIES
California
----------
<TABLE>
<CAPTION>
<S> <C> <C>
Alameda Madera San Luis Obispo
Alpine Marin San Mateo
Amador Mariposa Santa Barbara
Butte Mendocino Santa Clara
Calaveras Merced Santa Cruz
Colusa Modoc Shasta
Contra Costa Mono Sierra
Del Norte Monterey Siskiyou
El Dorado Napa Solano
Fresno Nevada Sonoma
Glenn Orange Stanislaus
Humboldt Placer Sutter
Imperial Plumas Tehama
Inyo Riverside Trinity
Kern Sacramento Tulare
Kings San Benito Tuolumne
Lake San Bernardino Ventura
Lassen San Diego Yolo
Los Angeles San Francisco Yuba
</TABLE>
17
