<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 OR 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1997
--------------
OR
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission file number: 1-12424
--------------------------------
HORIZON GROUP, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
MICHIGAN 38-2559212
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(State or other jurisdiction (I.R.S. employer identification no.)
of incorporation or organization)
5000 HAKES DRIVE, NORTON SHORES, MI 49441
- ----------------------------------- ---------
(Address of principal executive offices) (Zip Code)
(616) 798-9100
----------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
-------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
NUMBER OF COMMON SHARES OUTSTANDING AT MAY 8, 1997 23,813,203
----------
1
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HORIZON GROUP, INC.
Index to Form 10-Q
March 31, 1997
Page No.
--------
Part I. Financial Information:
Consolidated Condensed Statements of Income for the
three months ended March 31, 1997 and 1996 . . . . . . . . . . . 3
Consolidated Condensed Balance Sheets as of
March 31, 1997 and December 31, 1996 . . . . . . . . . . . . . . 4
Consolidated Condensed Statements of Cash Flows for the
three months ended March 31, 1997 and 1996 . . . . . . . . . . . 5
Notes to Consolidated Condensed Financial Statements . . . . . 6-7
Management's Discussion and Analysis of Results of Operations
and Financial Condition . . . . . . . . . . . . . . . . . . . 8-11
Part II.
Other Information . . . . . . . . . . . . . . . . . . . . . 12
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . 13
2
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HORIZON GROUP, INC.
Consolidated Condensed Statements of Income
For the three months ended March 31, 1997 and 1996
(unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------
1997 1996
---- ----
(thousands, except per share data)
<S> <C> <C>
REVENUE
Base rent $ 27,369 $ 27,212
Percentage rent 916 608
Expense recoveries 8,777 7,786
Other 1,694 1,398
--------- ---------
Total revenue 38,756 37,004
--------- ---------
EXPENSES
Property operating 6,392 5,608
Real estate taxes 3,390 2,640
Land leases and other 2,763 129
Depreciation and amortization 9,882 7,717
General and administrative 2,603 2,003
Interest 11,411 8,827
--------- ---------
Total expenses 36,441 26,924
--------- ---------
Net income before minority interests 2,315 10,080
Minority interests (983) (2,601)
--------- ---------
NET INCOME $ 1,332 $ 7,479
========= =========
PER SHARE:
Net income $ .06 $ .39
========= =========
Cash dividend $ .35 $ .505
========= =========
Average common shares outstanding 23,661 19,121
========= =========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
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HORIZON GROUP, INC.
Consolidated Condensed Balance Sheets
as of March 31, 1997 and December 31, 1996
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- ------------
ASSETS (thousands)
<S> <C> <C>
Real estate - at cost:
Land $ 135,078 $ 135,078
Buildings and improvements 951,887 938,412
Less accumulated depreciation (70,528) (65,490)
---------- ----------
Total real estate 1,016,437 1,008,000
Cash and cash equivalents 19,341 18,572
Tenant accounts receivable 8,367 6,807
Due from joint venture 11,094 13,764
Assets held for sale 13,075 13,075
Deferred costs 18,832 20,696
Other assets 12,797 14,307
---------- ----------
Total assets $1,099,943 $1,095,221
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Mortgages and other debt $ 574,863 $ 557,672
Accounts payable and accrued expenses 28,010 31,300
Prepaid rents and other tenant liabilities 2,500 5,568
Other liabilities 6,864 5,524
Dividends and distributions payable 9,902 14,832
---------- ----------
Total liabilities 622,139 614,896
---------- ----------
MINORITY INTERESTS 105,168 116,444
---------- ----------
SHAREHOLDERS' EQUITY:
Common shares 238 228
Additional paid-in capital 464,384 448,637
Distributions in excess of net income (91,986) (84,984)
---------- ----------
Total shareholders' equity 372,636 363,881
---------- ----------
Total liabilities and shareholders' equity $1,099,943 $1,095,221
========== ==========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
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HORIZON GROUP, INC.
Consolidated Condensed Statements of Cash Flows
For the three months ended March 31, 1997 and 1996
(unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------
1997 1996
---- ----
(thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,332 $ 7,479
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Minority interests in net income 983 2,601
Depreciation and amortization 10,494 8,016
Compensation related to stock bonus arrangements - 31
Changes in assets and liabilities:
Tenant accounts receivable (1,560) (96)
Due from joint venture 2,670 -
Deferred costs and other assets 2,617 (5,835)
Accounts payable and accrued expenses (2,905) (1,741)
Other liabilities 1,340 1,125
Prepaid rents and other tenant expenses (3,068) (1,063)
-------- -------
Net cash provided by operating activities 11,903 10,517
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for real estate and improvements (18,519) (31,273)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 5,915 -
Dividends (12,098) (9,330)
Distributions - minority interests (3,583) (3,581)
Proceeds from borrowings - 65,000
Principal payments on mortgages and other debt (1,495) (37,643)
Debt issue costs (134) (1,240)
Net proceeds from revolving credit facility 18,780 3,147
-------- -------
Net cash provided by financing activities 7,385 16,353
-------- -------
Net increase (decrease) in cash 769 (4,403)
CASH:
Beginning of period 18,572 6,567
-------- -------
End of period $ 19,341 $ 2,164
======== =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
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HORIZON GROUP, INC.
Notes to Consolidated Condensed Financial Statements
(unaudited)
(1) Financial Statement Presentation
The accompanying unaudited consolidated condensed financial
statements have been prepared in accordance with the instructions to
Form 10-Q and do not include all information and footnotes necessary for
a fair presentation of financial position, results of operations and
cash flows in conformity with generally accepted accounting principles
since it is assumed the user of these statements is reading them in
conjunction with the most recent year-end audited financial statements.
In the opinion of management, the consolidated condensed financial
statements contain all normal, recurring adjustments necessary for a
fair statement of financial results for the interim periods presented.
The preparation of these financial statements require management to make
estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could
differ from these estimates. For further information, refer to the
consolidated financial statements and notes thereto included in the
Company's annual report on Form 10-K for the year ended December 31,
1996.
(2) Earnings Per Share
In February, 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted
on December 31, 1997. At that time, the Company will be required to
change the method currently used to compute earnings per share and to
restate all prior periods. Under the new requirements for calculating
primary earnings per share, the dilutive effect of stock options will
be excluded. There will be no change in the Company's calculated
primary earnings per share and fully diluted earnings per share for the
first quarter under this statement.
(3) Mortgages and Debt
The Company's existing credit facilities contain various covenants
that, among the most restrictive, require the Company to maintain
certain financial ratios and minimum net worth levels measured at the
end of each quarter. While current in the payment of principal and
interest, the Company was not in compliance with the aforementioned
covenants at March 31, 1997. Each of the affected lenders has provided
waivers to the Company for the March 31, 1997 measurement date. The
Company currently anticipates that similar waivers may be required for
subsequent quarters unless amendments or refinancing is obtained. While
the Company has no reason to believe such waivers will not be given and
that it will not be able to obtain refinancing with a coverage test or
amendments that will permit the Company to satisfy the new terms on a
going forward basis, if required, there
6
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HORIZON GROUP, INC.
Notes to Consolidated Condensed Financial Statements
(unaudited)
can be no assurance that such waivers will be given or that such
amendments or refinancing will be available at terms acceptable to the
Company. The financial statements do not include any adjustments
relating to this uncertainty.
In April, 1997, the Company received a $21.5 million construction loan
from a bank for its 224,000 square foot Lee, Massachusetts project, of
which $6.6 million was initially funded. The construction loan, which
matures in October, 1997, provides for interest only payments during
the term at an interest rate of LIBOR plus 2.25%. The project serves
as security for the loan, which is recourse to the Company.
7
<PAGE> 8
HORIZON GROUP, INC.
Management's Discussion and Analysis of Results of Operations
and Financial Condition
For the three months ended March 31, 1997
(unaudited)
General Overview
Horizon Group, Inc. (the "Company") is a Real Estate Investment Trust that
owns, operates and develops outlet shopping centers. The Company's growth is
derived from developing new outlet shopping centers, expanding existing outlet
shopping centers, acquiring outlet shopping centers and increasing rental
revenue at its existing outlet shopping centers. The operations of the Company
are conducted through a majority-owned subsidiary, Horizon/Glen Outlet Centers
Limited Partnership, (the "Operating Partnership"). As of March 31, 1997, the
Company owned 84.2 percent of the Operating Partnership.
Results of Operations
Net income before minority interests decreased $7.8 million in the first
quarter of 1997 from $10.1 million for the corresponding 1996 period primarily
due to the impact of expensing the Dole Cannery space lease together with
higher interest expense and depreciation not offset by increased revenues. The
increased depreciation, amortization and interest costs are associated with the
addition of two new centers and eight expansions to existing centers that
increased the Company's gross leasable area ("GLA") by approximately one
million square feet.
Property operating and real estate tax expense, as well as the Company's
revenue from expense recoveries, has increased as a result of the Company's
additional GLA. General and administrative expense increased from $2.0 million
in the first quarter of 1996 to $2.6 million in the first quarter of 1997, due
to declining capitalization principally from decreasing development activity in
1997. In April, 1997, the Company reduced its development staff and announced
that the management of its development activities will be outsourced. All of
the development staff expenditures have been previously capitalized.
Consolidated revenues were as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
Percentage
1997 1996 Increase
---- ---- --------
<S> <C> <C> <C>
Base rent $27,369 $27,212 .6%
Percentage rent 916 608 50.7%
Expense recoveries 8,777 7,786 12.7%
Other 1,694 1,398 21.2%
------- ------- -----
$38,756 $37,004 4.7%
======= ======= =====
</TABLE>
8
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HORIZON GROUP, INC.
Management's Discussion and Analysis of Results of Operations
and Financial Condition (continued)
For the three months ended March 31, 1997
(unaudited)
Base rents increased in the current comparable three month period principally
due to increased GLA. Percentage rent increased in the current comparable
three months due to improved tenant sales. Weighted average rent per square
foot of GLA as of March 31, 1997, was $14.57 compared to $14.31 as of March 31,
1996. Increases in expense recoveries from tenants in the current quarter as
compared to the prior year resulted principally from additional GLA. Other
income increased in the three-month period from higher interest and lease
termination income partially offset by lower marketing commissions.
Occupancy of the core outlet center portfolio, which excludes Dole, the
Muskegon power center, New Mexico and the two properties held for sale, Holland
and Port Huron, was 90.3% at March 31, 1997 versus 94.3% at March 31, 1996.
Occupancy on a total gross leasable area basis for the entire portfolio, was
86.9% at March 31, 1997 compared to 92.4% at March 31, 1996. Occupancy at
"stabilized" assets, which is calculated by including only the leased GLA at
properties in stabilization, declined from 93.4% at March 31, 1996 to 89.3% at
March 31, 1997.
Liquidity and Capital Resources
The Company's existing credit facilities contain various covenants that, among
the most restrictive, require the Company to maintain certain financial ratios
and minimum net worth levels measured at the end of each quarter. While
current in the payment of principal and interest, the Company was not in
compliance the aforementioned covenants at March 31, 1997. Each of the
affected lenders has provided waivers to the Company for the March 31, 1997
measurement date. The Company currently anticipates that similar waivers may
be required for subsequent quarters unless amendments or refinancing is
obtained. While the Company has no reason to believe such waivers will not be
given and that it will not be able to obtain refinancing with a coverage test
or amendments that will permit the Company to satisfy the new terms on a going
forward basis, if required, there can be no assurance that such waivers will be
given or that such amendments or refinancing will be available at terms
acceptable to the Company.
On May 9, 1997, the Company received a commitment, subject to legal and
underwriting due diligence, from an institutional lender for a $325.0 million
credit facility with a two year term and a floating interest rate tied to
LIBOR. The Company will use rate protection agreements to limit its exposure
under this credit facility. Proceeds, if consummated, from this credit
facility will be used to repay $229.7 million of existing debt and provides
funding for anticipated construction, acquisition and working capital needs
through 1998.
9
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HORIZON GROUP, INC.
Management's Discussion and Analysis of Results of Operations
and Financial Condition (continued)
For the three months ended March 31, 1997
(unaudited)
In January, 1997, the Company issued approximately 317,000 shares of common
stock under the Company's Dividend Reinvestment Plan ("DRIP") with total
proceeds of $5.9 million. The Company has discontinued further stock issuances
under the DRIP based on the current market price of the Company's stock.
During 1997, the Company plans to spend approximately $41.0 million, of which
$18.5 million was spent in the first quarter, to continue expansion or
development of its centers. The Company plans to fund this expansion and
development with existing cash balances, cash flow from operations and
additional borrowings.
The Company believes it will have access to the capital resources necessary to
expand and develop its business. The Company anticipates that existing cash
balances and cash flow from operations, together with cash from borrowings and
other sources, will be adequate to meet the capital and liquidity needs of the
Company. The Company expects to meet its short-term borrowing requirements
primarily through floating-rate debt financing and its revolving and
construction credit facilities. To meet its long-term liquidity requirements,
the Company intends to obtain funds through additional equity offerings or
long-term debt financing in a manner consistent with its debt to total market
capitalization policy.
The Company declared a $.35 dividend per common share in the first quarter of
1997. In order to qualify as a Real Estate Investment Trust ("REIT") for
Federal income tax purposes, the Company is required to pay dividends to its
shareholders of at least 95% of its REIT taxable income. The Company intends
to pay those dividends from cash flow from operations which is expected to
increase due to future growth in rental revenues at existing outlet shopping
centers and cash flow from expansions, acquisitions and new developments.
Although the Company intends to make distributions to its shareholders in
accordance with the requirements of the Internal Revenue Code of 1986, as
amended, it also intends to retain such amounts as it considers necessary from
time to time for the acquisition or development of new properties as suitable
opportunities arise and for the expansion and renovation of its outlet shopping
centers.
10
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HORIZON GROUP, INC.
Management's Discussion and Analysis of Results of Operations
and Financial Condition (continued)
For the three months ended March 31, 1997
(unaudited)
Adjusted Funds From Operations
The Company believes that Adjusted Funds From Operations before minority
interests is the primary indicator of the financial performance of the Company
and is influenced by both the operations of the properties and the capital
structure of the Company. Adjusted Funds From Operations before minority
interests is defined as net income (computed in accordance with generally
accepted accounting principles) excluding (1) gains or losses from debt
restructuring, certain one-time charges and write downs and sales of property,
(2) depreciation of real estate, (3) amortization other than the amortization
of deferred financing costs and (4) adjustments for unconsolidated partnerships
and joint ventures (Funds From Operations as defined by the National
Association of Real Estate Trusts in March 1995), then further adjusted to (a)
eliminate the effect of straight-line rental income and rental expense and (b)
deduct normalized capital expenditures associated with leasing, tenant
improvements and non-revenue enhancing upkeep of properties. Adjusted Funds
From Operations is the most significant factor considered by the Board of
Directors in determining the amount of cash distributions the Company will make
to shareholders. Adjusted Funds From Operations does not represent cash flow
from operations as defined by generally accepted accounting principles and is
not necessarily indicative of cash available to fund all cash flow needs.
Adjusted Funds From Operations before minority interests and extraordinary
charge for the first quarter of 1997 decreased $5.5 million to $9.9 million, or
35.6% compared to 1996. The decrease resulted principally from increased
interest and space lease expense not offset by increased revenues.
Other Information
The statements contained herein which are not historical facts are forward
looking statements based upon economic forecasts, budgets, and other factors
which, by their nature, involve known risks, uncertainties and other factors
which may cause the actual results, performance or achievements of Horizon
Group, Inc. to be materially different from any future results implied by such
statements. In particular, among the factors that could cause actual results
to differ materially are the following: business conditions and general
economy; competitive factors; interest rates and other risks inherent in the
real estate business. For further information on factors which could impact
the Company and the statements contained herein, reference is made to the
Company's other filings with the Securities and Exchange Commission.
11
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HORIZON GROUP, INC.
Part II - Other Information
Exhibits and Reports on Form 8-K
a) Exhibit 10.1 Agreement with Jeffrey A. Kerr dated April 11, 1997
Exhibit 10.2 Employment Agreement with James S. Wassel
dated April 24, 1997
Exhibit 27 Financial Data Schedule (Edgar filing only)
b) On February 27, 1996, a Current Report on Form 8-K, dated
February 26, 1996, was filed with respect to the 1996 financial
results.
12
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HORIZON GROUP, INC.
-------------------
Registrant
Date: May 13, 1997 By: /s/ Richard Phillips
------------ ---------------------------
Richard Phillips, Vice President
and Principal Accounting Officer
13
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Page
- ------- ----------- ----
<S> <C> <C>
10.1 Agreement with Jeffrey A. Kerr dated April 11, 1997
10.2 Employment Agreement with James S. Wassel dated
April 24, 1997
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.1
April 10, 1997
Mr. Jeffrey A. Kerr
2089 E. Sternberg Road
Muskegon, Michigan 49444
Dear Jeffrey:
This letter will confirm our Agreement of April 2, 1997 concerning your
resignation and separation from Horizon Group, Inc. ("HGI"), Horizon Glen
Outlet Centers Limited Partnership ("Horizon LP") (HGI and Horizon LP being
collectively referred to herein as the "Company") and from all other Horizon
companies and entities, and the termination of your Amended and Restated
Employment Agreement dated as of April 10, 1996 ("Employment Agreement").
1. You have confirmed your previous resignation effective as of February
8, 1997 as Chairman of the Board of Directors, President and Chief Executive
Officer, and your resignation effective as of April 2, 1997 as a Director of
HGI and as an officer and director of HGI Perryville, Inc., MG Third Party
Services Corp., First HGI, Inc., Second HGI, Inc., HGI Management Corp. and
from any other positions honorary or otherwise you hold with HGI, Horizon LP
and any other Horizon company or entity. You have also confirmed that there
are no Agreements for you to be appointed to any position with any Horizon
company or entity.
2. At Closing (which shall be April 28, 1997), you will assign and
transfer to Ronald L. Piasecki or designee all of the shares you hold in HGI
Perryville, Inc., MG Third Party Services Corp., First HGI, Inc., Second HGI,
Inc. and HGI Management Corp. by delivering the certificates for such shares
(or affidavits of loss for any lost certificates) endorsed (or accompanied by
executed stock powers) to Ronald L. Piasecki or designee.
3. You have asserted claims against the Company related to
your Employment Agreement, termination of the Employment Agreement and the
circumstances of your resignation. The Company has denied your claims and
asserted claims against you related to your Employment Agreement and certain of
your acts thereunder, and the Company has also asserted claims against you
related to amounts advanced and expended and to fees for services by the
<PAGE> 2
Mr. Jeffrey A. Kerr
April 10, 1997
Page 2
Company. You and the Company have agreed to resolve all these monetary claims
by your withdrawing and waiving your above-described claims and the Company's
withdrawing and waiving its above described claims, except that you have agreed
to pay the Company the sum of $240,000 at Closing.
4. Upon the Company's discharging of its obligations to you created by
this Agreement, you release the Company from any financial obligation to you
whatsoever, save those obligations created by this Agreement. In giving this
release you represent:
That you have no knowledge of any claim that you can
make against the Company for any reason whatsoever
arising out of your status as an employee or as a
director and/or a shareholder or unit holder of the
Company, save for breach of this Agreement.
Upon your discharging of your obligations to the Company created by this
Agreement, the Company releases you from the following:
Any obligation of any nature whatsoever for future
services under the Employment Agreement; and you, to
induce the Company to give this limited release,
represent that you have no actual knowledge of any
illegal or fraudulent act by the Company.
5. You agree to fully cooperate and assist HGI in any assertion it makes
concerning any of its rights as to the $3,000,000 Tarlton Aquastar note.
6. That certain Amended and Restated Agreement dated as of March 13,
1995 among you, HGI, Horizon LP, McArthur/Glen Realty Corp. and McG Outlet
Centers Limited Partnership (the "Outlot Agreement") is hereby terminated. At
Closing you will deliver to the Company a list of all Outlots (as defined in
the Outlot Agreement) that you or any Affiliate (as defined in the Outlot
Agreement) owns or has an interest in or contract or option to acquire as of
the date of this Agreement. The following is agreed regarding Outlots:
(a) At the Closing, you will sell or cause your Affiliates to sell,
and the Company will purchase, at the out of pocket cost incurred by you
and/or your Affiliates, the interest of you and/or
<PAGE> 3
Mr. Jeffrey A. Kerr
April 10, 1997
Page 3
your Affiliates in that certain Outlot parcel known as the
Parlberg Parcel (sometimes referred to as Parcel C), constituting
approximately 18 acres adjacent to the Company's Birch Run Shopping
Center which an Affiliate of yours has entered into a contract to
purchase.
(b) You agree that all land owned or under contract or option by you
and/or your Affiliates located south of Birch Run Road (also known as
Main Street), west of I-75 and north of Burt Road in Birch Run, Michigan,
including Parcel C, the Rodammer Parcels, the Totten Parcels, the Shifter
Parcel and the MDOT parcels, will not, during the period ending February
7, 2007, be developed as a manufacturer's outlet center.
(c) The Company agrees that on or about February 7, 2002, it will
reexamine the restriction contained in subparagraph (b) as to the
necessity of its continuance with respect to the business of the Company;
provided, it shall be within the Company's sole discretion as to whether
to retain or eliminate said restriction.
(d) You will enter into and/or cause your Affiliates having interests
in the lands and parcels referred to in subparagraph (b) to enter into
recordable Agreements embodying the limitations on development described
in subparagraph (b) for each such parcel (in the usual form to be
prepared by our respective attorneys) which will be binding on successors
and assigns.
(e) You further agree that the Company has and shall have no
obligation to you or your Affiliates for any commissions or fees
regarding any of the parcels mentioned in this paragraph 6.
7. At Closing, the Company will transfer to you or your designee the
Company's rights to the MDOT I-75 Parcel subject to the letter-Agreement signed
by HGI on May 20, 1996 and by MDOT on February 21, 1997 concerning the MDOT
I-75 Parcel. HGI will also transfer to you or your designee all its rights
under the MDOT letter-Agreement, and you will assume and discharge all of the
Company's obligations under the MDOT letter Agreement and indemnify the Company
from any liability under that Agreement.
<PAGE> 4
Mr. Jeffrey A. Kerr
April 10, 1997
Page 4
8. At Closing, the Company will transfer, to you or your designee, without
representation or warranty, all of its right, title and interest to the
registered trademark "every kid deserves a shot."
9. You and the Company have acknowledged that the Woodbury airplane lease
expired as of March 31, 1997.
10. At Closing, HGI will extend the time in which you can exercise the
stock options of HGI you presently own to and including February 7, 1999.
11. You will continue to have any and all rights to any amounts vested
under any HGI employee benefit or pension plan pursuant to the terms of said
plans. Any amounts under any such plan payable to you by the Company upon your
termination of employment will be transferred to you by the Company at Closing
in accordance with the terms of the plan. In addition, the Company will
request any Trustee under any plan holding any amounts or benefits for you to
transfer the same to you at the earliest possible date.
12. The Company acknowledges that you have certain personal property on the
premises of the Company including various artwork and office equipment in the
Company's offices in Norton Shores, Michigan. The parties shall prepare a list
of such property owned by you promptly after the date hereof, and you will
remove such property at your cost and expense within 30 days of the date hereof.
13. HGI and you entered into a Letter Agreement dated July 14, 1995 (the
"Lock-Up Letter") with respect to periods during which you would not effect any
offer, sale, contract to sell or other disposal of any Shares and/or Units (as
those terms are defined in the Lock-Out Letter). At Closing, the Lock-Up
Letter will be amended to provide that during the year 1997 an aggregate of
50,000 Shares are free from the restrictions of the Lock-Up Letter, less the
aggregate number of Shares sold after the date hereof; during 1998, 150,000
Shares are free from the restrictions of the Lock-Up Letter, less the aggregate
number of Shares sold after the date hereof; and in 1999 and thereafter 300,000
Shares are free from the restrictions of the Lock-Up Letter, less the aggregate
number of Shares sold after the date hereof. Except as aforesaid, the Lock-Up
Letter shall remain in full force and effect.
<PAGE> 5
Mr. Jeffrey A. Kerr
April 10, 1997
Page 5
14. (a) In consideration of the Agreements of the Company herein, you
hereby agree that during the Noncompete Period (as defined in this paragraph
14), without the prior written approval of the Company, you will not, directly
or indirectly,
(i) enter into or in any manner take part in the manufacturer
outlet center business (as defined in this paragraph 14), either
individually or as an officer, director, employee, agent,
consultant, partner, investor (excluding ownership interests in
the Company and passive investments aggregating not more than five
percent (5%) of any such entity's total outstanding voting
securities), principal or otherwise, in the United States
(including Alaska and Hawaii) or Canada;
(ii) solicit, divert, take away or enter into any leases or the
like with, or attempt to solicit, divert, take away or enter into
any leases or the like with, any entity or its Affiliates (as
defined in this paragraph) which during the term of your
employment with the Company leased space at a manufacturer outlet
center owned by the Company or Affiliate of the Company, wherever
located in the United States (including Alaska and Hawaii);
provided, nothing herein shall prohibit you from soliciting,
attempting to solicit, assisting in the solicitation of or
entering into any leases or the like with any entity which was a
tenant in any of the manufacturer outlet centers developed, owned
or operated by the Company in connection with any other activity
(including real estate activity) that is not included in the
definition of the manufacturer outlet center business; or
(iii) solicit, attempt to solicit, advise, hire for employment or
engage, any person who is an employee of the Company or an
Affiliate of the Company as of the date hereof and who works in
the accounting department or the leasing department or who is an
on-site property manager.
As used herein, a "manufacturer outlet center" means a
<PAGE> 6
Mr. Jeffrey A. Kerr
April 10, 1997
Page 6
shopping center or centers primarily tenanted by manufacturers operating
outlet merchandise stores. As used herein, the "manufacturer outlet center
business" means the development, ownership, operation and/or management of a
"manufacturer outlet center," but does not include the development, operation
or management of any business ancillary to a manufacturer outlet center,
including, but not limited to, a golf course, entertainment facility, a hotel,
hockey rink, theater, gas station, convenience store, or other similar amenity
or ancillary use, including, but not limited to, any retail store or pro shop,
whether or not operated by a tenant of a manufacturer outlet center, included
within any such amenity or ancillary use. As used herein, "Affiliate" means,
when used with respect to an entity or the Company, (i) any Person (as
hereinafter defined) which directly or indirectly controls, is controlled by or
under common control with such entity or the Company, (ii) any Person who
directly or indirectly owns, controls or holds the power to vote ten percent
(10%) or more of the outstanding securities of such entity or the Company. As
used herein, "control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise. As used herein, "Person" means any individual, partnership,
corporation, trust or other entity. As used herein, "Noncompete Period" means
the period commencing on February 8, 1997 and ending on February 8, 1999;
provided, however, with respect to Paragraph 14(a)(iii), the Noncompete Period
shall end on February 8, 1998.
(b) You acknowledge that, as a key executive employee, you have been
involved on a high level in the development, implementation and management of
the Company's national business strategies and plans, including those which
involve the Company's finances, research, marketing, planning, operations,
industrial relations and property acquisitions. By virtue of your unique and
sensitive position and special background, employment of you by a competitor of
the Company would represent a serious competitive danger to the Company, and
the use of your talent and knowledge and information about the Company's
business and strategies can and would constitute a valuable competitive
advantage over the Company; provided, however, that nothing herein shall
prohibit you from using your special background and talent in connection with
any other activity (including real estate activity) that is not included in the
definition of the manufacturer outlet center business.
<PAGE> 7
Mr. Jeffrey A. Kerr
April 10, 1997
Page 7
(c) You acknowledge that enforcement of the covenants set forth in this
Paragraph 14 and in Paragraph 15 hereof will not prevent you from earning a
living in the real estate industry.
(d) You acknowledge that you have carefully read and considered all of the
terms of this Agreement with the advice of counsel, including particularly the
terms of this Paragraph 14 and of Paragraph 15 hereof, that the Company has
made a substantial investment in the Company's business deserving of protection
and that the restrictions provided in this Paragraph 14 and the following
Paragraph 15 hereof are reasonable and necessary for the Company's protection.
You further acknowledge that damages at law will not be a measurable or
adequate remedy for breach of the covenants contained in this Paragraph 14 or
in Paragraph 15 hereof and, accordingly you consent to the entry by any court
of competent jurisdiction of any order enjoining you from violating any such
covenants without bond. The parties hereto further agree that if, in any
judicial proceeding, a court should refuse to enforce any covenants set forth
in this Paragraph 14 or in Paragraph 15 hereof because of their term or
geographical scope, then such covenants shall be deemed to be modified to
permit their enforcement to the maximum extent permitted by law.
15. (a) You acknowledge and agree that the Company competes in a highly
competitive industry and in competitive markets and that as a senior executive
officer you have had access to proprietary and confidential information and
trade secrets of the Company and its Affiliates and their respective
predecessors. You agree that you will not, without the written consent of the
Company, disclose or knowingly permit any entity under your control to disclose
to anyone not properly entitled to the information, or use for your own benefit
or the benefit of anyone else other than the Company or any Affiliate of the
Company, any such trade secrets or proprietary or confidential information
relating to the Company and its Affiliates.
(b) The Company agrees that it will not, without your written consent,
disclose or knowingly permit any entity under its control to disclose to anyone
not properly entitled to the information or use for its own benefit or the
benefit of anyone else other than you or any of your Affiliates, any such trade
secrets or proprietary or confidential information relating to you and your
Affiliates in possession of the Company. You
<PAGE> 8
Mr. Jeffrey A. Kerr
April 10, 1997
Page 8
acknowledge and agree that the Company is required to make certain disclosures
as a public company including the filing of this Agreement with the United
States Securities and Exchange Commission, and you consent to such disclosures
and filing.
16. Upon reasonable notice, you will be given reasonable access to the
records of the Company to the extent such records pertain to any property,
partnership or other matter with respect to which you have a personal interest.
The Company will furnish to you copies of such records in reasonable amounts
upon your request.
17. You will transfer to the Company at once all files, records, and
documents concerning the Company's business, properties, plans, etc. and not
keep any copies except as reasonably related to you or your Affiliates.
18. This Agreement shall be governed by and construed in accordance with
the laws of the State of Michigan without regard to the principles of conflicts
of laws thereof.
19. This Agreement may not be varied, altered, modified, changed, or in
any way amended except by an instrument in writing, executed by the parties
hereto or their legal representatives.
20. This Agreement may be signed and delivered by facsimile machine. The
parties agree that an agreement so transmitted shall have the same force and
effect as if an original executed document had been delivered.
If this letter reflects your understanding of our Agreement, please sign
and return one copy and I will have our lawyers prepare the additional
necessary documents forthwith.
Sincerely,
Horizon Group, Inc.
By: / S / Ronald Piasecki
-------------------
<PAGE> 9
Mr. Jeffrey A. Kerr
April 10, 1997
Page 9
Ronald Piasecki,
President
Agreed:
/ S / Jeffrey A. Kerr
- ------------------------
Jeffrey A. Kerr
Dated: April 11 , 1997
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, made and entered into as of April 24, 1997 (the
"Effective Date"), by and between James S. Wassel (the "Executive") and Horizon
Group, Inc. (the "Company");
WITNESSETH THAT:
WHEREAS, the parties desire to enter into this Agreement pertaining to the
employment of the Executive by the Company; and
WHEREAS, the Company and Executive desire to specify the terms of the
Executive's employment with the Company;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth below, it is hereby agreed by the Executive and the Company as
follows:
1. Performance of Services. The Executive's employment with the Company shall
be subject to the following:
(a) The Company, on the Effective Date of April 24, 1997, hereby agrees to
employ the Executive as its President and Chief Operating Officer. It is
the intent of the Board of Directors of the Company (the "Board") that on
or before December 31, 1997, it will consider, but shall not be obligated
to employ the Executive as President and Chief Executive Officer, and to
elect the Executive to be a member of the Board. The Company agrees to
promptly take all necessary action to execute the terms of this agreement.
Should, for some unforeseen reason, the Company not create these titles,
this agreement shall nevertheless bind the Company. Executive shall have
those duties generally associated with a chief operating officer position
including, without limitation, direct responsibility for the day to day
operations of the entire company. Material to the Company in agreeing to
employ the Executive in these positions is the Executive's representation
of his skills, abilities and background including, but not limited to, the
Executive's education and employment as such is set forth in the
Executive's resume and in the letter of introduction from Ferguson
Partners which were submitted to the Company.
(b) The Executive agrees that he shall perform his duties, as such are
described in the bylaws of the Company, faithfully, diligently and
efficiently. The Executive will have such authority and power as are
inherent to his position as set forth in the bylaws of the Company.
(c) The Executive shall devote his full time, energies and talents to
serving in the positions which he may hold pursuant to paragraph 1(a).
Notwithstanding the foregoing provisions of this paragraph 1, during the
Agreement Term (as defined below), the Executive may
<PAGE> 2
devote reasonable time to activities other than those required under this
Agreement, including activities involving professional, charitable,
educational, religious and similar types of organizations, speaking
engagements, membership on the boards of directors of other organizations,
and similar type activities, to the extent that such other activities do
not, in the judgement of the Board, inhibit or prohibit the performance of
the Executive's duties under this Agreement, or conflict in any material
way with the business of the Company; provided, however, that the
Executive shall not serve on the board of any business, or hold any other
position with any business without the prior written consent of the Board.
(d) The "Agreement Term" shall be the period beginning on the Effective Date
and ending on April 30, 2000.
2. Compensation and Benefits. The Company shall compensate Executive for
his services as follows:
(a) The Executive shall receive, for each 12-consecutive month period
commencing on the Effective Date, or any portion thereof on a pro rata
basis beginning on the Effective Date and each anniversary thereof, an
annual base salary of not less than $360,000. The Executive's salary
shall be payable on a semimonthly basis.
(b) The Executive shall receive incentive compensation from 0 to 100 percent
of his annual base salary. The Executive's bonus will be determined and
paid no later than the end of the first quarter of the calendar year
following the calendar year in which it is earned. The Executive will
receive a performance review in December 1997.
(c) The Executive's base salary (paragraph 2(a)) and incentive compensation
(paragraph 2(b)) shall be reviewed annually by the Compensation Committee
of the Board based on the Executive's performance as measured against
predetermined performance criteria.
(d) As an inducement essential to causing the Executive to enter into this
Agreement, the Executive will be issued 50,000 shares of Company stock
without payment of additional consideration by the Executive to the
Company as follows:
(1) 15,000 shares on April 15, 1998.
(2) 15,000 shares on April 15, 1999.
(3) 20,000 shares on April 15, 2000.
These shares will only be issued if the Executive is employed on the
dates specified in this paragraph or if the Executive's employment is
terminated under paragraphs 5(a),(b),(e), and (f).
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<PAGE> 3
With respect to paragraphs 2(d) and 3(a), (b) and (c), the Executive
acknowledges that (i) such stock has not been registered under the
Securities Act of 1933, as amended (the "Act"), or any state securities
laws, (ii) such stock may not be transferred unless registered in
accordance with the Act and applicable state securities laws or unless an
exemption from such registration is available, and (iii) the certificate
or certificates evidencing such stock shall bear a legend indicating the
foregoing restriction on transferability of such stock. The Executive
represents and warrants to the Company that he is acquiring such stock for
investment purposes only for his account and not on behalf of other
persons or with a view to any resale or distribution thereof.
(e) Except as otherwise specifically provided to the contrary in this
Agreement, the Executive shall be provided with the welfare benefits and
other fringe benefits to the same extent and on the same terms as those
benefits are provided by the Company from time to time to the Company's
other senior management employees.
(f) The Company shall maintain directors and officers liability insurance in
commercially reasonable amounts (as reasonably determined by the Board),
and the Executive shall be covered under such insurance to the same extent
as other senior management employees of the Company.
(g) The Executive is authorized to incur reasonable expenses for
entertainment, travel, meals, lodging and similar items in promoting the
Company's business. The Company will reimburse the Executive for all
reasonable expenses so incurred.
(h) The Company will provide the Executive with a $1 million life insurance
policy of the Executive's choice during his employment payable to the
Executive's designation of beneficiary; provided however, that the Company
is only obligated to provide such insurance if the Executive is insurable
and if the Company can secure the policy at a cost not to exceed $15,000
per year. This policy will be assignable to the Executive upon his
termination with no further financial obligations of the Company.
(i) Within six months prior to April 30, 2000, either party may reopen
negotiations and the Board consider in its sole discretion whether or not
to enhance the Executive's salary, bonus, stock incentives and whether or
not to renew the Executive's employment contract. If it is the intent of
the Board not to renew the Executive's Agreement, it will notify the
Executive not later than December 31, 1999.
(j) All compensation payable to the Executive shall be reduced by Social
Security taxes and withholding taxes for which the Executive is obligated
and any other taxes that may be lawfully levied by any governmental
authority which the Company may be required by law from time to time to
withhold.
3
<PAGE> 4
3. Stock Options. The Compensation Committee of the Board has recommended
to the Board to grant the Executive, subject to approval of the Company's 1997
Stock Option Plan (the "Plan") by the Company's shareholders, an option which
shall be in full force on the Effective Date to acquire 400,000 shares of the
Company's common stock (the "Stock"). The price for the Stock shall be the fair
market value of the Stock on the Effective Date of this Agreement or the
earlier of the date the Executive actually begins employment or the date the
Executive executes this Agreement. Formal documentation of the option granted
under the Plan shall be delivered to the Executive on the Effective Date. The
Executive's right to acquire the Stock under the Plan shall be as follows:
(a) The right of the Executive to purchase 200,000 shares of the Stock shall
be vested upon the date of the approval of the Plan by the Company's
shareholders and may be exercised anytime between the date of grant
approval of the Plan through the last day of the month immediately
preceding the tenth anniversary of the date of the approval of the Plan.
(b) The right of the Executive to purchase an additional 100,000 shares of
the Stock shall vest on the earlier of: (i) the date when the reported
closing price of the Stock on the New York Stock Exchange equals or
exceeds $16 per share for twenty consecutive trading sessions; or (ii) the
last day of the month preceding the seventh anniversary of the date of the
approval of the Plan. The Executive must be employed by the Company to
purchase shares of Stock under this subparagraph (b). The right to
purchase the additional 100,000 shares of the Stock may be exercised
anytime between the date of the approval of the Plan by the Company's
shareholders through the last day of the month immediately preceding the
tenth anniversary of the date of the approval of the Plan by the Company's
shareholders.
(c) The right of the Executive to purchase the remaining 100,000 shares of
the Stock shall vest on the earlier of: (i) the date when the reported
closing price of the Stock on the New York Stock Exchange equals or
exceeds $20 per share for twenty consecutive trading sessions; or (ii) the
last day of the month preceding the seventh anniversary of the date of the
approval of the Plan. The Executive must be employed by the Company to
purchase shares of Stock under this subparagraph (b). The right to
purchase the remaining 100,000 shares of the Stock may be exercised any
time between the date of the approval of the Plan by the Company's
shareholders through the last day of the month immediately preceding the
tenth anniversary of the date of the approval of the Plan by the Company's
shareholders.
(d) In the event the Plan is not approved by the Company's shareholders, at
its annual meeting on May 14, 1997 the Executive will be fully compensated
under subparagraphs (a), (b) and (c) above by the use of phantom stock or
some other method acceptable to both parties.
4. Relocation/Cost of Living. The Executive shall receive the following
relocation/cost of living benefits.
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<PAGE> 5
(a) The Company will pay the Executive for the following reasonable
relocation costs: the cost to move the Executive's household possessions
from the Dallas, Texas area to the McLean, Virginia area; all commissions,
attorney's fees, and other expenses related to the sale of Executive's
Dallas, Texas residence; all costs related to Executive obtaining a
mortgage on his McLean, Virginia area residence; the cost of temporary
housing for up to one year after the Effective Date and; travel expenses
related to the Executive's relocation including house-hunting visits for
the Executive and spouse.
(b) The Company will reimburse the Executive in an amount not to exceed
$25,000 for miscellaneous house preparation, house set up and moving
expenses. These expenses will be paid by the Company as they are incurred
by the Executive. Any amount not used by the Executive will remain with
the Company.
(c) The Company will reimburse the Executive for any loss on the sale of his
Dallas, Texas residence not to exceed $100,000. For this subparagraph,
loss will be defined as the difference, if any, between the price the
Executive paid to purchase his Dallas, Texas residence and the net
proceeds realized from the sale of his Dallas, Texas residence. If the
sale of the Executive's Dallas, Texas residence will result in a loss as
defined in this paragraph 4(c), the Executive will notify the Company
prior to signing the sale contract to obtain the Company agreement to the
sale price which will not be unreasonably withheld.
(d) The Company will add to the Executive's base salary, for the term of this
Employment Agreement, a housing cost differential allowance determined as
follows:
(i) The rate of interest the Executive pays for the first
mortgage on his new residence will be multiplied by $625,000, or the
actual sale price of the Executive's Dallas, Texas residence,
whichever is less, which will then be multiplied by the index
differential, as determined by Coldwell Banker, between Highland
Park, Texas and Fairfax County, Virginia divided by the index amount
for Highland Park, Texas; plus
(ii) The interest rate differential between the rate of interest
the executive pays on the mortgage for his new home and the interest
on his current mortgage times $425,000.
For instance, if the executive pays 10% interest for his new mortgage and
homes in the Fairfax are valued at 120% of Highland Park, the adjustment
for the first factor would be:
.10 x 625,000 x (1.2-1/1) = 12,500
Likewise, if the interest on the executive's old mortgage was 8% versus
10% on the new mortgage, the adjustment for the second factor would be:
.02 x 425,000 = 8,500.
5
<PAGE> 6
(e) The Company will gross up the Executive's benefits under this paragraph
4, except paragraph 4(d), so that all amounts paid net the Executive such
benefits on an after tax basis. With respect to paragraph 4(d), the gross
up will be limited to the amount by which the payments under paragraph
4(d) are not offset by an interest deduction for individual tax purposes.
5. Termination. The Executive's employment with the Company during the
Agreement Term may be terminated by the Company or the Executive under the
circumstances described in paragraphs 5(a) through 5(f):
(a) Death. The Executive's employment and compensation will terminate upon
his death.
(b) Disability. If the Executive is Disabled for ninety days (which need not
be continuous) during a twelve continuous month period (or any shorter
period), the Company may terminate the Executive's employment with the
Company. For purposes of the Agreement, the Executive shall be deemed to
be "Disabled" if he has a physical or mental disability which renders him
incapable, after reasonable accommodation, of performing his duties under
this Agreement. In the event of a dispute as to whether the Executive is
Disabled, the Company may refer the Executive to a licensed practicing
physician of the Company's choice, and the Executive agrees to submit to
such tests and examination as such physician shall deem appropriate.
(c) Cause. The Company may terminate the Executive's employment hereunder at
any time for Cause. For purposes of this Agreement, the term "Cause"
shall mean:
(i) the continued failure by the Executive in the sole opinion of
the Board to substantially perform his duties with the Company
(other than any such failure resulting from the Executive's being
Disabled), within a reasonable period of time after a written demand
for substantial performance is delivered to the Executive by the
Board, which demand specifically identifies the manner in which the
Board believes that the Executive has not substantially performed
his duties;
(ii) the engaging by the Executive in conduct which is materially
injurious to the Company, monetarily or otherwise; or
(iii) the Executive committing acts of moral turpitude that, in
the judgment of the Board, materially impair the Executive's
credibility and reputation.
(d) Mutual Agreement. This Agreement may be terminated at any time by the
mutual agreement of the parties. Any termination of the Executive's
employment by mutual
6
<PAGE> 7
agreement of the parties will be memorialized by an agreement which is
reduced to writing and signed by the Executive and a duly appointed
officer of the Company.
(e) Termination by Company. The Company may terminate the Executive's
employment hereunder at any time for any reason or by not renewing the
Executive's employment contract. The Company shall not be required to
specify a reason for the termination.
(f) Change of Control. The Executive's employment will terminate if there is
a change of control at the Company. For purposes of this Agreement
"Change of Control" shall mean a merger, acquisition or other corporate
transaction where substantially all of the Company's assets or controlling
interest in the stock are acquired and where the Executive is not retained
in the positions in paragraph 1(a), or another position acceptable to the
Executive.
(g) Notice of Termination. Any termination of the Executive's employment by
the Company (other than a termination pursuant to paragraph 5(a) or
paragraph 5(e)) must be communicated by a written Notice of Termination to
the other party hereto. For purposes of this Agreement, a "Notice of
Termination" means a dated notice which indicates the specific termination
provision in this Agreement relied on and which sets forth in reasonable
detail the facts and circumstances, if any, claimed to provide a basis for
termination of the Executive's employment under the provision so
indicated.
6. Rights Upon Termination. The Executive's right to payment and benefits
under this Agreement for periods after his date of termination shall be
determined as follows:
(a) If the Executive's date of termination occurs during the Agreement Term
for any reason, the Company shall pay to the Executive:
(i) The Executive's Salary for the period ending on the date of
termination.
(ii) Payment for unused vacation days, as determined in accordance
with Company policy as in effect from time to time.
The final Salary payable in accordance with this paragraph 6(a)(i)
and payment for unused vacation days in accordance with paragraph
6(a)(ii) shall be paid as soon as practicable (in no event later
than 45 days) after the date of termination.
(iii) Any other payments or benefits to be provided to the
Executive by the Company pursuant to any employee benefit plans or
arrangements adopted by the Company, to the extent such amounts are
due from the Company.
Except as may otherwise be expressly provided to the contrary in this
Agreement or by operation of law, nothing in this Agreement shall be
construed as requiring the Executive
7
<PAGE> 8
to be treated as employed by the Company for purposes of any employee
benefit plan or arrangement following the date of the Executive's date of
termination.
(b) If the Executive's date of termination occurs during the Agreement Term
under circumstances described in paragraph 5(a) (relating to the
Executive's death), paragraph 5(b) (relating to the Executive being
Disabled), paragraph 5(d) (relating to the termination by mutual
agreement), or if the Executive's employment with the Company terminates
after the end of the Agreement Term then, except as otherwise expressly
provided in this Agreement or otherwise agreed in writing between the
Executive and the Company, the Company shall have no obligation to make
payments under the Agreement for periods after the Executive's date of
termination. If the Executive's date of termination occurs during the
Agreement Term under paragraphs 5(a) (relating to Executive's death) or
5(b) (relating to Executive being disabled), the Executive or his
beneficiary will receive the 50,000 shares of Company stock provided in
paragraph 2(d), the options to purchase 200,000 shares of Company stock
provided in paragraph 3(a) and the options to purchase 200,000 shares of
Company stock provided in paragraphs 3(b) and 3(c).
(c) If the Executive's date of termination occurs during the Agreement Term
under circumstances described in paragraph 5(f) (change of control), the
Executive shall receive the greater of the base salary, and maximum bonus
(as described in paragraphs 2(a) and (b)) remaining under the Agreement or
the amount of the Executive's base salary and bonus actually paid to him
for the most recently completed twenty-four month period. In addition,
the Executive will receive the 50,000 shares of Company Stock and the
option to purchase the 200,000 shares of Company stock (provided in
paragraph 3(a)). The options for shares of Company stock provided in
paragraphs 3(b) and (c) will also vest even if the conditions specified in
those paragraphs have not occurred.
(d) If the Executive's date of termination occurs during the Agreement Term
under circumstances described in paragraph 5(e) (termination by Company),
paragraph 5(c)(i) (termination for cause/nonperformance), or if the
Agreement is not renewed after May 31, 2000 the Executive shall receive
the greater of the remaining base salary and bonus equal to the last bonus
the Company paid to the Executive for each year of base salary remaining
under the Agreement or twelve months of base salary and a bonus equal to
the last bonus the Company paid to the Executive. The Executive will also
receive the 50,000 shares of Company stock provided in paragraph 2(a), the
options to purchase the 200,000 shares of Company stock provided in
paragraph 3(a), and the options to purchase the 200,000 shares of Company
stock in paragraphs 3(b) and 3(c) only if the conditions specified in
paragraphs 3(b) and 3(c) have occurred.
(e) Except as specifically provided in this Agreement, payment of all
remuneration and benefits including, but not limited to, the Executive's
insurance policy (paragraph 2(h)), payments under paragraph 4(d), and the
issuance of shares under paragraph 2(d), shall cease upon the Executive's
termination.
(f) Except as may be otherwise specifically provided in an amendment of
this paragraph (f) adopted in accordance with paragraph 14, payments
under this paragraph 6 shall be in
8
<PAGE> 9
lieu of any benefits that may be otherwise payable to or on behalf of
the Executive pursuant to the terms of any severance pay arrangement of
the Company.
7. Duties on Termination. Subject to the terms and conditions of this
Agreement, during the period beginning on the date of delivery of a Notice of
Termination, and ending on the date of termination, the Executive shall
continue to perform his duties as set forth in this Agreement, and shall also
perform such services for the Company as are necessary and appropriate for a
smooth transition to the Executive's successor, if any. Notwithstanding the
foregoing provisions of this paragraph 7, the Company may suspend the Executive
from performing his duties under this Agreement following the delivery of a
Notice of Termination providing for the Executive's resignation, or delivery by
the Company of a Notice of Termination providing for the Executive's
termination of employment for any reason; provided, however, that during the
period of suspension (which shall end on the date of termination), the
Executive shall continue to be treated as employed by the Company for other
purposes, and his rights to compensation or benefits shall not be reduced by
reason of the suspension.
8. Noncompetition. While the Executive is employed by the Company, and
for a period of one year after the Executive's date of termination for cause
(as described in paragraph 5(c)), the Executive agrees that he will not
directly or indirectly engage in, assist, perform services for, establish or
open, or have any equity interest (other than ownership of 5% or less of the
outstanding stock of any corporation listed on the New York or American Stock
Exchange or included in the National Association of Securities Dealers
Automated Quotation System) in any person, firm, corporation, or business
entity (whether as an employee, officer, director, agent, security holder,
creditor, consultant, or otherwise) that engages in any activity in any state
in which the Employer is conducting or has reasonable expectation of commencing
business activities at date of termination, which activity is the same as,
similar to, or competitive with factory outlet centers. For one year after the
Executive's date of termination, the Executive agrees not to solicit employees
of the Company to leave its employ or to otherwise interfere with the Company's
business relations in any respect. Nothing in this paragraph 8 or paragraph 9
shall be construed as limiting the Executive's duty of loyalty to the Company
while he is employed by the Company, or any other duty he may otherwise have to
the Company while he is employed by the Company.
9. Confidential Information. Except as may be required by the lawful
order of a court or agency of competent jurisdiction, or except to the extent
that the Executive has express authorization from the Company, the Executive
agrees to keep secret and confidential indefinitely all non-public information
(including, without limitation, information regarding litigation and pending
litigation) concerning the Company which was acquired by or disclosed to the
Executive during the course of his employment with the Company, or during the
course of his consultation with the Company following his termination of
employment, and not to disclose the same, either directly or indirectly, to any
other person, firm, or business entity, or to use it in any way. The Executive
agrees that, to the extent that any court or agency seeks to have him disclose
Confidential Information, he shall promptly inform the Company, and he shall
take such reasonable steps to prevent disclosure of Confidential Information
until the Company has been informed of such requested disclosure, and the
Company has an opportunity to respond to such court or agency. To the extent
that the Executive obtains information on behalf of the Company
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<PAGE> 10
that may be subject to attorney-client privilege as to the Company's
attorneys, the Executive shall take reasonable steps to maintain the
confidentiality of such information and to preserve such privilege. Nothing in
the foregoing provisions of this paragraph 9 shall be construed so as to
prevent the Executive from using, in connection with his employment for himself
or an employer other than the Company, knowledge which was acquired by him
during the course of his employment with the Company, and which is generally
known to persons of his experience in other companies in the same industry.
10. Non-Disparagement. The Executive agrees that, while he is employed by
the Company, and after his date of termination, he shall not make any false,
defamatory or disparaging statements about the Company, the officers or
directors of the Company. While the Executive is employed by the Company, and
after his date of termination, the Company agrees that neither the officers nor
the directors of the Company or the Subsidiaries shall make any false,
defamatory or disparaging statements about the Executive.
11. Defense of Claims. The Executive agrees that, for the period
beginning the Effective Date, and continuing for a reasonable period after the
Executive's termination of employment with the Company, the Executive will
cooperate with the Company in defense of any claims that may be made against
the Company, and will cooperate with the Company in the prosecution of any
claims that may be made by the Company, to the extent that such claims may
relate to services performed by the Executive for the Company. The Executive
agrees to promptly inform the Company if he becomes aware of any lawsuits
involving such claims that may be filed against the Company. The Company
agrees to reimburse the Executive for all of the Executive's reasonable
out-of-pocket expenses associated with such cooperation, including travel
expenses. For periods after the Executive's employment with the Company
terminates, the Company agrees to provide reasonable compensation to the
Executive for such cooperation. The Executive also agrees to promptly inform
the Company if he is asked to assist in any investigation of the Company (or
its actions) that may relate to services performed by the Executive for the
Company, regardless of whether a lawsuit has then been filed against the
Company with respect to such investigation.
12. Equitable Remedies. The Executive acknowledges that the Company would
be irreparably injured by a violation of paragraph 8 or 9, and he agrees that
the Company, in addition to any other remedies available to it for such breach
or threatened breach, shall be entitled to a preliminary injunction, temporary
restraining order, or other equivalent relief, restraining the Executive from
any actual or threatened breach of either paragraph 8 or 9.
10
<PAGE> 11
13. Nonalienation. The interests of the Executive under this Agreement
are not subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, attachment, or garnishment by creditors of the
Executive or the Executive's beneficiary.
14. Amendment. This Agreement may be amended or canceled only by mutual
agreement of the parties in writing without the consent of any other person.
So long as the Executive lives, no person, other than the parties hereto, shall
have any rights under or interest in this Agreement or the subject matter
hereof.
15. Applicable Law. The provisions of this Agreement shall be construed
in accordance with the laws of the State of Texas, without regard to the
conflict of law provisions of any state.
16. Severability. The invalidity or unenforceability of any provision of
this Agreement will not affect the validity or enforceability of any other
provision of this Agreement, and this Agreement will be construed as if such
invalid or unenforceable provision were omitted (but only to the extent that
such provision cannot be appropriately reformed or modified).
17. Waiver of Breach. No waiver by any party hereto of a breach of any
provision of this Agreement by any other party, or of compliance with any
condition or provision of this Agreement to be performed by such other party,
will operate or be construed as a waiver of any subsequent breach by such other
party or any similar or dissimilar provisions and conditions at the same or any
prior or subsequent time. The failure of any party hereto to take any action
by reason of such breach will not deprive such party of the right to take
action at any time while such breach continues.
18. Successors. This Agreement shall be binding upon, and inure to the
benefit of, the Company and its successors and assigns and upon any person
acquiring, whether by merger, consolidation, purchase of assets or otherwise,
all or substantially all of the Company's assets and business.
19. Notices. Notices and all other communications provided for in this
Agreement shall be in writing and shall be delivered personally or sent by
registered or certified mail, return receipt requested, postage prepaid, or
sent by facsimile or prepaid overnight courier to the parties at the addresses
set forth below (or such other addresses as shall be specified by the parties
by like notice). Such notices, demands, claims and other communications shall
be deemed given:
(a) In the case of delivery by overnight service with guaranteed next day
delivery, the next day or the day designated for delivery;
(b) in the case of certified or registered U.S. mail, five days after deposit
in the U.S. mail; or
11
<PAGE> 12
(c) in the case of facsimile, the date upon which the transmitting party
received confirmation of receipt by facsimile, telephone or otherwise;
provided, however, that in no event shall any such communications be deemed to
be given later than the date they are actually received. Communications that
are to be delivered by the U.S. mail or by overnight service are to be
delivered to the addresses set forth below:
to the Company:
Chairman of the Board
Horizon Group, Inc.
5000 Hakes Drive
Norton Shores, MI 49441
with a copy to:
Mr. Don H. Reuben
Altheimer & Gray
10 S. Wacker Drive, Suite 4000
Chicago, IL 60606
or to the Executive:
James S. Wassel
Horizon Group, Inc.
5000 Hakes Drive
Norton Shores, MI 49441
with a copy to:
Mr. David Bennett
The Law Offices of David Bennett, P.C.
6060 N. Central, Suite 736
Dallas, TX 75206-5200
Each party, by written notice furnished to the other party, may modify the
applicable delivery address, except that notice of change of address shall be
effective only upon receipt.
20. Costs of Dispute. Each party shall bear his/its own costs in
connection with any controversy or dispute arising out of or relating to this
Agreement (or the breach thereof).
12
<PAGE> 13
21. Survival of Agreement. Except as otherwise expressly provided in this
Agreement, the rights and obligations of the parties to this Agreement shall
survive the termination of the Executive's employment with the Company.
22. Entire Agreement. Except as otherwise noted herein, this Agreement
constitutes the entire agreement between the parties concerning the subject
matter hereof and supersedes all prior and contemporaneous agreements, if any,
between the parties relating to the subject matter hereof. The enforceability
of this Agreement shall not cease or otherwise be adversely affected by the
termination of the Executive's employment with the Company.
23. ACKNOWLEDGMENT BY EXECUTIVE. THE EXECUTIVE REPRESENTS TO THE COMPANY
THAT HE IS KNOWLEDGEABLE AND SOPHISTICATED AS TO BUSINESS MATTERS, INCLUDING
THE SUBJECT MATTER OF THIS AGREEMENT, THAT HE HAS READ THIS AGREEMENT AND THAT
HE UNDERSTANDS ITS TERMS. THE EXECUTIVE ACKNOWLEDGES THAT, PRIOR TO ASSENTING
TO TERMS THE TERMS OF THIS AGREEMENT, HE HAS BEEN GIVEN A REASONABLE TIME TO
REVIEW IT, TO CONSULT WITH COUNSEL OF HIS CHOICE, AND TO NEGOTIATE AT
ARM'S-LENGTH WITH THE COMPANY AS TO THE CONTENTS. THE EXECUTIVE AND THE
COMPANY AGREE THAT THE LANGUAGE USED IN THIS AGREEMENT IS THE LANGUAGE CHOSEN
BY THE PARTIES TO EXPRESS THEIR MUTUAL INTENT, AND THAT NO RULE OF STRICT
CONSTRUCTION IS TO BE APPLIED AGAINST ANY PARTY HERETO.
IN WITNESS THEREOF, the Executive has hereunto set his hand, and the
company has caused these presents to be executed in its name and on its behalf,
and its corporate seal to be hereunto affixed, all as of the day and year first
above written.
/s/ James S. Wassel
James S. Wassel
Horizon Group, Inc.
By /s/ Ronald L. Piasecki
Its President
ATTEST:
/s/ Perry D. Grueber (Seal)
13
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