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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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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 OCTOBER 31, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
SECURITIES EXCHANGE ACTION OF 1934
COMMISSION FILE NUMBER 0-26732
GADZOOKS, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 74-2261048
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) NUMBER)
4121 INTERNATIONAL PARKWAY
CARROLLTON, TX 75007
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 972-307-5555
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(FORMER NAME, FORMER ADDRESS AND 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 ( )
As of December 11, 1998, the number of shares outstanding of the
registrant's common stock is 8,889,614.
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GADZOOKS, INC.
FORM 10-Q
For the Quarter Ended October 31, 1998
INDEX
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PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets as of October 31, 1998 3
and January 31, 1998
Condensed Statements of Operations for the 4
Third Quarter and Nine Months Ended
October 31, 1998 and November 1, 1997
Condensed Statements of Cash Flows for the 5
Nine Months Ended October 31, 1998 and
November 1, 1997
Notes to Financial Statements 6-7
Item 2. Management's Discussion and Analysis 8-11
of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About 11
Market Risk
PART II. OTHER INFORMATION 12
SIGNATURE PAGE 13
INDEX TO EXHIBITS 14-16
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PART I - FINANCIAL INFORMATION
GADZOOKS, INC.
CONDENSED BALANCE SHEETS
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(In thousands)
(Unaudited)
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OCTOBER 31, JANUARY 31,
1998 1998
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ASSETS
Current assets:
Cash and cash equivalents $ 6,975 $ 9,755
Short-term investments -- 9,157
Accounts receivable 2,477 2,815
Inventory 42,894 35,764
Other current assets 1,721 1,427
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54,067 58,918
Leaseholds, fixtures and equipment, net 30,300 25,403
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$ 84,367 $ 84,321
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 18,040 $ 16,722
Accrued expenses & other current liabilities 4,053 4,823
Income taxes payable -- 2,495
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22,093 24,040
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Accrued rent 2,126 1,800
Shareholders' equity:
Common stock 89 88
Additional paid-in capital 41,471 40,869
Retained earnings 18,759 17,524
Treasury stock (171) --
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60,148 58,481
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$ 84,367 $ 84,321
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</TABLE>
The accompanying notes are an integral part of these financial statements.
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GADZOOKS, INC.
CONDENSED STATEMENTS OF OPERATIONS
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(In thousands, except per share data)
(Unaudited)
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THIRD QUARTER ENDED NINE MONTHS ENDED
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OCTOBER 31, NOVEMBER 1, OCTOBER 31, NOVEMBER 1,
1998 1997 1998 1997
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Net sales $ 50,697 $ 41,268 $ 143,925 $ 112,118
Cost of goods sold including buying,
distribution and occupancy cost 39,162 28,629 107,402 80,330
----------- ----------- ----------- -----------
Gross profit 11,535 12,639 36,523 31,788
Selling, general and administrative expenses 12,828 9,770 34,877 26,884
----------- ----------- ----------- -----------
Operating income(loss) (1,293) 2,869 1,646 4,904
Interest income, net 111 168 409 543
----------- ----------- ----------- -----------
Income (loss) before income taxes (1,182) 3,037 2,055 5,447
Provision (benefit) for income taxes (444) 1,117 770 2,032
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Net income (loss) $ (738) $ 1,920 $ 1,285 $ 3,415
=========== =========== =========== ===========
Net income (loss) per share
Basic $ (0.08) $ 0.22 $ 0.15 $ 0.39
=========== =========== =========== ===========
Diluted $ (0.08) $ 0.21 $ 0.14 $ 0.38
=========== =========== =========== ===========
Weighted average shares outstanding
Basic 8,886 8,730 8,839 8,664
=========== =========== =========== ===========
Diluted 8,886 9,064 9,054 9,099
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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GADZOOKS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
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(In thousands)
(Unaudited)
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NINE MONTHS ENDED
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OCTOBER 31, NOVEMBER 1,
1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,285 $ 3,415
Adjustments to reconcile net income to cash
used in operating activities:
Depreciation 3,281 2,362
Changes in operating assets and liabilities (8,707) (5,970)
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NET CASH USED IN OPERATING ACTIVITIES (4,141) (193)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (8,178) (9,206)
Sales of short-term investments, net 9,157 12,420
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NET CASH PROVIDED BY INVESTING ACTIVITIES 979 3,214
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CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock, net 603 357
Purchase of treasury stock (312) --
Sale of treasury stock under employee stock purchase plan 91 --
Tax benefit from exercise of stock options -- 569
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NET CASH PROVIDED BY FINANCING ACTIVITIES 382 926
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Net increase (decrease) in cash and cash equivalents (2,780) 3,947
Cash and cash equivalents at beginning of period 9,755 10,348
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,975 $ 14,295
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</TABLE>
The accompanying notes are an integral part of these financial statements.
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GADZOOKS, INC.
NOTES TO FINANCIAL STATEMENTS
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(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying condensed financial statements contain all adjustments
(consisting of only normal recurring accruals) necessary to present
fairly the financial position as of October 31, 1998 and January 31,
1998, and the results of operations and cash flows for the third
quarter and nine months ended October 31, 1998 and November 1, 1997.
The results of operations for the third quarters and nine months then
ended are not necessarily indicative of the results to be expected for
the full fiscal year. The condensed balance sheet as of January 31,
1998 is derived from audited financial statements. The condensed
financial statements should be read in conjunction with the financial
statement disclosures contained in the Company's Annual Report on Form
10-K for the fiscal year ended January 31, 1998.
2. LONG-TERM OBLIGATIONS
On June 11, 1998, the Company renewed its credit agreement with Wells
Fargo Bank, increasing its unsecured revolving line of credit from $10
million to $20 million. The total amount available to borrow pursuant
to the credit agreement is limited to 125 percent of cash flow (as
defined in the credit agreement) for the trailing 12-month period.
Amounts borrowed under the revolving line bear interest at the lesser
of either Prime Rate or 1.95 percent above LIBOR. The Company must also
pay a commitment fee of 0.35 percent per annum on the unused portion of
the revolving line. The revolving line also provides for the issuance
of letters of credit (L/C's) that are generally used in connection with
international merchandise purchases. Outstanding L/C's issued by the
bank reduce amounts otherwise available for borrowing under the
revolving line of credit. As of October 31, 1998, no borrowings were
outstanding under the revolving line, and $11.9 million was available
to borrow. As of December 11, 1998, letters of credit in the amount of
$0.6 million were issued and outstanding; no borrowings were
outstanding under the revolving line and, $11.7 million was available
to borrow. Any amount borrowed under the revolving line of credit
becomes due on June 5, 1999, the date the credit agreement matures.
3. EMPLOYEE BENEFIT PLANS
On June 18, 1998, the shareholders approved the Gadzooks, Inc. Employee
Stock Purchase Plan ("ESPP"). The ESPP allows eligible employees the
right to purchase common stock on a monthly basis at 85 percent of the
closing market price of the shares on the last day of the respective
calendar month. The aggregate number of shares that may be offered
under the ESPP is 60,000. The Company may purchase shares of common
stock from time-to-time on the open market to provide shares for sale
pursuant to the ESPP.
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4. SHAREHOLDER RIGHTS PLAN
On September 3, 1998, the Company declared a dividend of one Preferred
Share Purchase Right ("Right") on each outstanding share of Gadzooks,
Inc. common stock. The dividend distribution was made on September 15,
1998 to shareholders of record on that date. The Rights become
exercisable if a person or group acquires 20 percent or more of the
Company's common stock or announces its intent to do so. Each Right
will entitle shareholders to buy one one-thousandth of a new series of
junior participating preferred stock at an exercise price of $110. When
the Rights become exercisable, the holder of each Right (other than the
acquiring person or members of such group) is entitled (1) to purchase,
at the Right's then current exercise price, a number of the acquiring
company's common shares having a market value of twice such price, (2)
to purchase, at the Right's then current exercise price, a number of
the Company's common shares having a market value of twice such price,
or (3) at the option of the Company, to exchange the Rights (other than
Rights owned by such person or group), in whole or in part, at an
exchange ratio of one share of common stock (or one one-thousandth of a
share of the new series of junior participating preferred stock) per
Right. The Rights may be redeemed for one cent each by the Company at
any time prior to acquisition by a person (or group) of beneficial
ownership of 20 percent or more of the Company's common stock. The
Rights will expire on September 15, 2008.
5. CONTINGENCY
A lawsuit was filed on August 19, 1998 in the United States District
Court for the Northern District of Texas on behalf of purchasers of the
publicly traded securities of the Company within the inclusive period
of July 9, 1998 through July 22, 1998 alleging misleading and
incomplete public disclosures regarding the Company's sales results.
The Company believes the lawsuit is without merit and intends to defend
it vigorously.
The liability, if any, associated with this matter is not determinable
at this time. While the adverse resolution of this case could
negatively impact earnings in the year of settlement, it is the opinion
of management that the ultimate resolution of the matter will not have
a materially adverse effect on the Company's financial position.
7
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Management's Discussion and Analysis of Financial
Condition and Results of Operations
GENERAL
Gadzooks is a leading, mall-based specialty retailer of casual apparel and
related accessories for young men and women principally between the ages of 13
and 19. As of October 31, 1998, the Company had opened 61 new stores since the
beginning of the fiscal year, closed one store, and operated 311 stores in 32
states east of the Rocky Mountains.
The Company's business is subject to seasonal influences with slightly higher
sales during the Christmas holiday, back-to-school, and spring break seasons.
Management's discussion and analysis should be read in conjunction with the
Company's financial statements and the notes related thereto.
RESULTS OF OPERATIONS
Third Quarter Ended October 31, 1998 Compared to Third Quarter Ended November 1,
1997
Net sales increased approximately $9.4 million, or 22.8 percent to $50.7 million
during the third quarter of fiscal 1998 from $41.3 million during the comparable
quarter of fiscal 1997. Comparable store sales decreased 6.9 percent for the
third quarter of fiscal 1998 The total company sales increase was attributable
to new stores not yet included in the comparable store sales base. A store
becomes comparable after it has been open for 14 full fiscal months.
Gross profit decreased approximately $1.1 million to $11.5 million during the
third quarter of fiscal 1998 from $12.6 million during the comparable quarter of
fiscal 1997. As a percentage of net sales, gross profit decreased to 22.8
percent from 30.6 percent in the comparable quarter of last year. The majority
of the decrease in gross profit resulted from a decrease in merchandise margin
of approximately 5.0 percent of sales as the Company increased markdowns and
related promotional activity to clear merchandise from the stores during the
back-to-school season. Store occupancy costs (which are somewhat fixed in
nature) as a percentage of sales increased approximately 3.0 percent as a result
of lower overall sales.
Selling, general and administrative expenses ("SG&A") increased approximately
$3.0 million to $12.8 million during the third quarter of 1998 from $9.8 million
during the comparable quarter of fiscal 1997. The aggregate increase in SG&A is
primarily attributable to additional store expenses as a result of the Company's
expanded store base during the past year and an increase in administrative costs
to support the larger store chain. As a percentage of net sales, SG&A increased
to 25.3 percent during the third quarter of fiscal 1998 from 23.7 percent during
the comparable quarter of last year. The increase in the SG&A as a percentage of
sales is primarily due to Company's inability to leverage SG&A expenses as a
result of the comparable store sales decrease.
8
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The Company's net interest income decreased $57,000 to $111,000 during the third
quarter of fiscal 1998 from $168,000 in the comparable period of last year due
to the use of short-term investments to fund holiday season inventory levels,
and to a lesser extent, the Company's continuing store expansion.
November 1998 Comparable Stores Sales
The Company experienced a decline in comparable store sales of 13.5 percent
during the month of November 1998. The decrease in November same store sales was
due in part to an accelerating decline in young men's denim, which represented
approximately 7 percent of November 1998 sales as compared to 10 percent for the
same period last year.
As part of the Company's re-merchandising program, which began in September
1998, the unisex and accessory categories were planned lower to accommodate
increases in apparel categories, partially in connection with the plan to
increase the mix of tops to bottoms for both young mens and juniors. As a
result, the Company anticipated comparable sales declines in these two
categories with increases in apparel categories. However, sales declines in the
unisex and accessory categories were greater than originally planned and sales
of apparel merchandise purchased to replace planned sales reductions in both the
unisex and accessory categories were insufficient to offset the planned
declines. These declines are expected to negatively impact comparable store
sales for the remainder of the fiscal year.
Nine Months Ended October 31, 1998 Compared to Nine Months Ended November 1,
1997
Net sales increased approximately $31.8 million, or 28.4 percent, to $143.9
million during the first nine months of fiscal 1998 from $112.1 million during
the comparable period of fiscal 1997. Comparable store sales decreased 2.9
percent for the first nine months of fiscal 1998. The total Company sales
increase was attributable to new stores not yet included in the comparable store
sales base.
Gross profit increased approximately $4.7 million to $36.5 million during the
first nine months of fiscal 1998 from $31.8 million during the comparable period
of fiscal 1997. As a percentage of net sales, gross profit decreased to 25.4
percent from 28.4 percent in the comparable period of last year. Merchandise
margins as a percentage of sales decreased by 1.0 percent due to an increase in
markdowns and related promotional activity to clear merchandise from the stores
during the third quarter of fiscal 1998. Store occupancy costs as a percentage
of sales increased by approximately 2.0 percent as a result of the lower sales
volume.
Selling, general and administrative expenses increased approximately $8.0
million to $34.9 million during the first nine months of 1998 from $26.9 million
during the comparable period of fiscal 1997. As a percentage of net sales,
selling, general and administrative expenses increased to 24.3 percent of sales
during the first nine months of fiscal 1998 from 24.0 percent of sales during
the comparable period of last year. The increase in the SG&A as a percentage of
sales is primarily due to the Company's inability to leverage these costs due to
the comparable store sales decreases.
9
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Net interest income decreased $134,000 to $409,000 during the first nine months
of fiscal 1998 from $543,000 in the comparable period of last year due to the
use of short-term cash investments to fund the Company's continuing store
expansion.
LIQUIDITY AND CAPITAL RESOURCES
General. The Company's primary uses of cash are financing new store openings and
purchasing merchandise inventories. As a result of a previously announced
slow-down in the Company's new store openings, the Company expects its primary
use of cash for the remainder of the current fiscal year to be the purchase of
merchandise inventory. The Company is currently meeting its cash requirements
through cash flow from operations and the sale of short-term investments.
Historically, the Company's cash requirements for inventory purchases peak from
November to mid-December as inventory levels build for the holiday shopping
season. The Company may have to borrow under its bank credit facility (see
description below) during this period. The Company anticipates that any such
borrowings should be repaid by the end of the calendar year.
Cash Flows. At October 31, 1998, cash and cash equivalents were $7.0 million, a
decrease of $2.8 million since January 31, 1998. The primary uses of cash were
increased inventory levels of $7.1 million, principally in connection with the
61 new stores opened during the current year, capital expenditures of $7.4
million for leasehold improvements, fixtures and related capital items for the
new stores, and a decrease in income taxes payable of $2.5 million. The primary
sources of cash for the first nine months of fiscal 1998 were net income before
depreciation of $4.6 million and reductions in short-term investments of $9.2
million. The Company opened 61 new stores during the first nine months of 1998
compared with 49 new stores opened during same period of the prior year.
Credit Facility. On June 11, 1998, the Company renewed its credit agreement with
Wells Fargo Bank, increasing its unsecured revolving line of credit from $10
million to $20 million. The total amount available to borrow pursuant to the
credit agreement is limited to 125 percent of cash flow (as defined in the
credit agreement) for the trailing 12-month period. Amounts borrowed under the
revolving line bear interest at the lesser of either Prime Rate or 1.95 percent
above LIBOR. The Company must also pay a commitment fee of 0.35 percent per
annum on the unused portion of the revolving line. The revolving line also
provides for the issuance of letters of credit (L/C's) that are generally used
in connection with international merchandise purchases. Outstanding L/C's issued
by the bank reduce amounts otherwise available for borrowing under the revolving
line of credit. As of October 31, 1998, no borrowings were outstanding under the
revolving line, and $11.9 million was available to borrow. As of December 11,
1998, letters of credit in the amount of $0.6 million were issued and
outstanding; no borrowings were outstanding under the revolving line and, $11.7
million was available to borrow. Any amount borrowed under the revolving line of
credit becomes due on June 5, 1999, the date the credit agreement matures.
Capital Expenditures. The Company anticipates opening one new store during the
fourth quarter of fiscal 1998. The Company estimates that its average capital
expenditures to open a new store, including leasehold improvements and furniture
and fixtures, are
10
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approximately $175,000 (approximately $100,000 net of all landlord construction
allowances). The typical cost of initial inventory for a new store is
approximately $100,000; however, the immediate cash requirement for inventory is
partially financed through the Company's payment terms with its vendors.
Pre-opening costs range from $9,000 to $13,000 for travel, hiring and training
and other miscellaneous costs associated with the setup of a new store prior to
its opening for business. Pre-opening costs are expensed as incurred.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not engage in trading market risk sensitive instruments and
does not purchase as investments, as hedges, or for purposes "other than
trading" instruments that are likely to expose the Company to market risk,
whether it be from interest rate, foreign currency exchange, commodity price or
equity price risk. The Company has issued no debt instruments, entered into no
forward or futures contracts, purchased no options and entered into no swaps.
The Company's primary market risk exposure is that of interest rate risk. A
change in LIBOR or the Prime Rate as set by Wells Fargo Bank (Texas), National
Association, would affect the rate at which the Company could borrow funds under
its revolving line of credit.
STATEMENT REGARDING FORWARD-LOOKING DISCLOSURE
Certain sections of this Quarterly Report on Form 10-Q, including the preceding
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," contain various forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Exchange Act, which represent the Company's expectations or beliefs concerning
future events. These forward-looking statements involve risks and uncertainties,
and the Company cautions that these statements are further qualified by
important factors that could cause actual results to differ materially from
those in the forward-looking statements, including, without limitation, those
set forth in the "Risk Factors" section of the Company's Annual Report on Form
10-K for the fiscal year ended January 31, 1998.
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PART II - OTHER INFORMATION
Item 1 - Legal Proceedings - See Notes to Financial Statements.
Items 2-5 - None.
Item 6 - Exhibits and Reports on Form 8-K.
(a) See Index to Exhibits.
(b) None.
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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.
GADZOOKS, INC.
(Registrant)
DATE: December 15, 1998 By: /s/ Monty R. Standifer
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Monty R. Standifer
Senior Vice President and
Chief Financial Officer
(Duly Authorized Officer
of the Registrant)
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INDEX TO EXHIBITS
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EXHIBIT
NO. DESCRIPTION OF DOCUMENTS
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3.1 Second Restated Articles of Incorporation of the Company (filed
as Exhibit 4.1 to the Company's Form S-8 (No. 33-98038) filed
with the Commission on October 12, 1995 and incorporated herein
by reference).
3.2 Amended and Restated Bylaws of the Company (filed as Exhibit
4.2 to the Company's Form S-8 (No. 33-98038) filed with the
Commission on October 12, 1995 and incorporated herein by
reference).
3.3 First Amendment to the Amended and Restated Bylaws of the
Company (filed as Exhibit 3.3 of the Company's Quarterly Report
on Form 10-Q for the quarter ended August 2, 1997 filed with
the Commission on September 16, 1997 and is incorporated herein
by reference).
4.1 Specimen Certificate for shares of Common Stock, $.01 par
value, of the Company (filed as Exhibit 4.1 to the Company's
Amendment No. 2 to Form S-1 (No. 33-95090) filed with the
Commission on September 8, 1995 and incorporated herein by
reference).
4.2 Rights Agreement dated as of September 3, 1998 between the
Company and ChaseMellon Shareholder Services, L.L.C. (filed as
Exhibit 1 to the Company's Form 8-A filed with the Commission
on September 4, 1998 and incorporated herein by reference).
10.1 Purchase Agreement dated as of January 31, 1992 among the
Company, Gerald R. Szczepanski, Lawrence H. Titus, Jr. and the
Investors listed therein (filed as Exhibit 10.1 to the
Company's Form S-1 (No. 33-95090) filed with the Commission on
July 28, 1995 and incorporated herein by reference).
10.2 Purchase Agreement dated as of May 26, 1994 among the Company,
Gerald R. Szczepanski, Lawrence H. Titus, Jr. and the Investors
listed therein (filed as Exhibit 10.2 to the Company's Form S-1
(No. 33-95090) filed with the Commission on July 28, 1995 and
incorporated herein by reference).
10.3 Credit Agreement dated as of January 30, 1997 between the
Company and Wells Fargo Bank (Texas), National Association
(filed as Exhibit 10.3 to the Company's 1996 Annual Report on
Form 10-K filed with the Commission on April 23, 1997 and
incorporated herein by reference).
10.4 Form of Indemnification Agreement with a schedule of director
signatories (filed as Exhibit 10.5 to the Company's Form S-1
(No. 33-95090) filed with the Commission on July 28, 1995 and
incorporated herein by reference).
10.5 Employment Agreement dated January 31, 1992 between the Company
and Gerald R. Szczepanski, as continued by letter agreement
(filed as Exhibit 10.6 to the Company's Form S-1 (No. 33-95090)
filed with the Commission on July 28, 1995 and incorporated
herein by reference).
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<TABLE>
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10.6 1992 Incentive and Nonstatutory Stock Option Plan dated
February 26, 1992, and Amendments No. 1 through 3 thereto
(filed as Exhibit 10.8 to the Company's Form S-1 (No. 33-95090)
filed with the Commission on July 28, 1995 and incorporated
herein by reference).
10.7 1994 Incentive and Nonstatutory Stock Option Plan for Key
Employees dated September 30, 1994 (filed as Exhibit 10.9 to
the Company's Form S-1 (No. 33-95090) filed with the Commission
on July 28, 1995 and incorporated herein by reference).
10.8 1995 Non-Employee Director Stock Option Plan (filed as Exhibit
10.10 to the Company's Form S-1 (No. 333-00196) filed with the
Commission on January 9, 1996 and incorporated herein by
reference).
10.9 Gadzooks, Inc. Employees' Savings Plan, as amended and restated
(filed as Exhibit 4.5 to the Company's Form S-8 (No. 333-68205)
filed with the Commission on December 1, 1998 and incorporated
herein by reference).
10.10 Severance Agreement dated September 5, 1996 between the Company
and Gerald R. Szczepanski (filed as Exhibit 10.10 to the
Company's 1996 Annual Report on Form 10-K filed with the
Commission on April 23, 1997 and incorporated herein by
reference).
10.11 Form of Severance Agreement with a schedule of executive
officer signatories (filed as Exhibit 10.11 to the Company's
1996 Annual Report on Form 10-K filed with the Commission on
April 23, 1997 and incorporated herein by reference).
10.12 Amendment No. 4 to the Gadzooks, Inc. 1992 Incentive and
Nonstatutory Stock Option Plan (filed as Exhibit 10.14 to the
Company's Amendment No. 3 to Form S-1 (No. 33-95090) filed with
the Commission on September 27, 1995 and incorporated herein by
reference).
10.13 Amendment No. 5 to the Gadzooks, Inc. 1992 Incentive and
Nonstatutory Stock Option Plan dated September 12, 1996 (filed
as Exhibit 10.13 to the Company's 1996 Annual Report on Form
10-K filed with the Commission on April 23, 1997 and
incorporated herein by reference).
10.14 Amendment No. 1 to the 1994 Incentive and Nonstatutory Stock
Option Plan for Key Employees dated September 12, 1996 (filed
as Exhibit 10.14 to the Company's 1996 Annual Report on Form
10-K filed with the Commission on April 23, 1997 and
incorporated herein by reference).
10.15 Gadzooks, Inc. Employee Stock Purchase Plan (filed as Exhibit
4.5 to the Company's Form S-8 (No. 333-50639) filed with the
Commission on April 21, 1998 and incorporated herein by
reference).
10.16 Gadzooks, Inc. Deferred Compensation Plan (filed as Exhibit
10.16 to the Company's 1997 Annual Report on Form 10-K filed
with the Commission on April 27, 1998 and incorporated herein
by reference).
</TABLE>
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<TABLE>
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10.17 Lease Agreement between Gadzooks, Inc. (Lessee) and CB Midway
International, LTD. (Lessor) dated August 23, 1996 (filed as
Exhibit 10.17 to the Company's 1997 Annual Report on Form 10-K
filed with the Commission on April 27, 1998 and incorporated
herein by reference).
10.18 Gadzooks, Inc. 401(k) Plan and Profit Sharing Plan Adoption
Agreement (filed as Exhibit 10.18 to the Company's Quarterly
Report on Form 10-Q filed with the Commission on June 9, 1998,
and incorporated herein by reference).
10.19 Amendment No. 1 to the Credit Agreement between the Company and
Wells Fargo Bank (Texas), National Association, dated June 11,
1998. (Filed as Exhibit 10.19 to the Company's Quarterly Report
on Form 10-Q filed with the Commission on September 15, 1998,
and incorporated herein by reference).
10.20 Amendment No. 6 to the Gadzooks, Inc. 1992 Incentive and
Non-Statutory Stock Option Plan dated June 18, 1998 (filed as
Exhibit 4.8 to the Company's Form S-8 (No. 333-60869) filed
with the Commission on August 7, 1998 and incorporated herein
by reference).
10.21 Amendment No. 1 to the Gadzooks, Inc. 1995 Non-Employee
Director Stock Option Plan dated June 18, 1998 (filed as
Exhibit 4.10 to the Company's Form S-8 (No 333-60869) filed
with the Commission on August 7, 1998 and incorporated herein
by reference).
10.22 Employment Agreement dated July 18, 1998, between the Company
and David Mangini, as continued by letter agreement (filed as
Exhibit 10.22 to the Company's Quarterly Report on Form 10-Q
filed with the Commission on September 15, 1998, and
incorporated herein by reference).
10.23* Executive Retirement Agreement dated June 10, 1998 between the
Company and Monty R. Standifer.
10.24* Severance Protection Agreement dated September 1, 1998 between
the Company and Gerald R. Szczepanski.
10.25* Severance Protection Agreement dated September 1, 1998 between
the Company and David L. Mangini.
10.26* Severance Protection Agreement dated September 1, 1998 between
the Company and Monty R. Standifer.
27* Financial Data Schedule
</TABLE>
- --------------------------------------------------------------------------------
* Filed herewith (unless otherwise indicated, exhibits are previously filed).
16
<PAGE> 1
Exhibit 10.23
EXECUTIVE RETIREMENT AGREEMENT
Agreement made on JUNE 10, 1998, between Gadzooks, Inc., a Texas
corporation (the "Company"), and MONTY R. STANDIFER ("Executive").
RECITALS
A. Executive is currently employed by the Company.
B. The Company and Executive desire to enter into certain agreements
providing for certain events upon the Executive's retirement from the Company.
NOW THEREFORE, in consideration of the premises and mutual covenants
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Eligibility. The Executive or his estate, devisees or heirs, as the
case may be, shall be eligible to receive the benefits provided for in this
Agreement so long as he is an officer of the Company at or above the level of
vice president (an "Executive Officer") on the termination date of the
Executive's employment with the Company as a result of either (i) the
Executive's death, (ii) the Company's termination, without Cause (as defined
herein), of the Executive's employment with the Company or (iii) the Executive's
retirement from employment with the Company (each, the "Retirement Date"). The
Executive shall cease to be eligible for the benefits provided for in this
Agreement if his employment with the Company is terminated by the Company for
Cause, and this Agreement shall automatically terminate and be of no further
force or effect upon the date of such termination. The Company shall have the
right to terminate the Executive's employment at any time for any of the
following reasons, each of which is referred to herein as "Cause": (i) any act
of fraud or dishonesty with respect to any aspect of the Company's or any
affiliate's business; (ii) continued use of illegal drugs; (iii) as a result of
the Executive's gross negligence or willful misconduct, the Executive shall
violate, or cause the Company to violate, any applicable federal or state
securities or banking law or regulation and as a result of such violation, shall
become, or shall cause the Company or any affiliate to become the subject of any
legal action or administrative proceeding seeking an injunction from further
violations or a suspension of any right or privilege; (iv) as a result of the
Executive's gross negligence or willful misconduct, the Executive shall commit
any act that causes, or shall knowingly fail to take reasonable and appropriate
action to prevent, any material injury to the financial condition or business
reputation of the Company or any affiliate; (v) substantial failure of
performance, repeated or continued after written notice of such failure and
explanation of such failure of performance, which is reasonably determined by
the Board of Directors to be materially injurious to the business or interests
of the Company or any affiliate; or (vi) conviction of a felony or of a crime
involving moral turpitude.
2. Stock Options - Acceleration of Vesting. Immediately after the
Retirement Date and notwithstanding the provisions of any applicable stock
option agreements, all of the Executive's unexpired Company stock options
granted pursuant to any Company stock option plan shall become vested in full
and may be exercised by the Executive (or by the Executive's personal
representative, heir or legatee, in the event of death) at any time within the
earlier of (i) 36 months following the Retirement Date and (ii) the expiration
of the stock option's term.
<PAGE> 2
3. Insurance Coverage. After the Retirement Date and until the death of
the Executive or the Executive's spouse, whichever is later, the Company will
continue to provide to the Executive (and the Executive's spouse, if applicable)
all medical, dental and life insurance coverage provided to the Executive (and
the Executive's spouse, if applicable) by the Company on the Retirement Date
(the "Insurance Coverage"); provided, however, once the Executive or his spouse
becomes eligible for Medicare coverage, the Insurance Coverage will
automatically be reduced with respect to such person by the amount of Medicare
coverage, irrespective of whether the Executive or his spouse actually obtains
such coverage, and thereafter the Insurance Coverage with respect to such person
will only be supplemental to Medicare coverage. The Insurance Coverage may be
modified by the Company at any time subsequent to the Retirement Date as long as
such modifications are pursuant to and to the same extent as any modifications
to the Company's insurance coverage provided to the Executive Officers in office
on the date of such modifications and such modifications do not result in a
substantial reduction in benefits under the Insurance Coverage.
4. Transitional Consultancy. During the eighteen (18) months
immediately following the Retirement Date (the "Consulting Period"), at the sole
discretion of the Company's Board of Directors, the Company may elect to retain
the services of the Executive to facilitate an orderly transition of the
Executive's duties and responsibilities to the Executive's successor(s) (the
"Services"). If the Company's Board of Directors so elects, the Company and the
Executive will negotiate in good faith to enter into a mutually acceptable
consulting relationship under which the Executive would be an independent
contractor.
5. Pro Rated Bonus Payment. On the date that the Executive Officers are
paid their bonuses for the fiscal year that includes the Retirement Date, the
Company will pay to the Executive or his estate, devisees, or heirs, as the case
may be, an amount equal to (i) the bonus that the Executive would have received
if he was still an Executive Officer on such date multiplied by (ii) a fraction,
the numerator of which is equal to the number of days from the first day of the
fiscal year that includes the Retirement Date to the Retirement Date, and the
denominator of which is equal to 365.
6. Not a Contract of Employment. This Agreement shall not be deemed to
constitute an express or implied obligation of the Company to continue to employ
the Executive.
7. Successors. The provisions of this Agreement shall be binding upon
the Company and its successors and assigns.
8. Governing Law. This Agreement will be construed and enforced
according to the laws of the State of Texas.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered on the day and year first above written.
GADZOOKS, INC.
By: Gerald R. Szczepanski
Name: /s/ Gerald R. Szczepanski
-------------------------------------
Title: Chairman of the Board and
Chief Executive Officer
/s/ Monty R. Standifer
-------------------------------------
Monty R. Standifer
2
<PAGE> 1
EXHIBIT 10.24
SEVERANCE PROTECTION AGREEMENT
THIS AGREEMENT made as of the first day of September, 1998, by
and between Gadzooks, Inc. (the "Company") and Gerald R. Szczepanski (the
"Executive").
WHEREAS, the Board of Directors and the Executive desire to
enter into this Agreement to provide certain benefits to the Executive upon the
termination of employment of the Executive under certain conditions;
WHEREAS, the Board of Directors of the Company (the "Board")
recognizes that the possibility of a Change in Control (as hereinafter defined)
exists and that the threat or the occurrence of a Change in Control can result
in significant distraction of the Company's key management personnel because of
the uncertainties inherent in such a situation;
WHEREAS, the Board has determined that it is essential and in
the best interest of the Company and its stockholders for the Company to retain
the services of the Executive in the event of a threat or occurrence of a Change
in Control and to ensure the Executive's continued dedication and efforts in
such event without undue concern for the Executive's personal financial and
employment security;
WHEREAS, in order to induce the Executive to remain in the
employ of the Company, particularly in the event of a threat or the occurrence
of a Change in Control, the Company desires to enter into this Agreement with
the Executive to provide the Executive with certain benefits in the event the
Executive's employment is terminated under certain conditions, including as a
result of, or in connection with, a Change in Control, and to provide the
Executive with the Gross-Up Payment (as hereinafter defined); and
WHEREAS, by entering into this Agreement, the Executive will
agree to certain restrictions on his ability to compete with the Company or
solicit employees of the Company following his termination of employment, and
the Company will benefit from said restrictions.
NOW, THEREFORE, in consideration of the respective agreements
of the parties contained herein, it is agreed as follows:
1. Term of Agreement. This Agreement shall commence as of
September 1, 1998 and shall continue in effect through August 31, 2000 (the
"Term"); provided, however, that on September 1, 2000, and on each September 1
thereafter, the Term shall automatically be extended for one (1) year unless
either the Executive or the Company shall have given written notice to the other
at least ninety (90) days prior thereto that the Term shall not be so extended;
provided, further, however, that following the occurrence
<PAGE> 2
of a Change in Control, the Term shall not expire prior to the expiration of
twenty-four (24) months after such occurrence.
2. Termination of Employment in Connection with a Change in
Control. If, during the Term, the Executive's employment with the Company shall
be terminated within twenty-four (24) months following a Change in Control, the
Executive shall be entitled to the following compensation and benefits:
(a) If the Executive's employment with the Company shall
be terminated (1) by the Company for Cause or Disability, (2) by reason of the
Executive's death, or (3) by the Executive other than for Good Reason, the
Company shall pay to the Executive his or her Accrued Compensation. In addition
to the foregoing, if the Executive's employment is terminated by the Company for
Disability or by reason of the Executive's death, the Company shall pay to the
Executive or his or her beneficiaries a Pro Rata Bonus. The Executive's
entitlement to any other compensation or benefits shall be determined in
accordance with the Company's employee benefits plans and other applicable
programs and practices then in effect.
(b) If the Executive's employment with the Company shall
be terminated for any reason other than as specified in Section 2(a), the
Executive shall be entitled to the following:
(1) the Company shall pay the Executive all
Accrued Compensation and a Pro Rata Bonus;
(2) the Company shall pay the Executive as
severance pay and in lieu of any further compensation for periods subsequent to
the Termination Date, an amount determined by multiplying two times the sum of
(i) the Executive's Base Amount and (ii) the Executive's Bonus Amount; and
(3) after the Termination Date and until the
earlier of: the death of the Executive or the date upon which the Executive
becomes eligible for Medicare coverage (irrespective of whether the Executive
actually obtains such coverage), the Company shall continue to provide to the
Executive medical and dental coverage as provided to the Executive on the
Termination Date. The medical and dental coverage may be modified by the Company
at any time subsequent to the Termination Date as long as such modifications are
pursuant to, and to the same extent as, any modifications to the Company's
medical and dental insurance coverage provided to the Executive Officers in
office on the date of such modifications and such modifications do not result in
a substantial reduction of medical and dental benefits.
(c) If (x) the Executive's employment is terminated
by the Company without Cause, or (y) the Executive terminates employment for
Good Reason (1) within six (6) months prior to a Change in Control, or (2) prior
to the date of a Change in Control but the Executive reasonably demonstrates
that such (x) termination or (y)
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<PAGE> 3
event or condition (A) was at the request of a third party who has indicated an
intention or taken steps reasonably calculated to effect a Change in Control (a
"Third Party") and who effectuates a Change in Control or (B) otherwise arose in
connection with, or in anticipation of a Change in Control which has been
threatened or proposed and which actually occurs, such termination shall be
deemed to have occurred after a Change in Control, provided a Change in Control
shall actually have occurred.
(d) (1) Gross-Up Payment. In the event it shall be
determined that any payment or distribution of any type to or for the benefit of
the Executive, by the Company, any Affiliate, any Person who acquires ownership
or effective control of the Company or ownership of a substantial portion of the
Company's assets (within the meaning of Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code"), and the regulations thereunder) or any
affiliate of such Person, whether paid or payable or distributed or
distributable pursuant to any of the terms of this Agreement or otherwise (the
"Total Payments"), is or will be subject to the excise tax imposed by Section
4999 of the Code or any interest or penalties with respect to such excise tax
(such excise tax, together with any such interest and penalties, are
collectively referred to as the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including any income tax,
employment tax or Excise Tax, imposed upon the Gross Up Payment, the Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
the Total Payments.
(2) Determination By Accountant. All
mathematical determinations, and all determinations as to whether any of the
Total Payments are "parachute payments" (within the meaning of Section 280G of
the Code), that are required to be made under this Section 2(d), including
determinations as to whether a Gross-Up Payment is required, the amount of such
Gross-Up Payment and amounts relevant to the last sentence of this Section
2(d)(2), shall be made by an independent accounting firm selected by the
Executive from among the six (6) largest accounting firms in the United States
(the "Accounting Firm"), which shall provide its determination (the
"Determination"), together with detailed supporting calculations regarding the
amount of any Gross-Up Payment and any other relevant matter, both to the
Company and the Executive by no later than ten (10) days following the
Termination Date, if applicable, or such earlier time as is requested by the
Company or the Executive (if the Executive reasonably believes that any of the
Total Payments may be subject to the Excise Tax). If the Accounting Firm
determines that no Excise Tax is payable by the Executive, it shall furnish the
Executive and the Company with a written statement that such Accounting Firm has
concluded that no Excise Tax is payable (including the reasons therefor) and
that the Executive has substantial authority not to report any Excise Tax on his
or her federal income tax return. If a Gross-Up Payment is determined to be
payable, it shall be paid to the Executive within twenty (20) days after the
Determination (and all accompanying calculations and other material supporting
the Determination) is delivered to the Company by the Accounting Firm. Any
determination by the Accounting Firm shall be binding upon
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<PAGE> 4
the Company and the Executive, absent manifest error. As a result of uncertainty
in the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments not made by the Company should have been made ("Underpayment"), or that
Gross-Up Payments will have been made by the Company which should not have been
made ("Overpayments"). In either such event, the Accounting Firm shall determine
the amount of the Underpayment or Overpayment that has occurred. In the case of
an Underpayment, the amount of such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive. In the case of an Overpayment,
the Executive shall, at the direction and expense of the Company, take such
steps as are reasonably necessary (including the filing of returns and claims
for refund), follow reasonable instructions from, and procedures established by,
the Company, and otherwise reasonably cooperate with the Company to correct such
Overpayment, provided, however, that (i) the Executive shall not in any event be
obligated to return to the Company an amount greater than the net after-tax
portion of the Overpayment that he or she has retained or has recovered as a
refund from the applicable taxing authorities and (ii) this provision shall be
interpreted in a manner consistent with the intent of Section 2(d)(1), which is
to make the Executive whole, on an after-tax basis, from the application of the
Excise Tax, it being understood that the correction of an Overpayment may result
in the Executive repaying to the Company an amount which is less than the
Overpayment.
(e) The amounts provided for in Sections 2(a) and
2(b)(1) and (2), shall be paid in a single lump sum cash payment within thirty
(30) days after the Executive's Termination Date (or earlier, if required by
applicable law).
(f) The Executive shall not be required to mitigate
the amount of any payment provided for in this Agreement by seeking other
employment or otherwise and no such payment shall be offset or reduced by the
amount of any compensation or benefits provided to the Executive in any
subsequent employment except as provided in Section 3(a) below.
(g) The payments and benefits provided for in this
Section 2 shall be in lieu of any other severance pay to which the Executive may
be entitled under any Company severance plan or any other plan, agreement or
arrangement of the Company.
3. Termination of Employment Not in Connection with a Change
in Control. If the Executive's employment with the Company is terminated at any
time other than within twenty-four (24) months following a Change in Control or
the time specified under Section 2(c), the Executive shall be entitled to the
compensation, payments and benefits set forth in Sections 2(a) through 2(g)
under the conditions set forth in Sections 2(a) through 2(g) except as follows:
(a) The severance benefits described in Section
2(b)(2) shall be paid to the Executive in the form of biweekly periodic salary
continuation payment for two years from the Termination Date. During the first
one-year period ending on the first
4
<PAGE> 5
anniversary of the Termination Date (the "First Year"), the Executive shall have
no obligation to seek other employment or take other action by way of mitigation
of the amounts payable to the Executive under Section 2(b)(2) and such amounts
shall not be reduced whether or not the Executive obtains other employment.
During the period immediately after the First Year and ending on the second
anniversary of the Termination Date (the "Second Year"), the Executive shall not
be obligated to seek other employment and take action by way of mitigation of
the amounts payable to the Executive under Section 2(b)(2); however,
notwithstanding anything else in this Agreement, amounts received during the
Second Year under Section 2(b)(2) shall be reduced by the amount that the
Executive receives from such other employment should the Executive obtain other
employment during the Second Year; and
(b) The medical and dental benefits described in
Section 2(b)(3) in the event of a termination by the Company without Cause or by
the Executive for Good Reason shall only continue until the earlier of: the
second anniversary of the Termination Date or the date upon which the Executive
becomes eligible for Medicare coverage (irrespective of whether the Executive
actually obtains such coverage).
4. Notice of Termination. Any intended termination of the
Executive's employment by the Company shall be communicated by a Notice of
Termination from the Company to the Executive, and any intended termination of
the Executive's employment by the Executive for Good Reason shall be
communicated by a Notice of Termination from the Executive to the Company.
5. Non-Competition, Non-Solicitation, Non-Interference and
Confidentiality.
(a) The Executive agrees that upon termination of his
employment with the Company, he will not, without the prior written consent of
the Company, for a period of twenty-four (24) months thereafter (the "Restricted
Period"), alone or with or for others, in whatever, capacity, directly or
indirectly, solicit or attempt to solicit clients or customers of the Company,
or solicit or attempt to solicit employees of the Company to leave the Company's
employ.
(b) The Executive agrees that during the Restricted
Period he will not interfere with the relationship between the Company and any
of its vendors.
(c) The Executive agrees that, during the Restricted
Period, he shall not, for himself or any third party, directly or indirectly,
engage in any business activity or accept employment with any entity that is or
may be competitive with the Company in the field of retail sales (including, but
not limited to, internet retail sales and mail-order retail sales), of
moderately priced men's and women's casual apparel and accessories
("Competitor"), without prior written consent of the Company. The Executive
agrees that, prior to engaging in any such activity or accepting employment with
a Competitor or any entity that could reasonably be deemed a Competitor during
the
5
<PAGE> 6
Restricted Period, the Executive shall advise the Company in writing of the
Executive's intentions and seek the Company's approval. Company approval shall
apply only with respect to the activity or position approved and the Executive
shall be obligated to obtain Company approval with respect to any subsequent
change of activity or position or employment during the Restricted Period. The
Executive also agrees that, during the Restricted Period, the Executive shall
not hold any stock in a Competitor other than passive minority interests
comprising less than 2% of the outstanding stock of a publicly traded
Competitor.
(d) Without the prior written consent of the Company,
except to the extent required by an order of a court having competent
jurisdiction or under subpoena from an appropriate government agency, Executive
shall not disclose any trade secrets, customer lists, supplier lists, drawings,
designs, information regarding product development, marketing plans, sales
plans, management plans, management organization information (including data and
other information relating to members of the Board and management), operating
policies or manuals, business plans, financial records or any other financial
commercial, business or technical information relating to the Company or
information designated as confidential or proprietary that the Company may
receive belonging to suppliers, customers or others who do business with the
Company (collectively, "Confidential Information") to any third person unless
such Confidential Information has been previously disclosed to the public by the
Company or is in the public domain (other than by reason of Executive's breach
of this section 5(c)).
6. Fees and Expenses.
(a) If the employment of the Executive is terminated
under section 2(a) or 2(c) of this Agreement, the Company shall pay all legal
fees and related expenses (including the costs of experts, evidence and counsel)
incurred by the Executive as they become due as a result of (x) the termination
of the Executive's employment by the Company or by the Executive for Good Reason
(including all such fees and expenses, if any, incurred in contesting, defending
or disputing the basis for any such termination of employment), (y) the
Executive's hearing before the Board as contemplated in Section 17.5 of this
Agreement or (z) the Executive seeking to obtain or enforce any right or benefit
provided by this Agreement or by any other plan or arrangement maintained by the
Company under which the Executive is or may be entitled to receive benefits.
(b) If the employment of the Executive is terminated
for reasons or in circumstances not related to those described in section 2(a)
or 2(c) of this Agreement, the Company shall only pay the legal fees and related
expenses described in section 6(a) to the extent that the Company is
unsuccessful in the result of any litigation or other legal proceeding arising
out of the termination of the employment of the Executive.
7. Notice. For the purposes of this Agreement, notices and all
other communications provided for in the Agreement (including any Notice of
Termination) shall be in writing, shall be signed by the Executive if to the
Company or by a duly
6
<PAGE> 7
authorized officer of the Company if to the Executive, and shall be deemed to
have been duly given when personally delivered or sent by certified mail, return
receipt requested, postage prepaid, addressed to the respective addresses last
given by each party to the other, provided that all notices to the Company shall
be directed to the attention of the Board with a copy to the Secretary of the
Company. All notices and communications shall be deemed to have been received on
the date of delivery thereof or on the third business day after the mailing
thereof, except that notice of change of address shall be effective only upon
receipt.
8. Nature of Rights. The Executive shall have the status of a
mere unsecured creditor of the Company with respect to his or her right to
receive any payment under this Agreement. This Agreement shall constitute a mere
promise by the Company to make payments in the future of the benefits provided
for herein. It is the intention of the parties hereto that the arrangements
reflected in this Agreement shall be treated as unfunded for tax purposes and,
if it should be determined that Title I of ERISA is applicable to this
Agreement, for purposes of Title I of ERISA. Except as provided in Section 2(g),
nothing in this Agreement shall prevent or limit the Executive's continuing or
future participation in any benefit, bonus, incentive or other plan or program
provided by the Company and for which the Executive may qualify, nor shall
anything herein limit or reduce such rights as the Executive may have under any
other agreements with the Company. Amounts which are vested benefits or which
the Executive is otherwise entitled to receive under any plan or program of the
Company shall be payable in accordance with such plan or program, except as
explicitly modified by this Agreement.
9. Settlement of Claims. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, defense, recoupment, or other right which
the Company may have against the Executive or others.
10. Miscellaneous. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by the Executive and the Company. No waiver by
any party hereto at any time of any breach by any other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreement or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by any party which are not expressly set
forth in this Agreement.
11. Survival. The provisions in Section 5 of this Agreement
shall survive the expiration of this Agreement.
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<PAGE> 8
12. Successors; Binding Agreement.
(a) This Agreement shall be binding upon and shall
inure to the benefit of the Company and its Successors and Assigns. The Company
shall require its Successors and Assigns to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession or assignment had
taken place.
(b) Neither this Agreement nor any right or interest
hereunder shall be assignable or transferable by the Executive, his or her
beneficiaries or legal representatives, except by will or by the laws of descent
and distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal personal representative.
13. Mediation; Governing Law.
(a) Any dispute or controversy arising under or in
connection with this Agreement shall be first submitted to mediation. The
mediation shall be held in Dallas County in the State of Texas and except to the
extent inconsistent with this Agreement, shall be conducted in accordance with
the National Rules for the Resolution of Employment Disputes (Employment
Mediation Rules) of the American Arbitration Association then in effect at the
time of the mediation, and otherwise in accordance with principles which would
be applied by a court of law or equity. Mediation shall only be binding if it is
acceptable to both the Company and the Executive.
(b) This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Texas without giving
effect to the conflict of laws principles thereof. If mediation does not result
in resolution of any dispute or controversy arising under or in connection with
this Agreement, a party may bring an action. Any action brought by any party to
this Agreement shall be brought and maintained in a court of competent
jurisdiction in Dallas County in the State of Texas.
14. Severability. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof.
15. Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto, and supersedes all prior agreements,
including the Severance Agreement dated September 5, 1996, understandings and
arrangements, oral or written, between the parties hereto, with respect to the
subject matter hereof.
16. Release. The Executive agrees that payment hereunder is
conditioned upon the execution of a release ("General Release") in the form
attached hereto.
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17. Definitions.
17.1. Accrued Compensation. For purposes of this
Agreement, "Accrued Compensation" shall mean all amounts of compensation for
services rendered to the Company that have been earned or accrued through the
Termination Date but that have not been paid as of the Termination Date
including (a) base salary, (b) reimbursement for reasonable and necessary
business expenses incurred by the Executive on behalf of the Company during the
period ending on the Termination Date, (c) vacation pay and (d) bonuses and
incentive compensation; provided, however, that Accrued Compensation shall not
include any amounts described in clause (a) or clause (d) that have been
deferred pursuant to any salary reduction or deferred compensation elections
made by the Executive.
17.2. Affiliate. For purposes of this Agreement,
"Affiliate" means any entity, directly or indirectly, controlled by, controlling
or under common control with the Company or any corporation or other entity
acquiring, directly or indirectly, all or substantially all the assets and
business of the Company, whether by operation of law or otherwise.
17.3. Base Amount. For purposes of this Agreement,
"Base Amount" shall mean the Executive's base salary in effect on September 1,
1998, or, if greater, (b) in effect at any time thereafter.
17.4. Bonus Amount. For purposes of this Agreement,
"Bonus Amount" shall mean the target annual bonus payable to the Executive in
respect of the fiscal year during which the Termination Date occurs.
17.5. Cause. For purposes of this Agreement, a
termination of employment is for "Cause" if the Executive has been convicted of
a felony or the termination is evidenced by a resolution adopted in good faith
by two-thirds of the Board that the Executive:
(a) intentionally and continually failed
substantially to perform his or her reasonably assigned duties with the Company
(other than a failure resulting from the Executive's incapacity due to physical
or mental illness or from the assignment to the Executive of duties that would
constitute Good Reason) which failure continued for a period of at least thirty
(30) days after a written notice of demand for substantial performance, signed
by a duly authorized officer of the Company, has been delivered to the Executive
specifying the manner in which the Executive has failed substantially to
perform, or
(b) intentionally engaged in conduct which is
demonstrably and materially injurious to the Company; provided, however, that no
termination of the Executive's employment shall be for Cause as set forth in
this Section 17.5(b) until (1) there shall have been delivered to the Executive
a copy of a written notice, signed by a
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<PAGE> 10
duly authorized officer of the Company, setting forth that the Executive was
guilty of the conduct set forth in this Section 17.5(b) and specifying the
particulars thereof in detail, and (2) the Executive shall have been provided an
opportunity to be heard in person by the Board (with the assistance of the
Executive's counsel if the Executive so desires).
No act, nor failure to act, on the Executive's part,
shall be considered "intentional" unless the Executive has acted, or failed to
act, with a lack of good faith and with a lack of reasonable belief that the
Executive's action or failure to act was in the best interest of the Company.
Notwithstanding anything contained in this Agreement to the contrary, no failure
to perform by the Executive after a Notice of Termination is given to the
Company by the Executive shall constitute Cause for purposes of this Agreement.
17.6. Change in Control. A "Change in Control" shall
mean the occurrence during the term of the Agreement of:
(a) An acquisition (other than directly from the
Company) of any common stock of the Company ("Common Stock") or other voting
securities of the Company entitled to vote generally for the election of
directors (the "Voting Securities") by any "Person" (as the term person is used
for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")), immediately after which such Person has
"Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of twenty percent (20%) or more of the then outstanding shares of
Common Stock or the combined voting power of the Company's then outstanding
Voting Securities; provided, however, in determining whether a Change in Control
has occurred, Voting Securities which are acquired in a Non-Control Acquisition
(as hereinafter defined) shall not constitute an acquisition which would cause a
Change in Control. A "Non-Control Acquisition" shall mean an acquisition by (i)
a Company employee benefit plan (or a trust forming a part thereof) maintained
by (A) the Company or (B) any corporation or other Person of which a majority of
its voting power or its voting equity securities or equity interest is owned,
directly or indirectly, by the Company (a "Subsidiary"), (ii) the Company or its
Subsidiaries, or (iii) any Person in connection with a Non-Control Transaction
(as hereinafter defined);
(b) The individuals who, as of the date hereof, are
members of the Board (the "Incumbent Board"), cease for any reason to constitute
at least seventy percent (70%) of the members of the Board, provided, however,
that if the election, or nomination for election by the Company's shareholders,
of any new director was approved by a vote of at least two-thirds of the
Incumbent Board, such new director shall, for purposes of this Agreement, be
considered as a member of the Incumbent Board; provided further, however, that
no individual shall be considered a member of the Incumbent Board if such
individual initially assumed office as a result of either an actual or
threatened "Election Contest" (as described in Rule 14a-11 promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other
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than the Board (a "Proxy Contest") including by reason of any agreement intended
to avoid or settle any Election Contest or Proxy Contest; or
(c) The consummation of:
(1) A merger, consolidation or reorganization
with or into the Company or in which securities of the Company are issued,
unless such merger, consolidation or reorganization is a "Non-Control
Transaction." A "Non-Control Transaction" shall mean a merger, consolidation or
reorganization with or into the Company or in which securities of the Company
are issued where:
(A) the shareholders of the Company,
immediately before such merger, consolidation or reorganization, own directly or
indirectly immediately following such merger, consolidation or reorganization,
at least sixty percent (60%) of the combined voting power of the outstanding
voting securities of the corporation resulting from such merger or consolidation
or reorganization (the "Surviving Corporation") in substantially the same
proportion as their ownership of the Voting Securities immediately before such
merger, consolidation or reorganization,
(B) the individuals who were members of the
Incumbent Board immediately prior to the execution of the agreement providing
for such merger, consolidation or reorganization constitute at least seventy
percent (70%) of the members of the board of directors of the Surviving Company;
or Corporation, or a corporation beneficially directly or indirectly owning a
majority of the Voting Securities of the Surviving Corporation, and
(C) no Person other than (i) the Company,
(ii) any Subsidiary, (iii) any employee benefit plan (or any trust forming a
part thereof) that, immediately prior to such merger, consolidation or
reorganization, was maintained by the Company, the Surviving Corporation, or any
Subsidiary, or (iv) any Person who, immediately prior to such merger,
consolidation or reorganization had Beneficial Ownership of twenty percent (20%)
or more of the then outstanding Voting Securities or common stock of the
Company, has Beneficial Ownership of twenty percent (20%) or more of the
combined voting power of the Surviving Corporation's then outstanding voting
securities or its common stock.
(2) A complete liquidation or dissolution of the
Company; or
(3) The sale or other disposition of all or
substantially all of the assets of the Company to any Person (other than a
transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in
Control shall not be deemed to occur solely because any Person (the "Subject
Person") acquired Beneficial Ownership of more than the permitted amount of the
then outstanding common
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stock or Voting Securities as a result of the acquisition of Common Stock or
Voting Securities by the Company which, by reducing the number of shares of
Common Stock or Voting Securities then outstanding, increases the proportional
number of shares Beneficially Owned by the Subject Person, provided that if a
Change in Control would occur (but for the operation of this sentence) as a
result of the acquisition of shares of Common Stock or Voting Securities by the
Company, and after such share acquisition by the Company, the Subject Person
becomes the Beneficial Owner of any additional shares of Common Stock or Voting
Securities which increases the percentage of the then outstanding shares of
Common Stock or Voting Securities Beneficially Owned by the Subject Person, then
a Change in Control shall occur.
17.7. Company. For purposes of this Agreement, all
references to the Company shall include its Successors and Assigns.
17.8. Disability. For purposes of this Agreement,
"Disability" shall mean a physical or mental infirmity which impairs the
Executive's ability to substantially perform his or her duties with the Company
for six (6) consecutive months, and within the time period set forth in a Notice
of Termination given to the Executive (which time period shall not be less than
thirty (30) days), the Executive shall not have returned to full-time
performance of his or her duties.
17.9. Good Reason. For purposes of this Agreement,
"Good Reason" shall mean the occurrence of any of the following events or
conditions, provided, however, that a termination for Good Reason shall only be
effective if the Executive provides the Company with at least thirty (30) days'
written Notice of Termination describing the circumstances giving rise to his
possible termination for Good Reason and the Company fails to cure such
circumstances within those thirty (30) days:
(1) a change in the Executive's status, title,
position or responsibilities (including reporting responsibilities) which
represents an adverse change from his or her status, title, position or
responsibilities as in effect immediately prior thereto; the assignment to the
Executive of any duties or responsibilities which are inconsistent with his
status, title, position or responsibilities; or any removal of the Executive
from or failure to reappoint or reelect him or her to any of such offices or
positions, except in connection with the termination of his employment for
Disability, Cause, as a result of his or her death or by the Executive other
than for Good Reason;
(2) a reduction in the Executive's annual base
salary below the Base Amount;
(3) the failure by the Company to pay to the
Executive any portion of the Executive's current compensation or to pay to the
Executive any portion of an installment of deferred compensation under any
deferred compensation program of the Company in which the Executive
participated, within twenty-one (21) days of the date such compensation is due;
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(4) the failure by the Company (A) to continue
in effect (without reduction in benefit level, and/or reward opportunities) any
material compensation or employee benefit plan in which the Executive was
participating on September 1, 1998, including, but not limited to, any of the
plans listed in Appendix A hereto, unless a substitute or replacement plan has
been implemented which provides substantially identical compensation or benefits
to the Executive; provided, however, that if such material compensation or
employee benefit plans are increased at any time after September 1, 1998, then
the failure to continue those greater material compensation or employee benefit
plans will constitute Good Reason; or (B) to provide the Executive with
compensation and benefits, which in the aggregate, are at least equal (in terms
of benefit levels and/or reward opportunities) to those provided for under each
other compensation or employee benefit plan, program and practice in which the
Executive was participating on September 1, 1998; provided, however, that if the
aggregate compensation and benefits provided for under each other compensation
or employee benefit plan, program and practice in which the Executive
participates at any time after September 1, 1998 are increased after September
1, 1998, then the failure to provide the Executive with such aggregate greater
compensation and benefits shall constitute Good Reason;
(5) the failure of the Company to obtain from
its Successors or Assigns the express assumption and agreement required under
Section 12 hereof; or
(6) any purported termination of the Executive's
employment by the Company which is not effected pursuant to a Notice of
Termination satisfying the terms set forth in the definition of Notice of
Termination (and, if applicable, the terms set forth in the definition of
Cause).
17.10. Notice of Termination. For purposes of this
Agreement, "Notice of Termination" shall mean a written notice of termination of
the Executive's employment, signed by the Executive if to the Company or by a
duly authorized officer of the Company if to the Executive, which indicates the
specific termination provision in this Agreement, if any, relied upon and which
sets forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated.
17.11. Pro Rata Bonus. For purposes of this
Agreement, "Pro Rata Bonus" shall mean an amount equal to the Bonus Amount
multiplied by a fraction the numerator of which is the number of days in such
fiscal year through the Termination Date and the denominator of which is 365.
17.12. Successors and Assigns. For purposes of this
Agreement, "Successors and Assigns" shall mean, with respect to the Company, a
corporation or other entity acquiring all or substantially all the assets and
business of the Company, as the case may be (including this Agreement), whether
by operation of law or otherwise.
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17.13. Termination Date. For purposes of this
Agreement, "Termination Date" shall mean (a) in the case of the Executive's
death, his or her date of death, (b) if the Executive's employment is terminated
for Disability, thirty (30) days after Notice of Termination is given (provided
that the Executive shall not have returned to the performance of his or her
duties on a full-time basis during such thirty (30) day period) and (c) if the
Executive's employment is terminated for any other reason, the date specified in
the Notice of Termination (which, in the case of a termination for Cause shall
not be less than thirty (30) days, and in the case of a termination for Good
Reason shall not be more than sixty (60) days, from the date such Notice of
Termination is given); provided, however, that if within thirty (30) days after
any Notice of Termination is given the party receiving such Notice of
Termination in good faith notifies the other party that a dispute exists
concerning the basis for the termination, the Termination Date shall be the date
on which the dispute is finally determined, either by mutual written agreement
of the parties, or by the final judgment, order or decree of a court of
competent jurisdiction (the time for appeal therefrom having expired and no
appeal having been taken). Notwithstanding the pendency of any such dispute, the
Company shall continue to pay the Executive his or her Base Amount and continue
the Executive as a participant in all compensation, incentive, bonus, pension,
profit sharing, medical, hospitalization, dental, life insurance and disability
benefit plans in which he or she was participating when the notice giving rise
to the dispute was given, until the dispute is finally resolved in accordance
with this Section whether or not the dispute is resolved in favor of the
Company, and the Executive shall not be obligated to repay to the Company any
amounts paid or benefits provided pursuant to this sentence.
-----SIGNATURE PAGE FOLLOWS-----
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IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed by its duly authorized officers and the Executive has executed this
Agreement as of the day and year first above written.
Gadzooks, Inc.
By: /s/ MONTY R. STANDIFER
-------------------------------------
Name: Monty R. Standifer
Title: Senior Vice President and
Chief Financial Officer
By: /s/ GERALD R. SZCZEPANSKI
-------------------------------------
Name: Gerald R. Szczepanski
15
<PAGE> 1
EXHIBIT 10.25
SEVERANCE PROTECTION AGREEMENT
THIS AGREEMENT made as of the first day of September, 1998, by
and between Gadzooks, Inc. (the "Company") and David L. Mangini (the
"Executive").
WHEREAS, the Board of Directors and the Executive desire to
enter into this Agreement to provide certain benefits to the Executive upon the
termination of employment of the Executive under certain conditions;
WHEREAS, the Board of Directors of the Company (the "Board")
recognizes that the possibility of a Change in Control (as hereinafter defined)
exists and that the threat or the occurrence of a Change in Control can result
in significant distraction of the Company's key management personnel because of
the uncertainties inherent in such a situation;
WHEREAS, the Board has determined that it is essential and in
the best interest of the Company and its stockholders for the Company to retain
the services of the Executive in the event of a threat or occurrence of a Change
in Control and to ensure the Executive's continued dedication and efforts in
such event without undue concern for the Executive's personal financial and
employment security;
WHEREAS, in order to induce the Executive to remain in the
employ of the Company, particularly in the event of a threat or the occurrence
of a Change in Control, the Company desires to enter into this Agreement with
the Executive to provide the Executive with certain benefits in the event the
Executive's employment is terminated under certain conditions, including as a
result of, or in connection with, a Change in Control, and to provide the
Executive with the Gross-Up Payment (as hereinafter defined); and
WHEREAS, by entering into this Agreement, the Executive will
agree to certain restrictions on his ability to compete with the Company or
solicit employees of the Company following his termination of employment, and
the Company will benefit from said restrictions.
NOW, THEREFORE, in consideration of the respective agreements
of the parties contained herein, it is agreed as follows:
1. Term of Agreement. This Agreement shall commence as of
September 1, 1998 and shall continue in effect through August 31, 2000 (the
"Term"); provided, however, that on September 1, 2000, and on each September 1
thereafter, the Term shall automatically be extended for one (1) year unless
either the Executive or the Company shall have given written notice to the other
at least ninety (90) days prior thereto that the Term shall not be so extended;
provided, further, however, that following the occurrence
<PAGE> 2
of a Change in Control, the Term shall not expire prior to the expiration of
twenty-four (24) months after such occurrence.
2. Termination of Employment in Connection with a Change in
Control. If, during the Term, the Executive's employment with the Company shall
be terminated within twenty-four (24) months following a Change in Control, the
Executive shall be entitled to the following compensation and benefits:
(a) If the Executive's employment with the Company shall
be terminated (1) by the Company for Cause or Disability, (2) by reason of the
Executive's death, or (3) by the Executive other than for Good Reason, the
Company shall pay to the Executive his or her Accrued Compensation. In addition
to the foregoing, if the Executive's employment is terminated by the Company for
Disability or by reason of the Executive's death, the Company shall pay to the
Executive or his or her beneficiaries a Pro Rata Bonus. The Executive's
entitlement to any other compensation or benefits shall be determined in
accordance with the Company's employee benefits plans and other applicable
programs and practices then in effect.
(b) If the Executive's employment with the Company shall
be terminated for any reason other than as specified in Section 2(a), the
Executive shall be entitled to the following:
(1) the Company shall pay the Executive all
Accrued Compensation and a Pro Rata Bonus;
(2) the Company shall pay the Executive as
severance pay and in lieu of any further compensation for periods subsequent to
the Termination Date, an amount determined by multiplying two times the sum of
(i) the Executive's Base Amount and (ii) the Executive's Bonus Amount; and
(3) after the Termination Date and until the
earlier of: the death of the Executive or the date upon which the Executive
becomes eligible for Medicare coverage (irrespective of whether the Executive
actually obtains such coverage), the Company shall continue to provide to the
Executive medical and dental coverage as provided to the Executive on the
Termination Date. The medical and dental coverage may be modified by the Company
at any time subsequent to the Termination Date as long as such modifications are
pursuant to, and to the same extent as, any modifications to the Company's
medical and dental insurance coverage provided to the Executive Officers in
office on the date of such modifications and such modifications do not result in
a substantial reduction of medical and dental benefits.
(c) If (x) the Executive's employment is terminated by
the Company without Cause, or (y) the Executive terminates employment for Good
Reason (1) within six (6) months prior to a Change in Control, or (2) prior to
the date of a Change in Control but the Executive reasonably demonstrates that
such (x) termination or (y)
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event or condition (A) was at the request of a third party who has indicated an
intention or taken steps reasonably calculated to effect a Change in Control (a
"Third Party") and who effectuates a Change in Control or (B) otherwise arose in
connection with, or in anticipation of a Change in Control which has been
threatened or proposed and which actually occurs, such termination shall be
deemed to have occurred after a Change in Control, provided a Change in Control
shall actually have occurred.
(d) (1) Gross-Up Payment. In the event it shall be
determined that any payment or distribution of any type to or for the benefit of
the Executive, by the Company, any Affiliate, any Person who acquires ownership
or effective control of the Company or ownership of a substantial portion of the
Company's assets (within the meaning of Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code"), and the regulations thereunder) or any
affiliate of such Person, whether paid or payable or distributed or
distributable pursuant to any of the terms of this Agreement or otherwise (the
"Total Payments"), is or will be subject to the excise tax imposed by Section
4999 of the Code or any interest or penalties with respect to such excise tax
(such excise tax, together with any such interest and penalties, are
collectively referred to as the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including any income tax,
employment tax or Excise Tax, imposed upon the Gross Up Payment, the Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
the Total Payments.
(2) Determination By Accountant. All
mathematical determinations, and all determinations as to whether any of the
Total Payments are "parachute payments" (within the meaning of Section 280G of
the Code), that are required to be made under this Section 2(d), including
determinations as to whether a Gross-Up Payment is required, the amount of such
Gross-Up Payment and amounts relevant to the last sentence of this Section
2(d)(2), shall be made by an independent accounting firm selected by the
Executive from among the six (6) largest accounting firms in the United States
(the "Accounting Firm"), which shall provide its determination (the
"Determination"), together with detailed supporting calculations regarding the
amount of any Gross-Up Payment and any other relevant matter, both to the
Company and the Executive by no later than ten (10) days following the
Termination Date, if applicable, or such earlier time as is requested by the
Company or the Executive (if the Executive reasonably believes that any of the
Total Payments may be subject to the Excise Tax). If the Accounting Firm
determines that no Excise Tax is payable by the Executive, it shall furnish the
Executive and the Company with a written statement that such Accounting Firm has
concluded that no Excise Tax is payable (including the reasons therefor) and
that the Executive has substantial authority not to report any Excise Tax on his
or her federal income tax return. If a Gross-Up Payment is determined to be
payable, it shall be paid to the Executive within twenty (20) days after the
Determination (and all accompanying calculations and other material supporting
the Determination) is delivered to the Company by the Accounting Firm. Any
determination by the Accounting Firm shall be binding upon
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<PAGE> 4
the Company and the Executive, absent manifest error. As a result of uncertainty
in the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments not made by the Company should have been made ("Underpayment"), or that
Gross-Up Payments will have been made by the Company which should not have been
made ("Overpayments"). In either such event, the Accounting Firm shall determine
the amount of the Underpayment or Overpayment that has occurred. In the case of
an Underpayment, the amount of such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive. In the case of an Overpayment,
the Executive shall, at the direction and expense of the Company, take such
steps as are reasonably necessary (including the filing of returns and claims
for refund), follow reasonable instructions from, and procedures established by,
the Company, and otherwise reasonably cooperate with the Company to correct such
Overpayment, provided, however, that (i) the Executive shall not in any event be
obligated to return to the Company an amount greater than the net after-tax
portion of the Overpayment that he or she has retained or has recovered as a
refund from the applicable taxing authorities and (ii) this provision shall be
interpreted in a manner consistent with the intent of Section 2(d)(1), which is
to make the Executive whole, on an after-tax basis, from the application of the
Excise Tax, it being understood that the correction of an Overpayment may result
in the Executive repaying to the Company an amount which is less than the
Overpayment.
(e) The amounts provided for in Sections 2(a) and 2(b)(1) and
(2), shall be paid in a single lump sum cash payment within thirty (30) days
after the Executive's Termination Date (or earlier, if required by applicable
law).
(f) The Executive shall not be required to mitigate the amount
of any payment provided for in this Agreement by seeking other employment or
otherwise and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to the Executive in any subsequent employment
except as provided in Section 3(a) below.
(g) The payments and benefits provided for in this Section 2
shall be in lieu of any other severance pay to which the Executive may be
entitled under any Company severance plan or any other plan, agreement or
arrangement of the Company.
3. Termination of Employment Not in Connection with a Change in
Control. If the Executive's employment with the Company is terminated at any
time other than within twenty-four (24) months following a Change in Control or
the time specified under Section 2(c), the Executive shall be entitled to the
compensation, payments and benefits set forth in Sections 2(a) through 2(g)
under the conditions set forth in Sections 2(a) through 2(g) except as follows:
(a) The severance benefits described in Section 2(b)(2) shall
be paid to the Executive in the form of biweekly periodic salary continuation
payment for two years from the Termination Date. During the first one-year
period ending on the first
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<PAGE> 5
anniversary of the Termination Date (the "First Year"), the Executive shall have
no obligation to seek other employment or take other action by way of mitigation
of the amounts payable to the Executive under Section 2(b)(2) and such amounts
shall not be reduced whether or not the Executive obtains other employment.
During the period immediately after the First Year and ending on the second
anniversary of the Termination Date (the "Second Year"), the Executive shall not
be obligated to seek other employment and take action by way of mitigation of
the amounts payable to the Executive under Section 2(b)(2); however,
notwithstanding anything else in this Agreement, amounts received during the
Second Year under Section 2(b)(2) shall be reduced by the amount that the
Executive receives from such other employment should the Executive obtain other
employment during the Second Year; and
(b) The medical and dental benefits described in Section
2(b)(3) in the event of a termination by the Company without Cause or by the
Executive for Good Reason shall only continue until the earlier of: the second
anniversary of the Termination Date or the date upon which the Executive becomes
eligible for Medicare coverage (irrespective of whether the Executive actually
obtains such coverage).
4. Notice of Termination. Any intended termination of the
Executive's employment by the Company shall be communicated by a Notice of
Termination from the Company to the Executive, and any intended termination of
the Executive's employment by the Executive for Good Reason shall be
communicated by a Notice of Termination from the Executive to the Company.
5. Non-Competition, Non-Solicitation, Non-Interference and
Confidentiality.
(a) The Executive agrees that upon termination of his
employment with the Company, he will not, without the prior written consent of
the Company, for a period of twenty-four (24) months thereafter, alone or with
or for others, in whatever, capacity, directly or indirectly, solicit or attempt
to solicit clients or customers of the Company, or solicit or attempt to solicit
employees of the Company to leave the Company's employ.
(b) The Executive agrees that during the Restricted Period he
will not interfere with the relationship between the Company and any of its
vendors.
(c) The Executive agrees that, during the Restricted Period,
he shall not, for himself or any third party, directly or indirectly engage in
any business activity or accept employment with any entity that is or may be
competitive with the Company in the field of retail sales (including, but not
limited to, internet retail sales and mail-order retail sales), of moderately
priced men's and women's casual apparel and accessories ("Competitor"), without
prior written consent of the Company. The Executive agrees that, prior to
engaging in any such activity or accepting employment with a Competitor or any
entity that could reasonably be deemed a Competitor during the
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<PAGE> 6
Restricted Period, the Executive shall advise the Company in writing of the
Executive's intentions and seek the Company's approval. Company approval shall
apply only with respect to the activity or position approved and the Executive
shall be obligated to obtain Company approval with respect to any subsequent
change of activity or position or employment during the Restricted Period. The
Executive also agrees that, during the Restricted Period, the Executive shall
not hold any stock in a Competitor other than passive minority interests
comprising less than 2% of the outstanding stock of a publicly traded
Competitor.
(d) Without the prior written consent of the Company, except
to the extent required by an order of a court having competent jurisdiction or
under subpoena from an appropriate government agency, Executive shall not
disclose any trade secrets, customer lists, supplier lists, drawings, designs,
information regarding product development, marketing plans, sales plans,
management plans, management organization information (including data and other
information relating to members of the Board and management), operating policies
or manuals, business plans, financial records or any other financial commercial,
business or technical information relating to the Company or information
designated as confidential or proprietary that the Company may receive belonging
to suppliers, customers or others who do business with the Company
(collectively, "Confidential Information") to any third person unless such
Confidential Information has been previously disclosed to the public by the
Company or is in the public domain (other than by reason of Executive's breach
of this section 5(c)).
6. Fees and Expenses.
(a) If the employment of the Executive is terminated under
section 2(a) or 2(c) of this Agreement, the Company shall pay all legal fees and
related expenses (including the costs of experts, evidence and counsel) incurred
by the Executive as they become due as a result of (x) the termination of the
Executive's employment by the Company or by the Executive for Good Reason
(including all such fees and expenses, if any, incurred in contesting, defending
or disputing the basis for any such termination of employment), (y) the
Executive's hearing before the Board as contemplated in Section 17.5 of this
Agreement or (z) the Executive seeking to obtain or enforce any right or benefit
provided by this Agreement or by any other plan or arrangement maintained by the
Company under which the Executive is or may be entitled to receive benefits.
(b) If the employment of the Executive is terminated for
reasons or in circumstances not related to those described in section 2(a) or
2(c) of this Agreement, the Company shall only pay the legal fees and related
expenses described in section 6(a) to the extent that the Company is
unsuccessful in the result of any litigation or other legal proceeding arising
out of the termination of the employment of the Executive.
7. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement (including any Notice of
Termination) shall be in writing, shall be signed by the Executive if to the
Company or by a duly
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authorized officer of the Company if to the Executive, and shall be deemed to
have been duly given when personally delivered or sent by certified mail, return
receipt requested, postage prepaid, addressed to the respective addresses last
given by each party to the other, provided that all notices to the Company shall
be directed to the attention of the Board with a copy to the Secretary of the
Company. All notices and communications shall be deemed to have been received on
the date of delivery thereof or on the third business day after the mailing
thereof, except that notice of change of address shall be effective only upon
receipt.
8. Nature of Rights. The Executive shall have the status of a mere
unsecured creditor of the Company with respect to his or her right to receive
any payment under this Agreement. This Agreement shall constitute a mere promise
by the Company to make payments in the future of the benefits provided for
herein. It is the intention of the parties hereto that the arrangements
reflected in this Agreement shall be treated as unfunded for tax purposes and,
if it should be determined that Title I of ERISA is applicable to this
Agreement, for purposes of Title I of ERISA. Except as provided in Section 2(g),
nothing in this Agreement shall prevent or limit the Executive's continuing or
future participation in any benefit, bonus, incentive or other plan or program
provided by the Company and for which the Executive may qualify, nor shall
anything herein limit or reduce such rights as the Executive may have under any
other agreements with the Company. Amounts which are vested benefits or which
the Executive is otherwise entitled to receive under any plan or program of the
Company shall be payable in accordance with such plan or program, except as
explicitly modified by this Agreement.
9. Settlement of Claims. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, defense, recoupment, or other right which
the Company may have against the Executive or others.
10. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and the Company. No waiver by any party
hereto at any time of any breach by any other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No agreement or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by any party which are not expressly set forth in this Agreement.
11. Survival. The provisions in Section 5 of this Agreement shall
survive the expiration of this Agreement.
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12. Successors; Binding Agreement.
(a) This Agreement shall be binding upon and shall inure to
the benefit of the Company and its Successors and Assigns. The Company shall
require its Successors and Assigns to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession or assignment had taken place.
(b) Neither this Agreement nor any right or interest hereunder
shall be assignable or transferable by the Executive, his or her beneficiaries
or legal representatives, except by will or by the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Executive's legal personal representative.
13. Mediation; Governing Law.
(a) Any dispute or controversy arising under or in connection
with this Agreement shall be first submitted to mediation. The mediation shall
be held in Dallas County in the State of Texas and except to the extent
inconsistent with this Agreement, shall be conducted in accordance with the
National Rules for the Resolution of Employment Disputes (Employment Mediation
Rules) of the American Arbitration Association then in effect at the time of the
mediation, and otherwise in accordance with principles which would be applied by
a court of law or equity. Mediation shall only be binding if it is acceptable to
both the Company and the Executive.
(b) This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Texas without giving effect
to the conflict of laws principles thereof. If mediation does not result in
resolution of any dispute or controversy arising under or in connection with
this Agreement, a party may bring an action. Any action brought by any party to
this Agreement shall be brought and maintained in a court of competent
jurisdiction in Dallas County in the State of Texas.
14. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
15. Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto, and supersedes all prior agreements,
including the Severance Agreement dated September 5, 1996, understandings and
arrangements, oral or written, between the parties hereto, with respect to the
subject matter hereof.
16. Release. The Executive agrees that payment hereunder is
conditioned upon the execution of a release ("General Release") in the form
attached hereto.
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17. Definitions.
17.1. Accrued Compensation. For purposes of this Agreement,
"Accrued Compensation" shall mean all amounts of compensation for services
rendered to the Company that have been earned or accrued through the Termination
Date but that have not been paid as of the Termination Date including (a) base
salary, (b) reimbursement for reasonable and necessary business expenses
incurred by the Executive on behalf of the Company during the period ending on
the Termination Date, (c) vacation pay and (d) bonuses and incentive
compensation; provided, however, that Accrued Compensation shall not include any
amounts described in clause (a) or clause (d) that have been deferred pursuant
to any salary reduction or deferred compensation elections made by the
Executive.
17.2. Affiliate. For purposes of this Agreement, "Affiliate"
means any entity, directly or indirectly, controlled by, controlling or under
common control with the Company or any corporation or other entity acquiring,
directly or indirectly, all or substantially all the assets and business of the
Company, whether by operation of law or otherwise.
17.3. Base Amount. For purposes of this Agreement, "Base
Amount" shall mean the Executive's base salary in effect on September 1, 1998,
or, if greater, (b) in effect at any time thereafter.
17.4. Bonus Amount. For purposes of this Agreement, "Bonus
Amount" shall mean the target annual bonus payable to the Executive in respect
of the fiscal year during which the Termination Date occurs.
17.5. Cause. For purposes of this Agreement, a termination of
employment is for "Cause" if the Executive has been convicted of a felony or the
termination is evidenced by a resolution adopted in good faith by two-thirds of
the Board that the Executive:
(a) intentionally and continually failed substantially to
perform his or her reasonably assigned duties with the Company (other than a
failure resulting from the Executive's incapacity due to physical or mental
illness or from the assignment to the Executive of duties that would constitute
Good Reason) which failure continued for a period of at least thirty (30) days
after a written notice of demand for substantial performance, signed by a duly
authorized officer of the Company, has been delivered to the Executive
specifying the manner in which the Executive has failed substantially to
perform, or
(b) intentionally engaged in conduct which is demonstrably and
materially injurious to the Company; provided, however, that no termination of
the Executive's employment shall be for Cause as set forth in this Section
17.5(b) until (1) there shall have been delivered to the Executive a copy of a
written notice, signed by a
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<PAGE> 10
duly authorized officer of the Company, setting forth that the Executive was
guilty of the conduct set forth in this Section 17.5(b) and specifying the
particulars thereof in detail, and (2) the Executive shall have been provided an
opportunity to be heard in person by the Board (with the assistance of the
Executive's counsel if the Executive so desires).
No act, nor failure to act, on the Executive's part, shall be
considered "intentional" unless the Executive has acted, or failed to act, with
a lack of good faith and with a lack of reasonable belief that the Executive's
action or failure to act was in the best interest of the Company.
Notwithstanding anything contained in this Agreement to the contrary, no failure
to perform by the Executive after a Notice of Termination is given to the
Company by the Executive shall constitute Cause for purposes of this Agreement.
17.6. Change in Control. A "Change in Control" shall mean the
occurrence during the term of the Agreement of:
(a) An acquisition (other than directly from the Company) of
any common stock of the Company ("Common Stock") or other voting securities of
the Company entitled to vote generally for the election of directors (the
"Voting Securities") by any "Person" (as the term person is used for purposes of
Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), immediately after which such Person has "Beneficial Ownership"
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty
percent (20%) or more of the then outstanding shares of Common Stock or the
combined voting power of the Company's then outstanding Voting Securities;
provided, however, in determining whether a Change in Control has occurred,
Voting Securities which are acquired in a Non-Control Acquisition (as
hereinafter defined) shall not constitute an acquisition which would cause a
Change in Control. A "Non-Control Acquisition" shall mean an acquisition by (i)
a Company employee benefit plan (or a trust forming a part thereof) maintained
by (A) the Company or (B) any corporation or other Person of which a majority of
its voting power or its voting equity securities or equity interest is owned,
directly or indirectly, by the Company (a "Subsidiary"), (ii) the Company or its
Subsidiaries, or (iii) any Person in connection with a Non-Control Transaction
(as hereinafter defined);
(b) The individuals who, as of the date hereof, are members of
the Board (the "Incumbent Board"), cease for any reason to constitute at least
seventy percent (70%) of the members of the Board, provided, however, that if
the election, or nomination for election by the Company's shareholders, of any
new director was approved by a vote of at least two-thirds of the Incumbent
Board, such new director shall, for purposes of this Agreement, be considered as
a member of the Incumbent Board; provided further, however, that no individual
shall be considered a member of the Incumbent Board if such individual initially
assumed office as a result of either an actual or threatened "Election Contest"
(as described in Rule 14a-11 promulgated under the Exchange Act) or other actual
or threatened solicitation of proxies or consents by or on behalf of a Person
other
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than the Board (a "Proxy Contest") including by reason of any agreement intended
to avoid or settle any Election Contest or Proxy Contest; or
(c) The consummation of:
(1) A merger, consolidation or reorganization with or
into the Company or in which securities of the Company are issued, unless such
merger, consolidation or reorganization is a "Non-Control Transaction." A
"Non-Control Transaction" shall mean a merger, consolidation or reorganization
with or into the Company or in which securities of the Company are issued where:
(A) the shareholders of the Company, immediately
before such merger, consolidation or reorganization, own directly or indirectly
immediately following such merger, consolidation or reorganization, at least
sixty percent (60%) of the combined voting power of the outstanding voting
securities of the corporation resulting from such merger or consolidation or
reorganization (the "Surviving Corporation") in substantially the same
proportion as their ownership of the Voting Securities immediately before such
merger, consolidation or reorganization,
(B) the individuals who were members of the
Incumbent Board immediately prior to the execution of the agreement providing
for such merger, consolidation or reorganization constitute at least seventy
percent (70%) of the members of the board of directors of the Surviving Company;
or Corporation, or a corporation beneficially directly or indirectly owning a
majority of the Voting Securities of the Surviving Corporation, and
(C) no Person other than (i) the Company, (ii)
any Subsidiary, (iii) any employee benefit plan (or any trust forming a part
thereof) that, immediately prior to such merger, consolidation or
reorganization, was maintained by the Company, the Surviving Corporation, or any
Subsidiary, or (iv) any Person who, immediately prior to such merger,
consolidation or reorganization had Beneficial Ownership of twenty percent (20%)
or more of the then outstanding Voting Securities or common stock of the
Company, has Beneficial Ownership of twenty percent (20%) or more of the
combined voting power of the Surviving Corporation's then outstanding voting
securities or its common stock.
(2) A complete liquidation or dissolution of the
Company; or
(3) The sale or other disposition of all or
substantially all of the assets of the Company to any Person (other than a
transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall
not be deemed to occur solely because any Person (the "Subject Person") acquired
Beneficial Ownership of more than the permitted amount of the then outstanding
common
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stock or Voting Securities as a result of the acquisition of Common Stock or
Voting Securities by the Company which, by reducing the number of shares of
Common Stock or Voting Securities then outstanding, increases the proportional
number of shares Beneficially Owned by the Subject Person, provided that if a
Change in Control would occur (but for the operation of this sentence) as a
result of the acquisition of shares of Common Stock or Voting Securities by the
Company, and after such share acquisition by the Company, the Subject Person
becomes the Beneficial Owner of any additional shares of Common Stock or Voting
Securities which increases the percentage of the then outstanding shares of
Common Stock or Voting Securities Beneficially Owned by the Subject Person, then
a Change in Control shall occur.
17.7. Company. For purposes of this Agreement, all references
to the Company shall include its Successors and Assigns.
17.8. Disability. For purposes of this Agreement, "Disability"
shall mean a physical or mental infirmity which impairs the Executive's ability
to substantially perform his or her duties with the Company for six (6)
consecutive months, and within the time period set forth in a Notice of
Termination given to the Executive (which time period shall not be less than
thirty (30) days), the Executive shall not have returned to full-time
performance of his or her duties.
17.9. Good Reason. For purposes of this Agreement, "Good
Reason" shall mean the occurrence of any of the following events or conditions,
provided, however, that a termination for Good Reason shall only be effective if
the Executive provides the Company with at least thirty (30) days' written
Notice of Termination describing the circumstances giving rise to his possible
termination for Good Reason and the Company fails to cure such circumstances
within those thirty (30) days:
(1) a change in the Executive's status, title, position
or responsibilities (including reporting responsibilities) which represents an
adverse change from his or her status, title, position or responsibilities as in
effect immediately prior thereto; the assignment to the Executive of any duties
or responsibilities which are inconsistent with his status, title, position or
responsibilities; or any removal of the Executive from or failure to reappoint
or reelect him or her to any of such offices or positions, except in connection
with the termination of his employment for Disability, Cause, as a result of his
or her death or by the Executive other than for Good Reason;
(2) a reduction in the Executive's annual base salary
below the Base Amount;
(3) the failure by the Company to pay to the Executive
any portion of the Executive's current compensation or to pay to the Executive
any portion of an installment of deferred compensation under any deferred
compensation program of the Company in which the Executive participated, within
twenty-one (21) days of the date such compensation is due;
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(4) the failure by the Company (A) to continue in effect
(without reduction in benefit level, and/or reward opportunities) any material
compensation or employee benefit plan in which the Executive was participating
on September 1, 1998, including, but not limited to, any of the plans listed in
Appendix A hereto, unless a substitute or replacement plan has been implemented
which provides substantially identical compensation or benefits to the
Executive; provided, however, that if such material compensation or employee
benefit plans are increased at any time after September 1, 1998, then the
failure to continue those greater material compensation or employee benefit
plans will constitute Good Reason; or (B) to provide the Executive with
compensation and benefits, which in the aggregate, are at least equal (in terms
of benefit levels and/or reward opportunities) to those provided for under each
other compensation or employee benefit plan, program and practice in which the
Executive was participating on September 1, 1998; provided, however, that if the
aggregate compensation and benefits provided for under each other compensation
or employee benefit plan, program and practice in which the Executive
participates at any time after September 1, 1998 are increased after September
1, 1998, then the failure to provide the Executive with such aggregate greater
compensation and benefits shall constitute Good Reason;
(5) the failure of the Company to obtain from its
Successors or Assigns the express assumption and agreement required under
Section 12 hereof; or
(6) any purported termination of the Executive's
employment by the Company which is not effected pursuant to a Notice of
Termination satisfying the terms set forth in the definition of Notice of
Termination (and, if applicable, the terms set forth in the definition of
Cause).
17.10. Notice of Termination. For purposes of this Agreement,
"Notice of Termination" shall mean a written notice of termination of the
Executive's employment, signed by the Executive if to the Company or by a duly
authorized officer of the Company if to the Executive, which indicates the
specific termination provision in this Agreement, if any, relied upon and which
sets forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated.
17.11. Pro Rata Bonus. For purposes of this Agreement, "Pro
Rata Bonus" shall mean an amount equal to the Bonus Amount multiplied by a
fraction the numerator of which is the number of days in such fiscal year
through the Termination Date and the denominator of which is 365.
17.12. Successors and Assigns. For purposes of this Agreement,
"Successors and Assigns" shall mean, with respect to the Company, a corporation
or other entity acquiring all or substantially all the assets and business of
the Company, as the case may be (including this Agreement), whether by operation
of law or otherwise.
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<PAGE> 14
17.13. Termination Date. For purposes of this Agreement,
"Termination Date" shall mean (a) in the case of the Executive's death, his or
her date of death, (b) if the Executive's employment is terminated for
Disability, thirty (30) days after Notice of Termination is given (provided that
the Executive shall not have returned to the performance of his or her duties on
a full-time basis during such thirty (30) day period) and (c) if the Executive's
employment is terminated for any other reason, the date specified in the Notice
of Termination (which, in the case of a termination for Cause shall not be less
than thirty (30) days, and in the case of a termination for Good Reason shall
not be more than sixty (60) days, from the date such Notice of Termination is
given); provided, however, that if within thirty (30) days after any Notice of
Termination is given the party receiving such Notice of Termination in good
faith notifies the other party that a dispute exists concerning the basis for
the termination, the Termination Date shall be the date on which the dispute is
finally determined, either by mutual written agreement of the parties, or by the
final judgment, order or decree of a court of competent jurisdiction (the time
for appeal therefrom having expired and no appeal having been taken).
Notwithstanding the pendency of any such dispute, the Company shall continue to
pay the Executive his or her Base Amount and continue the Executive as a
participant in all compensation, incentive, bonus, pension, profit sharing,
medical, hospitalization, dental, life insurance and disability benefit plans in
which he or she was participating when the notice giving rise to the dispute was
given, until the dispute is finally resolved in accordance with this Section
whether or not the dispute is resolved in favor of the Company, and the
Executive shall not be obligated to repay to the Company any amounts paid or
benefits provided pursuant to this sentence.
-----SIGNATURE PAGE FOLLOWS-----
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IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed by its duly authorized officers and the Executive has executed this
Agreement as of the day and year first above written.
Gadzooks, Inc.
By: /s/ MONTY R. STANDIFER
-------------------------------
Name: Monty R. Standifer
Title: Senior Vice President and
Chief Financial Officer
By: /s/ DAVID L. MANGINI
-------------------------------
Name: David L. Mangini
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EXHIBIT 10.26
SEVERANCE PROTECTION AGREEMENT
THIS AGREEMENT made as of the first day of September, 1998, by and
between Gadzooks, Inc. (the "Company") and Monty R. Standifer (the "Executive").
WHEREAS, the Board of Directors and the Executive desire to enter into
this Agreement to provide certain benefits to the Executive upon the termination
of employment of the Executive under certain conditions;
WHEREAS, the Board of Directors of the Company (the "Board") recognizes
that the possibility of a Change in Control (as hereinafter defined) exists and
that the threat or the occurrence of a Change in Control can result in
significant distraction of the Company's key management personnel because of the
uncertainties inherent in such a situation;
WHEREAS, the Board has determined that it is essential and in the best
interest of the Company and its stockholders for the Company to retain the
services of the Executive in the event of a threat or occurrence of a Change in
Control and to ensure the Executive's continued dedication and efforts in such
event without undue concern for the Executive's personal financial and
employment security;
WHEREAS, in order to induce the Executive to remain in the employ of
the Company, particularly in the event of a threat or the occurrence of a Change
in Control, the Company desires to enter into this Agreement with the Executive
to provide the Executive with certain benefits in the event the Executive's
employment is terminated under certain conditions, including as a result of, or
in connection with, a Change in Control, in addition to any benefits which would
be otherwise provided to Executive under paragraphs 2, 3 and 4 of the agreement
(the "Executive Retirement Agreement") dated as of June 18, 1998 between the
Company and the Executive, and to provide the Executive with the Gross-Up
Payment (as hereinafter defined); and
WHEREAS, by entering into this Agreement, the Executive will agree to
certain restrictions on his ability to compete with the Company or solicit
employees of the Company following his termination of employment, and the
Company will benefit from said restrictions.
NOW, THEREFORE, in consideration of the respective agreements of the
parties contained herein, it is agreed as follows:
1. Term of Agreement. This Agreement shall commence as of September
1, 1998 and shall continue in effect through August 31, 2000 (the "Term");
provided, however, that on September 1, 2000, and on each September 1
thereafter, the Term shall automatically be extended for one (1) year unless
either the Executive or the Company shall have given written notice to the other
at least ninety (90) days prior thereto that the
<PAGE> 2
Term shall not be so extended; provided, further, however, that following the
occurrence of a Change in Control, the Term shall not expire prior to the
expiration of twenty-four (24) months after such occurrence.
2. Termination of Employment in Connection with a Change in Control.
If, during the Term, the Executive's employment with the Company shall be
terminated within twenty-four (24) months following a Change in Control, the
Executive shall be entitled to the following compensation and benefits:
(a) If the Executive's employment with the Company shall be
terminated (1) by the Company for Cause or Disability, (2) by reason of the
Executive's death, or (3) by the Executive other than for Good Reason, the
Company shall pay to the Executive his or her Accrued Compensation. In addition
to the foregoing, if the Executive's employment is terminated by the Company for
Disability or by reason of the Executive's death, the Company shall pay to the
Executive or his or her beneficiaries a Pro Rata Bonus. The Executive's
entitlement to any other compensation or benefits shall be determined in
accordance with the Company's employee benefits plans, the Retirement Agreement,
and other applicable programs and practices then in effect.
(b) If the Executive's employment with the Company shall be
terminated for any reason other than as specified in Section 2(a), the Executive
shall be entitled to the following:
(1) the Company shall pay the Executive all Accrued
Compensation and a Pro Rata Bonus (such Pro Rata Bonus to be in place of the
bonus that would otherwise be paid under the Retirement Agreement);
(2) the Company shall pay the Executive as severance pay
and in lieu of any further compensation for periods subsequent to the
Termination Date, an amount determined by multiplying two times the sum of (i)
the Executive's Base Amount and (ii) the Executive's Bonus Amount;
(3) the insurance coverage set forth in paragraph 3 of
the Retirement Agreement; and
(4) the stock option vesting acceleration set forth in
paragraph 2 of the Retirement Agreement.
(c) If (X) the Executive's employment is terminated by the
Company without Cause, or (Y) the Executive terminates employment for Good
Reason, (1) within six (6) months prior to a Change in Control, or (2) prior to
the date of a Change in Control but the Executive reasonably demonstrates that
such (X) termination or (Y) event or condition (A) was at the request of a third
party who has indicated an intention or taken steps reasonably calculated to
effect a Change in Control (a "Third Party") and who effectuates a Change in
Control or (B) otherwise arose in connection with, or in
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<PAGE> 3
anticipation of a Change in Control which has been threatened or proposed and
which actually occurs, such termination shall be deemed to have occurred after a
Change in Control, provided a Change in Control shall actually have occurred.
(d) (1) Gross-Up Payment. In the event it shall be determined
that any payment or distribution of any type to or for the benefit of the
Executive, by the Company, any Affiliate, any Person who acquires ownership or
effective control of the Company or ownership of a substantial portion of the
Company's assets (within the meaning of Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code"), and the regulations thereunder) or any
affiliate of such Person, whether paid or payable or distributed or
distributable pursuant to any of the terms of this Agreement or otherwise (the
"Total Payments"), is or will be subject to the excise tax imposed by Section
4999 of the Code or any interest or penalties with respect to such excise tax
(such excise tax, together with any such interest and penalties, are
collectively referred to as the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including any income tax,
employment tax or Excise Tax, imposed upon the Gross Up Payment, the Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
the Total Payments.
(2) Determination By Accountant. All mathematical
determinations, and all determinations as to whether any of the Total Payments
are "parachute payments" (within the meaning of Section 280G of the Code), that
are required to be made under this Section 2(d), including determinations as to
whether a Gross-Up Payment is required, the amount of such Gross-Up Payment and
amounts relevant to the last sentence of this Section 2(d)(2), shall be made by
an independent accounting firm selected by the Executive from among the six (6)
largest accounting firms in the United States (the "Accounting Firm"), which
shall provide its determination (the "Determination"), together with detailed
supporting calculations regarding the amount of any Gross-Up Payment and any
other relevant matter, both to the Company and the Executive by no later than
ten (10) days following the Termination Date, if applicable, or such earlier
time as is requested by the Company or the Executive (if the Executive
reasonably believes that any of the Total Payments may be subject to the Excise
Tax). If the Accounting Firm determines that no Excise Tax is payable by the
Executive, it shall furnish the Executive and the Company with a written
statement that such Accounting Firm has concluded that no Excise Tax is payable
(including the reasons therefor) and that the Executive has substantial
authority not to report any Excise Tax on his or her federal income tax return.
If a Gross-Up Payment is determined to be payable, it shall be paid to the
Executive within twenty (20) days after the Determination (and all accompanying
calculations and other material supporting the Determination) is delivered to
the Company by the Accounting Firm. Any determination by the Accounting Firm
shall be binding upon the Company and the Executive, absent manifest error. As a
result of uncertainty in the application of Section 4999 of the Code at the time
of the initial determination by the Accounting Firm hereunder, it is possible
that Gross-Up Payments not made by the
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<PAGE> 4
Company should have been made ("Underpayment"), or that Gross-Up Payments will
have been made by the Company which should not have been made ("Overpayments").
In either such event, the Accounting Firm shall determine the amount of the
Underpayment or Overpayment that has occurred. In the case of an Underpayment,
the amount of such Underpayment shall be promptly paid by the Company to or for
the benefit of the Executive. In the case of an Overpayment, the Executive
shall, at the direction and expense of the Company, take such steps as are
reasonably necessary (including the filing of returns and claims for refund),
follow reasonable instructions from, and procedures established by, the Company,
and otherwise reasonably cooperate with the Company to correct such Overpayment,
provided, however, that (i) the Executive shall not in any event be obligated to
return to the Company an amount greater than the net after-tax portion of the
Overpayment that he or she has retained or has recovered as a refund from the
applicable taxing authorities and (ii) this provision shall be interpreted in a
manner consistent with the intent of Section 2(d)(1), which is to make the
Executive whole, on an after-tax basis, from the application of the Excise Tax,
it being understood that the correction of an Overpayment may result in the
Executive repaying to the Company an amount which is less than the Overpayment.
(e) The amounts provided for in Sections 2(a) and 2(b)(1) and
(2), shall be paid in a single lump sum cash payment within thirty (30) days
after the Executive's Termination Date (or earlier, if required by applicable
law).
(f) The Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other employment
or otherwise and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to the Executive in any subsequent employment
except as provided in Section 3 below.
(g) The payments and benefits provided for in this Section 2
shall be in lieu of any other severance pay to which the Executive may be
entitled under any Company severance plan or any other plan, agreement or
arrangement of the Company, with the exception of stock option acceleration and
insurance coverage to which the Executive is entitled under the Retirement
Agreement.
3. Termination of Employment Not in Connection with a Change in
Control. If the Executive's employment with the Company is terminated at any
time other than within twenty-four (24) months following a Change in Control or
the time specified under Section 2(c), the Executive shall be entitled to the
compensation, payments and benefits set forth in Sections 2(a) through 2(g)
under the conditions set forth in Sections 2(a) through 2(g) except that the
severance benefits described in Section 2(b)(2) shall be paid to the Executive
in the form of biweekly periodic salary continuation payment for two years from
the Termination Date. During the first one-year period ending on the first
anniversary of the Termination Date (the "First Year"), the Executive shall have
no obligation to seek other employment or take other action by way of mitigation
of the amounts payable to the Executive under Section 2(b)(2) and such amounts
shall not be
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reduced whether or not the Executive obtains other employment. During the period
immediately after the First Year and ending on the second anniversary of the
Termination Date (the "Second Year"), the Executive shall not be obligated to
seek other employment and take action by way of mitigation of the amounts
payable to the Executive under Section 2(b)(2); however, notwithstanding
anything else in this Agreement, amounts received during the Second Year under
Section 2(b)(2) shall be reduced by the amount that the Executive receives from
such other employment should the Executive obtain other employment during the
Second Year.
4. Notice of Termination. Any intended termination of the
Executive's employment by the Company shall be communicated by a Notice of
Termination from the Company to the Executive, and any intended termination of
the Executive's employment by the Executive for Good Reason shall be
communicated by a Notice of Termination from the Executive to the Company.
5. Non-Competition, Non-Solicitation, Non-Interference and
Confidentiality.
(a) The Executive agrees that upon termination of his
employment with the Company, he will not, without the prior written consent of
the Company, for a period of twenty-four (24) months thereafter, (the
"Restricted Period") alone or with or for others, in whatever, capacity,
directly or indirectly, solicit or attempt to solicit clients or customers of
the Company, or solicit or attempt to solicit employees of the Company to leave
the Company's employ.
(b) The Executive agrees that, during the Restricted Period,
he will not interfere with the relationship between the Company and any of its
vendors.
(c) The Executive agrees that, during the Restricted Period,
he shall not, for himself or any third party, directly or indirectly engage in
any business activity or accept employment with any entity that is or may be
competitive with the Company in the field of retail sales (including, but not
limited to, internet retail sales and mail-order retail sales), of moderately
priced men's and women's casual apparel and accessories ("Competitor"), without
prior written consent of the Company. The Executive agrees that, prior to
engaging in any such activity or accepting employment with a Competitor or any
entity that could reasonably be deemed a Competitor during the Restricted
Period, the Executive shall advise the Company in writing of the Executive's
intentions and seek the Company's approval. Company approval shall apply only
with respect to the activity or position approved and the Executive shall be
obligated to obtain Company approval with respect to any subsequent change of
activity or position or employment during the Restricted Period. The Executive
also agrees that, during the Restricted Period, the Executive shall not hold any
stock in a Competitor other than passive minority interests comprising less than
2% of the outstanding stock of a publicly traded Competitor.
5
<PAGE> 6
(d) Without the prior written consent of the Company, except
to the extent required by an order of a court having competent jurisdiction or
under subpoena from an appropriate government agency, Executive shall not
disclose any trade secrets, customer lists, supplier lists, drawings, designs,
information regarding product development, marketing plans, sales plans,
management plans, management organization information (including data and other
information relating to members of the Board and management), operating policies
or manuals, business plans, financial records or any other financial commercial,
business or technical information relating to the Company or information
designated as confidential or proprietary that the Company may receive belonging
to suppliers, customers or others who do business with the Company
(collectively, "Confidential Information") to any third person unless such
Confidential Information has been previously disclosed to the public by the
Company or is in the public domain (other than by reason of Executive's breach
of this section 5(c)).
6. Fees and Expenses.
(a) If the employment of the Executive is terminated under
section 2(a) or 2(c) of this Agreement, the Company shall pay all legal fees and
related expenses (including the costs of experts, evidence and counsel) incurred
by the Executive as they become due as a result of (x) the termination of the
Executive's employment by the Company or by the Executive for Good Reason
(including all such fees and expenses, if any, incurred in contesting, defending
or disputing the basis for any such termination of employment), (y) the
Executive's hearing before the Board as contemplated in Section 17.5 of this
Agreement or (z) the Executive seeking to obtain or enforce any right or benefit
provided by this Agreement or by any other plan or arrangement maintained by the
Company under which the Executive is or may be entitled to receive benefits.
(b) If the employment of the Executive is terminated for
reasons or in circumstances not related to those described in section 2(a) or
2(c) of this Agreement, the Company shall only pay the legal fees and related
expenses described in section 6(a) to the extent that the Company is
unsuccessful in the result of any litigation or other legal proceeding arising
out of the termination of the employment of the Executive.
7. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement (including any Notice of
Termination) shall be in writing, shall be signed by the Executive if to the
Company or by a duly authorized officer of the Company if to the Executive, and
shall be deemed to have been duly given when personally delivered or sent by
certified mail, return receipt requested, postage prepaid, addressed to the
respective addresses last given by each party to the other, provided that all
notices to the Company shall be directed to the attention of the Board with a
copy to the Secretary of the Company. All notices and communications shall be
deemed to have been received on the date of delivery thereof or on the third
business day after the mailing thereof, except that notice of change of address
shall be effective only upon receipt.
6
<PAGE> 7
8. Nature of Rights. The Executive shall have the status of a mere
unsecured creditor of the Company with respect to his or her right to receive
any payment under this Agreement. This Agreement shall constitute a mere promise
by the Company to make payments in the future of the benefits provided for
herein. It is the intention of the parties hereto that the arrangements
reflected in this Agreement shall be treated as unfunded for tax purposes and,
if it should be determined that Title I of ERISA is applicable to this
Agreement, for purposes of Title I of ERISA. Except as provided in Section 2(g),
nothing in this Agreement shall prevent or limit the Executive's continuing or
future participation in any benefit, bonus, incentive or other plan or program
provided by the Company and for which the Executive may qualify, nor shall
anything herein limit or reduce such rights as the Executive may have under any
other agreements with the Company. Amounts which are vested benefits or which
the Executive is otherwise entitled to receive under any plan or program of the
Company shall be payable in accordance with such plan or program, except as
explicitly modified by this Agreement.
9. Settlement of Claims. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, defense, recoupment, or other right which
the Company may have against the Executive or others.
10. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and the Company. No waiver by any party
hereto at any time of any breach by any other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No agreement or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by any party which are not expressly set forth in this Agreement.
11. Survival. The provisions in Section 5 of this Agreement shall
survive the expiration of this Agreement.
12. Successors; Binding Agreement.
(a) This Agreement shall be binding upon and shall inure to
the benefit of the Company and its Successors and Assigns. The Company shall
require its Successors and Assigns to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession or assignment had taken place.
(b) Neither this Agreement nor any right or interest
hereunder shall be assignable or transferable by the Executive, his or her
beneficiaries or legal representatives, except by will or by the laws of descent
and distribution. This Agreement
7
<PAGE> 8
shall inure to the benefit of and be enforceable by the Executive's legal
personal representative.
13. Mediation; Governing Law.
(a) Any dispute or controversy arising under or in connection
with this Agreement shall be first submitted to mediation. The mediation shall
be held in Dallas County in the State of Texas and except to the extent
inconsistent with this Agreement, shall be conducted in accordance with the
National Rules for the Resolution of Employment Disputes (Employment Mediation
Rules) of the American Arbitration Association then in effect at the time of the
mediation, and otherwise in accordance with principles which would be applied by
a court of law or equity. Mediation shall only be binding if it is acceptable to
both the Company and the Executive.
(b) This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Texas without giving effect
to the conflict of laws principles thereof. If mediation does not result in
resolution of any dispute or controversy arising under or in connection with
this Agreement, a party may bring an action. Any action brought by any party to
this Agreement shall be brought and maintained in a court of competent
jurisdiction in Dallas County in the State of Texas.
14. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
15. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto, and supersedes all prior agreements, including the
Severance Agreement dated September 5, 1996, understandings and arrangements,
oral or written, between the parties hereto, with respect to the subject matter
hereof, it being understood that this Agreement shall not supersede or in any
way be construed to amend or modify the Executive Retirement Agreement except to
the extent specifically provided for herein.
16. Release. The Executive agrees that payment hereunder is
conditioned upon the execution of a release ("General Release") in the form
attached hereto.
17. Definitions.
17.1. Accrued Compensation. For purposes of this Agreement,
"Accrued Compensation" shall mean all amounts of compensation for services
rendered to the Company that have been earned or accrued through the Termination
Date but that have not been paid as of the Termination Date including (a) base
salary, (b) reimbursement for reasonable and necessary business expenses
incurred by the Executive on behalf of the Company during the period ending on
the Termination Date, (c) vacation pay and (d) bonuses and incentive
compensation; provided, however, that Accrued Compensation shall not include any
amounts described in clause (a) or clause (d) that have been deferred
8
<PAGE> 9
pursuant to any salary reduction or deferred compensation elections made by the
Executive.
17.2. Affiliate. For purposes of this Agreement, "Affiliate"
means any entity, directly or indirectly, controlled by, controlling or under
common control with the Company or any corporation or other entity acquiring,
directly or indirectly, all or substantially all the assets and business of the
Company, whether by operation of law or otherwise.
17.3. Base Amount. For purposes of this Agreement, "Base
Amount" shall mean the Executive's base salary in effect on September 1, 1998,
or, if greater, (b) in effect at any time thereafter.
17.4. Bonus Amount. For purposes of this Agreement, "Bonus
Amount" shall mean the target annual bonus payable to the Executive in respect
of the fiscal year during which the Termination Date.
17.5. Cause. For purposes of this Agreement, a termination of
employment is for "Cause" if the Executive has been convicted of a felony or the
termination is evidenced by a resolution adopted in good faith by two-thirds of
the Board that the Executive:
(a) intentionally and continually failed substantially to
perform his or her reasonably assigned duties with the Company (other than a
failure resulting from the Executive's incapacity due to physical or mental
illness or from the assignment to the Executive of duties that would constitute
Good Reason) which failure continued for a period of at least thirty (30) days
after a written notice of demand for substantial performance, signed by a duly
authorized officer of the Company, has been delivered to the Executive
specifying the manner in which the Executive has failed substantially to
perform, or
(b) intentionally engaged in conduct which is demonstrably
and materially injurious to the Company; provided, however, that no termination
of the Executive's employment shall be for Cause as set forth in this Section
17.5(b) until (1) there shall have been delivered to the Executive a copy of a
written notice, signed by a duly authorized officer of the Company, setting
forth that the Executive was guilty of the conduct set forth in this Section
17.5(b) and specifying the particulars thereof in detail, and (2) the Executive
shall have been provided an opportunity to be heard in person by the Board (with
the assistance of the Executive's counsel if the Executive so desires).
No act, nor failure to act, on the Executive's part, shall be
considered "intentional" unless the Executive has acted, or failed to act, with
a lack of good faith and with a lack of reasonable belief that the Executive's
action or failure to act was in the best interest of the Company.
Notwithstanding anything contained in this Agreement to the contrary, no failure
to perform by the Executive after a Notice of
9
<PAGE> 10
Termination is given to the Company by the Executive shall constitute Cause for
purposes of this Agreement.
17.6. Change in Control. A "Change in Control" shall mean the
occurrence during the term of the Agreement of:
(a) An acquisition (other than directly from the Company) of
any common stock of the Company ("Common Stock") or other voting securities of
the Company entitled to vote generally for the election of directors (the
"Voting Securities") by any "Person" (as the term person is used for purposes of
Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), immediately after which such Person has "Beneficial Ownership"
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty
percent (20%) or more of the then outstanding shares of Common Stock or the
combined voting power of the Company's then outstanding Voting Securities;
provided, however, in determining whether a Change in Control has occurred,
Voting Securities which are acquired in a Non-Control Acquisition (as
hereinafter defined) shall not constitute an acquisition which would cause a
Change in Control. A "Non-Control Acquisition" shall mean an acquisition by (i)
a Company employee benefit plan (or a trust forming a part thereof) maintained
by (A) the Company or (B) any corporation or other Person of which a majority of
its voting power or its voting equity securities or equity interest is owned,
directly or indirectly, by the Company (a "Subsidiary"), (ii) the Company or its
Subsidiaries, or (iii) any Person in connection with a Non-Control Transaction
(as hereinafter defined);
(b) The individuals who, as of the date hereof, are members
of the Board (the "Incumbent Board"), cease for any reason to constitute at
least seventy percent (70%) of the members of the Board, provided, however, that
if the election, or nomination for election by the Company's shareholders, of
any new director was approved by a vote of at least two-thirds of the Incumbent
Board, such new director shall, for purposes of this Agreement, be considered as
a member of the Incumbent Board; provided further, however, that no individual
shall be considered a member of the Incumbent Board if such individual initially
assumed office as a result of either an actual or threatened "Election Contest"
(as described in Rule 14a-11 promulgated under the Exchange Act) or other actual
or threatened solicitation of proxies or consents by or on behalf of a Person
other than the Board (a "Proxy Contest") including by reason of any agreement
intended to avoid or settle any Election Contest or Proxy Contest; or
(c) The consummation of:
(1) A merger, consolidation or reorganization with or
into the Company or in which securities of the Company are issued, unless such
merger, consolidation or reorganization is a "Non-Control Transaction." A
"Non-Control Transaction" shall mean a merger, consolidation or reorganization
with or into the Company or in which securities of the Company are issued where:
10
<PAGE> 11
(A) the shareholders of the Company, immediately
before such merger, consolidation or reorganization, own directly or indirectly
immediately following such merger, consolidation or reorganization, at least
sixty percent (60%) of the combined voting power of the outstanding voting
securities of the corporation resulting from such merger or consolidation or
reorganization (the "Surviving Corporation") in substantially the same
proportion as their ownership of the Voting Securities immediately before such
merger, consolidation or reorganization,
(B) the individuals who were members of the
Incumbent Board immediately prior to the execution of the agreement providing
for such merger, consolidation or reorganization constitute at least seventy
percent (70%) of the members of the board of directors of the Surviving Company;
or Corporation, or a corporation beneficially directly or indirectly owning a
majority of the Voting Securities of the Surviving Corporation, and
(C) no Person other than (i) the Company, (ii) any
Subsidiary, (iii) any employee benefit plan (or any trust forming a part
thereof) that, immediately prior to such merger, consolidation or
reorganization, was maintained by the Company, the Surviving Corporation, or any
Subsidiary, or (iv) any Person who, immediately prior to such merger,
consolidation or reorganization had Beneficial Ownership of twenty percent (20%)
or more of the then outstanding Voting Securities or common stock of the
Company, has Beneficial Ownership of twenty percent (20%) or more of the
combined voting power of the Surviving Corporation's then outstanding voting
securities or its common stock.
(2) A complete liquidation or dissolution of the
Company; or
(3) The sale or other disposition of all or
substantially all of the assets of the Company to any Person (other than a
transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall
not be deemed to occur solely because any Person (the "Subject Person") acquired
Beneficial Ownership of more than the permitted amount of the then outstanding
common stock or Voting Securities as a result of the acquisition of Common Stock
or Voting Securities by the Company which, by reducing the number of shares of
Common Stock or Voting Securities then outstanding, increases the proportional
number of shares Beneficially Owned by the Subject Person, provided that if a
Change in Control would occur (but for the operation of this sentence) as a
result of the acquisition of shares of Common Stock or Voting Securities by the
Company, and after such share acquisition by the Company, the Subject Person
becomes the Beneficial Owner of any additional shares of Common Stock or Voting
Securities which increases the percentage of the then outstanding shares of
Common Stock or Voting Securities Beneficially Owned by the Subject Person, then
a Change in Control shall occur.
11
<PAGE> 12
17.7. Company. For purposes of this Agreement, all references
to the Company shall include its Successors and Assigns.
17.8. Disability. For purposes of this Agreement,
"Disability" shall mean a physical or mental infirmity which impairs the
Executive's ability to substantially perform his or her duties with the Company
for six (6) consecutive months, and within the time period set forth in a Notice
of Termination given to the Executive (which time period shall not be less than
thirty (30) days), the Executive shall not have returned to full-time
performance of his or her duties.
17.9. Good Reason. For purposes of this Agreement, "Good
Reason" shall mean the occurrence of any of the following events or conditions,
provided, however, that a termination for Good Reason shall only be effective if
the Executive provides the Company with at least thirty (30) days' written
Notice of Termination describing the circumstances giving rise to his possible
termination for Good Reason and the Company fails to cure such circumstances
within those thirty (30) days:
(1) a change in the Executive's status, title, position
or responsibilities (including reporting responsibilities) which represents an
adverse change from his or her status, title, position or responsibilities as in
effect immediately prior thereto; the assignment to the Executive of any duties
or responsibilities which are inconsistent with his status, title, position or
responsibilities; or any removal of the Executive from or failure to reappoint
or reelect him or her to any of such offices or positions, except in connection
with the termination of his employment for Disability, Cause, as a result of his
or her death or by the Executive other than for Good Reason;
(2) a reduction in the Executive's annual base salary
below the Base Amount;
(3) the failure by the Company to pay to the Executive
any portion of the Executive's current compensation or to pay to the Executive
any portion of an installment of deferred compensation under any deferred
compensation program of the Company in which the Executive participated, within
twenty-one (21) days of the date such compensation is due;
(4) the failure by the Company (A) to continue in effect
(without reduction in benefit level, and/or reward opportunities) any material
compensation or employee benefit plan in which the Executive was participating
on September 1, 1998, including, but not limited to, any of the plans listed in
Appendix A hereto, unless a substitute or replacement plan has been implemented
which provides substantially identical compensation or benefits to the
Executive; provided, however, that if such material compensation or employee
benefit plans are increased at any time after September 1, 1998, then the
failure to continue those greater material compensation or employee benefit
plans will constitute Good Reason; or (B) to provide the Executive with
compensation and benefits, which in the aggregate, are at least equal (in terms
of benefit
12
<PAGE> 13
levels and/or reward opportunities) to those provided for under each other
compensation or employee benefit plan, program and practice in which the
Executive was participating on September 1, 1998; provided, however, that if the
aggregate compensation and benefits provided for under each other compensation
or employee benefit plan, program and practice in which the Executive
participates at any time after September 1, 1998 are increased after September
1, 1998, then the failure to provide the Executive with such aggregate greater
compensation and benefits shall constitute Good Reason;
(5) the failure of the Company to obtain from its
Successors or Assigns the express assumption and agreement required under
Section 12 hereof; or
(6) any purported termination of the Executive's
employment by the Company which is not effected pursuant to a Notice of
Termination satisfying the terms set forth in the definition of Notice of
Termination (and, if applicable, the terms set forth in the definition of
Cause).
17.10. Notice of Termination. For purposes of this Agreement,
"Notice of Termination" shall mean a written notice of termination of the
Executive's employment, signed by the Executive if to the Company or by a duly
authorized officer of the Company if to the Executive, which indicates the
specific termination provision in this Agreement, if any, relied upon and which
sets forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated.
17.11. Pro Rata Bonus. For purposes of this Agreement, "Pro
Rata Bonus" shall mean an amount equal to the Bonus Amount multiplied by a
fraction the numerator of which is the number of days in such fiscal year
through the Termination Date and the denominator of which is 365.
17.12. Successors and Assigns. For purposes of this
Agreement, "Successors and Assigns" shall mean, with respect to the Company, a
corporation or other entity acquiring all or substantially all the assets and
business of the Company, as the case may be (including this Agreement), whether
by operation of law or otherwise.
17.13. Termination Date. For purposes of this Agreement,
"Termination Date" shall mean (a) in the case of the Executive's death, his or
her date of death, (b) if the Executive's employment is terminated for
Disability, thirty (30) days after Notice of Termination is given (provided that
the Executive shall not have returned to the performance of his or her duties on
a full-time basis during such thirty (30) day period) and (c) if the Executive's
employment is terminated for any other reason, the date specified in the Notice
of Termination (which, in the case of a termination for Cause shall not be less
than thirty (30) days, and in the case of a termination for Good Reason shall
not be more than sixty (60) days, from the date such Notice of Termination is
given); provided, however, that if within thirty (30) days after any Notice of
Termination is given the party receiving such Notice of Termination in good
faith notifies the other party that a dispute
13
<PAGE> 14
exists concerning the basis for the termination, the Termination Date shall be
the date on which the dispute is finally determined, either by mutual written
agreement of the parties, or by the final judgment, order or decree of a court
of competent jurisdiction (the time for appeal therefrom having expired and no
appeal having been taken). Notwithstanding the pendency of any such dispute, the
Company shall continue to pay the Executive his or her Base Amount and continue
the Executive as a participant in all compensation, incentive, bonus, pension,
profit sharing, medical, hospitalization, dental, life insurance and disability
benefit plans in which he or she was participating when the notice giving rise
to the dispute was given, until the dispute is finally resolved in accordance
with this Section whether or not the dispute is resolved in favor of the
Company, and the Executive shall not be obligated to repay to the Company any
amounts paid or benefits provided pursuant to this sentence.
-----SIGNATURE PAGE FOLLOWS-----
14
<PAGE> 15
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officers and the Executive has executed this
Agreement as of the day and year first above written.
Gadzooks, Inc.
By: /s/ GERALD R. SZCZEPANSKI
-----------------------------------
Name: Gerald R. Szczepanski
Title: Chairman and Chief Executive
Officer
By: /s/ MONTY R. STANDIFER
-----------------------------------
Monty R. Standifer
15
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