1
EXHIBIT 10.7
Employment Agreement (page 1)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is effective as of April
9th, 1999 (the "Effective Date"), by and between CKE RESTAURANTS, INC., a
Delaware corporation (the "Company"), and JOHN J. DUNION (the "Employee"). In
consideration of the mutual covenants and agreements set forth herein, the
parties agree as follows:
1. Employment and Duties. Subject to the terms and conditions of this
Agreement, the Company employs the Employee to serve in an executive and
managerial capacity as Executive Vice President, Chief Administrative Officer
(or such other title as the Company may designate), and the Employee accepts
such employment and agrees to perform such reasonable responsibilities and
duties commensurate with the aforesaid positions as directed by the Company's
Board of Directors, its Chief Executive Officer or its President, or as set
forth in the Articles of Incorporation and the Bylaws of the Company.
2. Term. The term of this Agreement shall commence on the Effective
Date and shall continue for a period of three (3) years ending April 9, 2002,
subject to prior termination as set forth in Section 7, below (the "Term"). The
Term may be extended at any time upon mutual written agreement of the parties.
3. Salary. During the Term, the Company shall pay the Employee a
minimum base annual salary, before deducting all applicable withholdings, of
$190,000 per year, payable at the times and in the manner dictated by the
Company's standard payroll policies. Such minimum base annual salary may be
periodically reviewed and increased at the discretion of the Compensation
Committee of the Board of Directors to reflect, among other matters, cost of
living increases and performance results.
4. Other Compensation and Fringe Benefits. In addition to any executive
bonus, pension, deferred compensation and stock option plans which the Company
may from time to time make available to the Employee upon mutual agreement, the
2
Employment Agreement (page 2)
Employee shall be entitled to the following:
(a) The standard Company benefits enjoyed by the Company's
other executive vice presidents as a group;
(b) Payment by the Company of the Employee's initiation and
membership dues in a social and/or recreational club as deemed necessary and
appropriate by the Employee (and pre-approved by the Company at the Company's
discretion) to maintain various business relationships on behalf of the Company;
provided, however, that the Company shall not be obligated to pay for any of the
Employee's personal purchases and expenses at such club;
(c) Provision by the Company during the Term and any
extensions thereof to the Employee and his dependents of the medical and other
insurance coverage provided by the Company to its other executive vice
presidents as a group;
(d) Provision by the Company of supplemental disability
insurance sufficient to provide two-thirds of the Employee's pre-disability
minimum base annual salary for a two year period;
(e) An Annual Bonus for the fiscal year ended January 31,
2000, equal to 100% of the minimum annual base salary set forth in Section 3
above if the Company achieves 30% growth in earnings per share during fiscal
2000 over earnings per share during fiscal 1999. In all subsequent years, the
Annual Bonus shall be calculated by first determining the amount by which the
Company's net income increases over the prior fiscal year. If such increase is
15%, Employee shall receive a bonus equal to 25% of his then current minimum
base annual salary and if net income increases less than 15% or decreases,
Employee shall receive no bonus. For each full 5% increase in the Company's net
income over the 15% base increase, Employee's Annual Bonus shall increase by an
amount equal to 25% of his minimum base annual salary. For example, a 30%
increase in net income would result in a bonus equal to 100% of the Employee's
then current minimum base annual salary. In no event shall the Annual Bonus
exceed 100% of Employee's minimum base annual salary. The Annual Bonus shall be
paid within ninety (90) days after the end of the fiscal year.
3
Employment Agreement (page 3)
(f) A Grant under the Company's Stock Option Plans of options
to purchase 50,000 shares of the Company's Common Stock. The exercise price for
such options shall be the closing price on the Effective Date of the Company's
Common Stock traded on the New York Stock Exchange, as reported by the Wall
Street Journal. Such options shall vest as follows: (i) 1/3 (16,667 shares) on
the Effective Date; (ii) 1/3 (16,667 shares) on the first anniversary of the
Effective Date; and, (iii) 1/3 (16,666 shares) on the second anniversary of the
Effective Date. Such options shall be incentive stock options as defined by
section 422 of the Internal Revenue Code to the maximum extent possible.
The Company shall deduct from all compensation payable under
this Agreement to the Employee any taxes or withholdings the Company is required
to deduct pursuant to state and federal laws or by mutual agreement between the
parties.
5. Vacation. For and during each year of the Term and any extensions
thereof, the Employee shall be entitled to reasonable paid vacation periods
consistent with his positions with the Company and in accordance with the
Company's standard policies, or as the Company's Board of Directors may approve.
In addition, the Employee shall be entitled to such holidays consistent with the
Company's standard policies or as the Company's Board of Directors may approve.
6. Expense Reimbursement. In addition to the compensation and benefits
provided herein, the Company shall, upon receipt of appropriate documentation,
reimburse the Employee each month for his reasonable travel, lodging,
entertainment, promotion and other ordinary and necessary business expenses in
accordance with the Company's policies then in effect, all such expense
reimbursements to be approved in writing by the Company's Chief Executive
Officer or President.
7. Termination.
(a) For Cause. The Company may terminate this Agreement
immediately for cause upon written notice to the Employee, in which event the
Company shall be obligated only to pay the Employee that portion of the minimum
4
Employment Agreement (page 4)
base annual salary due him through the date of termination. Cause shall be
limited to (i) the failure to perform duties consistent with a commercially
reasonable standard of care; (ii) the willful neglect of duties; (iii) criminal
or other illegal activities; or, (iv) a material breach of this Agreement.
(b) Without Cause. Either party may terminate this Agreement
immediately without cause by giving written notice to the other. If the Company
terminates under this Section 7(b), then it shall be obligated to pay to the
Employee an amount equal to the sum of (i) the Employee's minimum base annual
salary in effect as of the date of termination multiplied by the number one,
plus (ii), an amount equal to the Annual Bonus calculated pursuant to Section 4
(e) above, but assuming a 30% increase in net income (100% of Employee's minimum
annual base salary), multiplied by the number one. Such payment to be made in a
lump sum on or before the fifth day following the date of termination, or as
otherwise directed by the Employee. In addition, if the Company terminates under
this Section 7(b), the Company shall maintain in full force and effect for the
continued benefit of the Employee for one year, all employee benefit plans
(except for the Company's stock option plans) and programs in which the Employee
was entitled to participate immediately prior to the date of termination,
provided that the Employee's continued participation is possible under the
general terms and provisions of such plans and programs. In the event that the
Employee's participation in any such plan or program is prohibited, the Company
shall, at its expense, arrange to provide the Employee with benefits
substantially similar to those which the Employee would otherwise have been
entitled to receive under such plans and programs from which his continued
participation is prohibited. If the Employee terminates under this Section 7(b),
then the Company shall only be obligated to pay the Employee the minimum annual
base salary due him through the date of termination.
(c) Disability. If the Employee fails to perform his duties
hereunder on account of illness or other incapacity for a period of six
consecutive months, then the Company shall have the right upon written notice to
the Employee to terminate this Agreement without further obligation by paying
the Employee the minimum base annual salary, without offset, for the remainder
of the Term in a lump sum or as otherwise directed by the Employee.
5
Employment Agreement (page 5)
(d) Death. If the Employee dies during the Term, then this
Agreement shall terminate immediately and the Employee's legal representatives
shall be entitled to receive the minimum annual base salary for the remainder of
the Term in a lump sum or as otherwise directed by the Employee's legal
representative. Executive's outstanding CKE options will immediately vest in
full and be exercisable for a period of 90 days from Executive's death.
(e) Effect of Termination. Termination for any reason or for
no reason shall not constitute a waiver of the Company's rights under this
Agreement nor a release of the Employee from any obligation hereunder except his
obligation to perform his day-to-day duties as an employee.
8. Severance payment.
(a) The Employee may terminate his employment hereunder for
"Good Reason,"which for purposes of this Agreement shall mean a "change in
control of the Company." A "change in control of the Company" shall, for
purposes of this Agreement, be deemed to have occurred if (i) there shall be
consummated, except as hereinafter provided (x) any consolidation or merger of
the Company in which the Company is not the continuing or surviving corporation,
or pursuant to which shares of the Company's Common Stock would be converted
into cash, securities or other property, other than a merger of the Company in
which the holders of the Company's Common Stock immediately prior to the merger
have the same proportionate ownership of Common Stock of the surviving
corporation immediately after the merger, or (y) any sale, lease, exchange or
other transfer (in one transaction or a series of related transactions) of all,
or substantially all, of the assets of the Company, or (ii) the stockholders of
the Company approve any plan or proposal for the liquidation or dissolution of
the Company, or (iii) any "person" (as that term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934 (the "Exchange Act")), other than
the Company or any "person" who, on the date hereof, is a director or officer of
the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), of securities of the Company representing 30% or more
of the combined voting power of the Company's then
6
Employment Agreement (page 6)
outstanding securities, or (iv) during any period of two (2) consecutive years
during the Term or any extensions thereof, individuals, who, at the beginning of
such period, constitute the Board of Directors, cease for any reason to
constitute at least a majority thereof, unless the election of each director who
was not a director at the beginning of such period has been approved in advance
by directors representing at least two-thirds of the directors then in office
who were directors at the beginning of the period. The Employee may only
terminate this Agreement due to a change in control of the Company during the
period commencing 60 days and expiring 365 days after such change in control.
Notwithstanding anything in this Agreement to the contrary, a "change in control
of the Company" shall not have occurred if officers and/or directors (or
affiliated entities thereof) of the Company at the time of a transaction
described under item (i), (ii) or (iii) above own, immediately after such
transaction, 15% or more of the entity acquiring the stock or assets of the
Company as provided above.
(b) If the Employee terminates his employment for Good Reason,
or, if after a change in control of the Company, the Company shall terminate the
Employee's employment in breach of this Agreement or pursuant to Section 7(b),
then, in lieu of and notwithstanding Section 7 above:
(i) the Company shall pay the Employee his minimum
base annual salary due him through the date of termination:
(ii) in lieu of any further salary and bonus payments
or other payments due to the Employee for periods subsequent to the date of
termination, the Company shall pay, as severance to the Employee, an amount
equal to the sum of (i) the Employee's minimum base annual salary in effect as
of the date of termination multiplied by the number of years (including partial
years) remaining in the Term or the number two (2), whichever is greater, plus
(ii), an Annual Bonus calculated pursuant to Section 4 (e) above, but assuming a
30% increase in net income (100% of Employee's minimum annual base salary)
multiplied by the number of years remaining in the contract for which Employee
has not, as yet, received an Annual Bonus or the number two (2), whichever is
greater, such payment to be made in a lump sum on or before the fifth day
following the date of termination;
7
Employment Agreement (page 7)
(iii) all options granted to the Employee which had
not vested as of the date of termination hereunder shall vest immediately; and
(iv) the Company shall maintain in full force and
effect, for the continued benefit of the Employee for the number of years
(including partial years) remaining in the Term, all employee benefit plans
(except for the Company's stock option plans) and programs in which the Employee
was entitled to participate immediately prior to the date of termination,
provided that the Employee's continued participation is possible under the
general terms and provisions of such plans and programs. In the event that the
Employee's participation in any such plan or program is prohibited, the Company
shall, at its expense, arrange to provide the Employee with benefits
substantially similar to those which the Employee would otherwise have been
entitled to receive under such plans and programs from which his continued
participation is prohibited.
(c) The Employee shall not be required to mitigate the amount
of any payment provided for in this Section 8 or Section 7(b), above, by seeking
other employment or otherwise, nor shall any compensation or other payments
received by the Employee after the date of termination reduce any payments due
under this Section 8 or Section 7(b), above.
(d) Notwithstanding anything to the contrary herein, if and to
the extent any payment made under this Agreement, either alone or in conjunction
with other payments Employee has the right to receive either directly or
indirectly from the Company, which would constitute as "excess parachute
payment" under Section 280G of the Internal Revenue Code of 1986, as amended,
then Employee shall be entitled to receive an excise tax gross-up payment not
exceeding one million dollars ($1,000,000) in accordance with Appendix A.
9. Non-Delegation of Employee's Rights. The obligations, rights and
benefits of the Employee hereunder are personal and may not be delegated,
assigned or transferred in any manner whatsoever, nor are such obligations,
rights or benefits subject to involuntary alienation, assignment or transfer.
8
Employment Agreement (page 8)
10. Confidential Information. The Employee acknowledges that in his
capacity as an employee of the Company he will occupy a position of trust and
confidence and he further acknowledges that he will have access to and learn
substantial information about the Company and its operations that is
confidential or not generally known in the industry, including, without
limitation, information that relates to purchasing, sales, customers, marketing,
and the Company's financial position and financing arrangements. The Employee
agrees that all such information is proprietary or confidential, or constitutes
trade secrets and is the sole property of the Company. The Employee will keep
confidential, and will not reproduce, copy or disclose to any other person or
firm, any such information or any documents or information relating to the
Company's methods, processes, customers, accounts, analyses, systems, charts,
programs, procedures, correspondence or records, or any other documents used or
owned by the Company, nor will the Employee advise, discuss with or in any way
assist any other person, firm or entity in obtaining or learning about any of
the items described in this Section 10. Accordingly, the Employee agrees that
during the Term and at all times thereafter he will not disclose, or permit or
encourage anyone else to disclose, any such information, nor will he utilize any
such information, either alone or with others, outside the scope of his duties
and responsibilities with the Company.
11. Non-Competition During Employment Term. The Employee agrees that,
during the Term and any extensions thereof, he will devote substantially all his
business time and effort, and give undivided loyalty, to the Company. He will
not engage in any way whatsoever, directly or indirectly, in any business that
is competitive with the Company or its affiliates, nor solicit, or in any other
manner work for or assist any business which is competitive with the Company or
its affiliates. In addition, during the Term and any extensions thereof, the
Employee will undertake no planning for or organization of any business activity
competitive with the work he performs as an employee of the Company, and the
Employee will not combine or conspire with any other employee of the Company or
any other person for the purpose of organizing any such competitive business
activity.
12. Non-Competition After Employment Term. The parties acknowledge
9
Employment Agreement (page 9)
that the Employee will acquire substantial knowledge and information concerning
the business of the Company and its affiliates as a result of his employment.
The parties further acknowledge that the scope of business in which the Company
is engaged as of the Effective Date is national and very competitive and one in
which few companies can successfully compete. Competition by the Employee in
that business after this Agreement is terminated would severely injure the
Company. Accordingly, for a period of two years after this Agreement is
terminated or the Employee leaves the employment of the Company for any reason
whatsoever, except as otherwise stated hereinbelow, the Employee agrees (i) not
to become an employee, consultant, advisor, principal, partner or substantial
shareholder of any firm or business that in any way competes with the Company or
its affiliates in any of their presently-existing or then-existing products and
markets; and (ii) not to solicit any person or business that was at the time of
such termination and remains an executive employee of the Company or any of its
affiliates. Notwithstanding any of the foregoing provisions to the contrary, the
Employee shall not be subject to the restrictions set forth in this Section 12
under the following circumstances:
(a) If the Employee's employment with the Company is
terminated by the Company without cause;
(b) If the Employee's employment with the Company is
terminated as a result of the Company's unwillingness to extend the Term of this
Agreement; or,
(c) If the Employee leaves the employment of the Company for
Good Reason pursuant to Section 8.
13. Return of Company Documents. Upon termination of this Agreement,
Employee shall return immediately to the Company all records and documents of or
pertaining to the Company and shall not make or retain any copy or extract of
any such record or document.
14. Location. The Employee shall not be required to move from Orange
County, California, to perform his duties hereunder during the Term without his
10
Employment Agreement (page 10)
written consent.
15. Improvements and Inventions. Any and all improvements or inventions
which the Employee may conceive, make or participate in during the period of his
employment shall be the sole and exclusive property of the Company. The Employee
will, whenever requested by the Company, execute and deliver any and all
documents which the Company shall deem appropriate in order to apply for and
obtain patents for improvements or inventions or in order to assign and convey
to the Company the sole and exclusive right, title and interest in and to such
improvements, inventions, patents or applications.
16. Actions. The parties agree and acknowledge that the rights conveyed
by this Agreement are of a unique and special nature and that the Company will
not have an adequate remedy at law in the event of a failure by the Employee to
abide by its terms and conditions nor will money damages adequately compensate
for such injury. It is therefore agreed between the parties that, in the event
of a breach by the Employee of any of his obligations contained in this
Agreement, the Company shall have the right, among other rights, to damages
sustained thereby and to obtain an injunction or decree of specific performance
from any court of competent jurisdiction to restrain or compel the Employee to
perform as agreed herein. The Employee agrees that this Section 16 shall survive
the termination of his employment and he shall be bound by its terms at all time
subsequent to the termination of his employment for so long a period as Company
continues to conduct the same business or businesses as conducted during the
Term or any extensions thereof. Nothing herein contained shall in any way limit
or exclude any other right granted by law or equity to the Company.
17. Amendment. This Agreement contains, and its terms constitute, the
entire agreement of the parties, and it may be amended only by a written
document signed by both parties to this Agreement.
18. Governing Law. California law shall govern the construction and
enforcement of this Agreement and the parties agree that any litigation
pertaining to this Agreement shall be adjudicated in courts located in
California.
11
Employment Agreement (page 11)
19. Attorneys' Fees. If any party finds it necessary to employ legal
counsel or to bring an action at law or other proceedings against the other
party to enforce any of the terms hereof, the party prevailing in any such
action or other proceeding shall be paid by the other party its reasonable
attorneys' fees as well as court costs, all as determined by the court and not a
jury.
20. Severability. If any section, subsection or provision hereof is
found for any reason whatsoever, to be invalid or inoperative, that section,
subsection or provision shall be deemed severable and shall not affect the force
and validity of any other provision of this Agreement. If any covenant herein is
determined by a court to be overly broad thereby making the covenant
unenforceable, the parties agree and it is their desire that such court shall
substitute a reasonable judicially enforceable limitation in place of the
offensive part of the covenant and that as so modified the covenant shall be as
fully enforceable as if set forth herein by the parties themselves in the
modified form. The covenants of the Employee in this Agreement shall each be
construed as an agreement independent of any other provision in this Agreement,
and the existence of any claim or cause of action of the Employee against the
Company, whether predicated on this Agreement or otherwise, shall not constitute
a defense to the enforcement by the Company of the covenants in this Agreement.
21. Notices. Any notice, request, or instruction to be given hereunder
shall be in writing and shall be deemed given when personally delivered or three
(3) days after being sent by United States certified mail, postage prepaid, with
return receipt requested, to the parties at their respective addresses set for
the below:
To the Company:
CKE Restaurants, Inc.
3916 State Street
Santa Barbara, CA 93105
Attention: Andrew F. Puzder, General Counsel
To the Employee:
John J. Dunion
940 South Camerford Lane
Anaheim Hills, California 92808
12
Employment Agreement (page 12)
22. Waiver of Breach. The waiver by any party of any provisions of this
Agreement shall not operate or be construed as a waiver of any prior or
subsequent breach by the other party.
IN WITNESS WHEREOF the parties have executed this Agreement to be
effective as of the date first set forth above.
CKE RESTAURANTS, INC.
By:
---------------------------------------
Its:
---------------------------------------
EMPLOYEE
-------------------------------------------
John J. Dunion