EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of June 13, 1997, and amended as of
October 10, 1997, by and between Dal-Tile International Inc., a Delaware
corporation (the "Company"), and Jacques Sardas (the "Executive").
The Company is engaged in the business of the manufacture,
distribution and marketing of glazed and unglazed tile. The Company desires
to employ the Executive and the Executive desires to accept such employment
on the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual premises and
agreements herein contained, and other good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the parties hereby
agree as follows:
1. TERM OF EMPLOYMENT. The term of the Executive's employment
under this Agreement (the "Term") shall commence on July 1, 1997 and continue
through and expire on December 31, 1999 unless earlier terminated as herein
provided.
2. DUTIES OF EMPLOYMENT. The Executive hereby agrees for the Term
to render his exclusive services to the Company as its President and Chief
Executive Officer, and in connection therewith, to perform such duties
commensurate with his office as he shall reasonably be directed by the Board
of Directors of the Company (the "Board") to perform. The Executive shall
devote during the Term all of his business time, energy and skill to his
executive duties hereunder and perform such duties faithfully and
efficiently, except for reasonable vacations and except for periods of
illness or incapacity. When and if requested to do so by the Board, the
Executive shall serve as a director of the Company and a director and officer
of any subsidiary or affiliate of the Company provided, that the Executive
shall be indemnified for liabilities incurred by him in his capacity as a
Director or an Officer in accordance with an Indemnification
Agreement in the form attached hereto as Exhibit A and as provided in the
Company's Certificate of Incorporation and By-Laws as in effect from time to
time.
3. COMPENSATION AND OTHER BENEFITS.
3.1 SALARY. As compensation for all services to be rendered by
the Executive during the Term, the Company shall pay to the Executive a
salary at the annual rate of $600,000 per year (which may be increased from
time to time by the Board (the "Annual Salary")), payable in accordance with
the Company's usual payroll practices for executives. The Executive shall be
eligible to receive annual salary reviews and salary increases as authorized
by the Board.
3.2 BONUS. In addition to his Annual Salary, the Executive
shall be eligible to be paid a bonus in respect of each fiscal year of the
Company (the "Annual Bonus") in accordance with the Company's bonus plan (the
"Plan"), subject to approval of the material terms of the Plan by the
Company's shareholders in accordance with Section 162(m) of the Code, which
Annual Bonus shall be determined by the Compensation Committee of the Board
and which bonus shall be paid not later than 120 days after the end of such
fiscal year. The Company shall use its best efforts to obtain such
shareholder approval promptly. The amount of the bonus opportunity shall be
100% of the amount of the Annual Salary upon attainment of the "target"
performance goal. For the full fiscal year ending December 31, 1997, the
Company and the Executive have mutually agreed that the Annual Bonus shall be
$600,000, which shall be PRO-RATED for 1997 (I.E., $300,000).
3.3 STOCK SUBSCRIPTION AGREEMENT. The Executive shall be entitled
to purchase from the Company shares of common stock of the Company ("Common
Stock") at a per share price equal to the closing price on the day of purchase
(the "Shares") on the terms and conditions set forth in the Management
Subscription Agreement to be entered into in the form attached hereto as
Exhibit B. The Company
agrees to lend the Executive 50% of the amount needed to purchase the Shares
up to a maximum of $1,500,000 on the terms set forth on Exhibit C.
3.4 STOCK OPTION AGREEMENT. The Company shall simultaneously
herewith, subject to approval by its shareholders of the Dal-Tile
International Inc. 1997 Amended and Restated Stock Option Plan in accordance
with Section 162(m) of the Code (the "Option Plan"), grant Executive options
(the "Options") to purchase 2,000,000 shares of Common Stock at an exercise
price per share equal to the fair market value of the Common Stock on the
date hereof on the terms and conditions set forth in the Option Plan and a
Stock Option Agreement to be entered into (the "Stock Option Agreement") in
the form attached hereto as Exhibit D, provided that the Company shall not be
obligated to issue options at an exercise price lower than the fair market
value of the Common Stock on the date of grant. The Company shall use its
best efforts to obtain such shareholder approval promptly. If Executive's
employment with the Company is terminated by the Company without Cause or by
the Executive with Good Reason (i) on or prior to June 30, 1998, the Options
shall be 50% vested and shall remain exercisable throughout their term and
(ii) after July 1, 1998 but prior to December 31, 1999, the Options shall be
100% vested and shall remain exercisable throughout their term.
3.5 PARTICIPATION IN EMPLOYEE BENEFIT PLANS. During the Term, the
Executive shall be permitted to participate in any group life, hospitalization
or disability insurance plan, health program, pension plan, similar benefit
plan or other so-called "fringe benefit programs" of the Company as now
existing or as may hereafter be revised or adopted.
4. COVENANTS AGAINST COMPETITION. In order to induce the Company to
enter into this Agreement, the Stock Option Agreement and the Management
Subscription Agreement, the Executive hereby agrees as follows:
4.1 ACKNOWLEDGMENTS OF EXECUTIVE. The Executive acknowledges that
(i) the Company and any affiliates or subsidiaries thereof that are currently
existing
or are acquired or formed during the Restricted Period, as hereinafter
defined (collectively, the "Companies"), are and will be engaged primarily in
the business of the manufacture, distribution and marketing of glazed and
unglazed tile (the "Company Business"); (ii) his work for the Companies will
give him access to trade secrets of and confidential information concerning
the Companies, including, without limitation, information concerning its
organization, business and affairs, organization and operations, "know-how",
customer lists, details of client or consultant contracts, pricing policies,
financial information, operational methods, marketing plans or strategies,
business acquisition plans, new personnel acquisition plans, technical
processes, projects of the Companies, financing projections, budget
information and procedures, marketing plans or strategies, and research
products (collectively, the "Trade Secrets"); and (iii) the agreements and
covenants contained in this Section 4 are essential to protect the Company
Business and goodwill of the Companies.
4.2 RESTRICTIONS ON COMPETITION. During the Term and for a two-
year period after the end of the Term (the "Restricted Period") unless this
Agreement is terminated in accordance with the provisions of Section 5.4, the
Executive shall not, in any place where the Company Business is now or
hereafter conducted by any of the Companies while the Executive is an employee,
agent, officer, director or shareholder of the Companies, directly or
indirectly (a) engage in the Company Business for his own account; (b) enter
the employ of, or render any services to any person or entity engaged in the
Company Business; or (c) become interested in any such person or entity in any
capacity, including, without limitation, as an individual, partner,
shareholder, officer, director, principal, agent, trustee or consultant;
provided, however, that the Executive may own, directly or indirectly, solely
as an investment, securities of any entity traded on any national securities
exchange or registered pursuant to Section 12(g) of the Securities Exchange Act
of 1934 if the Executive is not a controlling person of, or a member of a group
which controls, such entity and does not, directly or indirectly, own 3% or
more of
any class of securities of such entity. The Company shall notify the
Executive of any additional entities which may hereafter become "Companies"
within the meaning of this Agreement.
4.3 CONFIDENTIAL INFORMATION; PERSONAL RELATIONSHIPS. During
the Restricted Period, the Executive shall keep secret and retain in
strictest confidence, and shall not use for the benefit of himself or others,
all confidential matters and Trade Secrets of the Companies.
4.4 PROPERTY OF THE COMPANIES. All memoranda, notes, lists,
records and other documents or papers, (and all copies thereof), including such
items stored in computer memories, on microfiche or by any other means, made or
compiled by or on behalf of the Executive, or made available to the Executive
relating to the Companies are and shall be the Companies' property and shall be
delivered to the Companies upon the expiration of the Term unless requested
earlier by the Companies.
4.5 EMPLOYEES OF THE COMPANIES. The Executive acknowledges that
any attempt on the part of the Executive to induce any employee of any of the
Companies to leave any of the Companies' employ, would be harmful and damaging
to the Companies. During the Restricted Period, the Executive will not without
the prior agreement of the Companies, in any way, directly or indirectly: (i)
induce or attempt to induce any employee to terminate employment with the
Companies; (ii) disrupt the Companies' relationship with any employee; or (iii)
solicit or entice any person employed by the Companies.
4.6 BUSINESS OPPORTUNITIES. The Executive acknowledges that the
Companies have been considering, and during the Term may consider, the
acquisition of various entities engaged in the Company Business and that it
would be harmful and damaging to the Companies if he were to become interested
in any such entity without the Company's prior consent. During the Restricted
Period, the Executive will not, without the Company's prior consent, become
interested in any such entity in any
capacity, including, without limitation, as an individual, partner,
shareholder, officer, director, principal, agent, trustee or consultant, if
the Executive was aware at any time during the Term that the Companies had
been considering the acquisition of such entity.
4.7 RESTRICTIVE COVENANTS. For the purposes of this Agreement all
matters discussed in Sections 4.1, 4.2, 4.3, 4.4, 4.5 and 4.6 of this Agreement
shall be referred to as the "Restrictive Covenants."
4.8 RIGHTS AND REMEDIES UPON BREACH. If the Executive breaches,
or threatens to commit a breach of, any of the provisions of the Restrictive
Covenants, the Company shall have the following rights and remedies with
respect to the Executive, each of which rights and remedies shall be
independent of the others and severally enforceable, and each of which is in
addition to, and not in lieu of, any other rights and remedies available to the
Company under law or in equity.
4.8.1 SPECIFIC PERFORMANCE. The right and remedy to have
the Restrictive Covenants specifically enforced, it being agreed that any
breach or threatened breach of the Restrictive Covenants would cause
irreparable injury to the Company and money damages will not provide an
adequate remedy to the Company.
4.8.2 ACCOUNTING. The right and remedy to require the
Executive to account for and pay over to the Company all compensation, profits,
monies, accruals, increments or other benefits derived or received by him as a
result of any transactions constituting a breach of the Restrictive Covenants.
4.8.3 SEVERABILITY OF COVENANTS. The Executive acknowledges
and agrees that the Restrictive Covenants are reasonable and valid in
geographical and moral scope and in all other respects. If any court
determines that any of the Restrictive Covenants, or any part thereof, are
invalid or unenforceable, the remainder of the Restrictive Covenants shall not
thereby be affected and shall be given full effect, without regard to the
invalid portions.
4.8.4 BLUE-PENCILLING. If it is determined that any of the
Restrictive Covenants, or any part thereof, is unenforceable because of the
duration or geographic scope of such provision, the duration or scope of such
provision, as the case may be, shall be reduced so that such provisions becomes
enforceable and, in its reduced form, such provision shall then be enforceable.
4.9 ENFORCEABILITY IN JURISDICTION. The Company and the Executive
intend to and hereby confer jurisdiction to enforce the Restrictive Covenants
upon the courts of any jurisdiction within the states or county which the
Company does business. If the courts of any one or more of such jurisdictions
hold the Restrictive Covenants unenforceable by reason of the breadth of such
scope or otherwise, it is the intention of the Company and the Executive that
such determination not bar or in any way affect the Company's right to relief
provided above in the courts of any other jurisdiction within the geographical
scope of the Restrictive Covenants, as to breaches of such Restrictive
Covenants in such other respective jurisdictions, such Restrictive Covenants as
they relate to each jurisdiction being, for this purpose, severable into
diverse and independent covenants.
5. TERMINATION.
5.1 TERMINATION UPON DEATH. If the Executive dies during the
Term, this Employment Agreement shall terminate immediately, except that the
Executive's legal representatives shall be entitled to receive any Annual
Salary to the extent such Annual Salary has accrued and remains payable up to
the date of the Executive's death (to be paid in accordance with the Company's
usual payroll practices for executives), plus a portion of the Executive's
Annual Bonus, as set forth in Section 3.2 computed on a pro rata basis based on
the performance of the Company from the beginning of such bonus period to the
date of Executive's death (to be paid as promptly as practicable, but no later
than 10 days after the determination thereof), and any benefits to which the
Executive, his heirs or legal representatives may be entitled under and in
accordance with the terms of any employee benefits plan or program maintained
by the Company.
5.2 TERMINATION UPON DISABILITY. If the Executive becomes
disabled during his employment hereunder so that he is unable substantially to
perform his services hereunder for 180 consecutive days, then the term of this
Agreement may be terminated by resolution of the Board sixty days after the
expiration of such 180 days, such termination to be effective upon delivery of
written notice to the Executive of the adoption of such resolution; provided,
that the Executive shall be entitled to receive any accrued and unpaid Annual
Salary through such effective date of termination (to be paid in accordance
with the Company's usual payroll practices for executives), plus a portion of
the Executive's Annual Bonus, as set forth in Section 3.2 computed on a pro
rata basis based on the performance of the Company from the beginning of such
bonus period to the date of termination (to be paid as promptly as practicable,
but no later than 10 days after the determination thereof), and any benefits to
which the Executive may be entitled under and in accordance with the terms of
any employee benefits plan or program maintained by the Company.
5.3 TERMINATION FOR CAUSE. The Company has the right, at any time
during the Term, subject to all of the provisions hereof, exercisable by
serving notice, effective in accordance with its terms, to terminate the
Executive's employment under this Agreement and discharge the Executive for
"Cause" (as defined below). If such right is exercised, the Executive shall be
entitled to receive unpaid and accrued base salary prorated through the date of
such termination, any benefits vested as of the date of such termination and
any other compensation or benefits otherwise required to be paid under
applicable law. Except for such payments, the Company shall be under no
further obligation to the Executive. As used in this Section 5, the term
"Cause" shall mean (i) the conviction of or plea of guilty by the Executive of
any felony or other serious crime involving the Company, or (ii) gross or
willful misconduct by the Executive in the
performance of his duties hereunder; provided however, that no act shall be
considered gross or willful misconduct if the Executive believes he was
acting in good faith or in a manner not opposed to the interests of the
Company. The Company shall be entitled to terminate the Executive for Cause
only upon approval of a resolution adopted by the affirmative vote of not
less than two-thirds of the membership of the Board (excluding Executive).
The Company agrees to provide to the Executive prior written notice (the
"Notice") of its intention to terminate Executive's employment for Cause,
such notice to state in detail the particular acts or failures to act which
constitute grounds for the termination. The Executive shall be entitled to a
hearing before the Board to contest the Board's findings, and to be
accompanied by counsel. Such hearing shall be held within 15 days of the
request thereof to the Company by the Executive, provided that such request
must be made within 15 days of delivery of the Notice. If, following any
such hearing, the Board maintains its determination to terminate the
Executive's employment for Cause, the effective date of such termination
shall be as specified in the Notice.
5.4 TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. The Company
shall have the right at any time during the Term to terminate the Executive's
employment hereunder without Cause. Upon such a termination or the termination
by the Executive for Good Reason, the Company's sole obligation hereunder,
except as otherwise provided in Section 3.4, shall be to pay to the Executive
(i) an amount equal to any Annual Salary accrued and due and payable to the
Executive hereunder on the date of termination (to be paid in accordance with
the Company's usual payroll practices for executives), (ii) thereafter all
Annual Salary for the remainder of the Term, in accordance with the Company's
usual payroll practices for executives, and (iii) in a lump sum payment (to be
paid as promptly as practicable, but no later than 10 days after the
determination thereof), the greater of (A) a portion of the Executive's Annual
Bonus as set forth in Section 3.2 computed on a pro rated basis based on the
performance of the Company from the beginning of the bonus period to the date
of termination and (B) an
amount equal to the amount of the Annual Bonus for the fiscal year preceding
the fiscal year in which the date of termination occurs, pro rated based on
the number of days elapsed in the year of termination. For purposes of this
Agreement, "Good Reason" shall mean (i) a reduction in the Annual Salary or
maximum bonus opportunity as specified in Section 3.2, (ii) a relocation of
the Company's headquarters more than 100 miles outside of the Dallas/Fort
Worth Metropolitan area, (iii) a material diminution in the Executive's
duties or responsibilities, or (iv) an adverse change in the Executive's
title, (vi) assignment to Executive of duties and responsibilities that are
inconsistent with his position in any material respect, or (vii) failure of
the Board to nominate Executive for election to the Board, or removal of the
Executive from the Board without his consent.
5.5 OTHER. Except as otherwise provided herein, upon the
expiration or other termination of this Agreement, including the resignation of
Executive, all obligations of the Company shall forthwith terminate, except as
to any stock option rights as provided in the Stock Option Agreement and the
Right (as defined below) as provided in the SAR Agreement (as defined below)
and except as otherwise required by applicable law.
6. EXPENSES.
6.1 GENERAL. During the Term, the Executive will be reimbursed
for his reasonable professional and personal expenses incurred for the benefit
of the Company in accordance with the general policy of the Company or
directives and guidelines established by management of the company and upon
submission of documentation satisfactory to the Company. Such expenses shall
include, but shall not be limited to, travel, entertainment, club dues and
promotional expenses and transportation expenses. With respect to any expenses
which are to be reimbursed by the Company to the Executive, the Executive shall
be reimbursed upon his presenting to the Company an itemized expense voucher.
6.2 RELOCATION. Executive shall be reimbursed for reasonable
expenses incurred by him to relocate from Ohio to Dallas, Texas, plus
reasonable living expenses and reasonable expenses for commuting until the
earlier of (i) the relocation of his residence to Dallas or (ii) July 1, 1998.
7. OTHER PROVISIONS.
7.1 NOTICES. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission or, if mailed, five days after the date of deposit in the United
States mail, as follows:
(i) if to the Company, to:
Dal-Tile International Inc.
c/o AEA Investors Inc.
65 East 55 Street
New York, NY 10022
Attention: Christine J. Smith
(ii) if to the Executive, to:
Jacques Sardas
1287 Country Club Road
Akron, Ohio 44313
with a copy to:
Ira C. Kaplan, Esq.
Benesch, Friedlander, Coplan & Aronoff, LLP
2300 BP America Building
200 Public Square
Cleveland, Ohio 44114
Any party may change its address for notice hereunder by notice to the
other parties hereto.
7.2 ENTIRE AGREEMENT. This Agreement, the Management
Subscription Agreement, the SAR Agreement and the Option Agreement contain
the
entire agreement between the parties with respect to the subject matter
hereof and supersedes all prior agreements, written or oral, with respect
thereto.
7.3 WAIVERS AND AGREEMENTS. This Agreement may be amended,
modified, superseded, cancelled, renewed or extended, and the terms and
conditions hereof may be waived, only by a written instrument signed by the
parties or, in the case of a waiver, by the party waiving compliance. No
delay on the part of any party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any waiver on the part
of any party of any right, power or privilege hereunder, nor any single or
partial exercise of any right, power or privilege hereunder preclude any
other or further exercise thereof or the exercise of any other right, power
or privilege hereunder.
7.4 GOVERNING LAW. This Agreement shall be governed and construed
in accordance with the laws of the State of Delaware applicable to agreements
made and to be performed entirely within such State.
7.5 ASSIGNMENT. Executive may not delegate the performance of any
of his duties hereunder. Neither party hereto may assign any rights hereunder
without the written consent of the other party hereto. Subject to the
foregoing, this Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and their respective successors and assigns.
7.6 COUNTERPARTS. This Agreement may be executed in two
counterparts, each of which shall be deemed an original but both of which
together shall constitute one and the same instrument.
7.7 HEADINGS. The headings in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
8. ARBITRATION. In the event of a dispute between the Company and
the Executive over the terms of this Agreement which is not settled by the
parties, then the
Company and the Executive agree to settle any and all such disputed issues by
arbitration in accordance with the then-existing rules of the American
Arbitration Association. The Company and the Executive shall jointly appoint
one person to act as the arbitrator. In the event the Company and the
Executive cannot agree to an arbitrator within 30 days, the arbitrator shall
be chosen by the President of the American Arbitration Association. The
decision of the arbitrator shall be binding upon the parties and there shall
be no appeal therefrom other than for bias, fraud or misconduct. The costs
of the arbitration, including the fees and expenses of the arbitrator, shall
be borne fifty percent by the Company, on the one hand, and fifty percent by
the Executive, on the other, but each party shall pay its own attorneys'
fees; provided, however, that if the arbitrator shall rule for the Executive,
the Company shall pay or reimburse the Executive's reasonable attorneys' fees
and the Executive's share of the arbitration costs incurred in connection
with such arbitration. Notwithstanding the foregoing, it is specifically
understood that Executive shall remain free to assert and enforce in any
court of competent jurisdiction such rights, if any, as Executive may have
under federal law, including without limitation, rights arising under Title
VII of the Civil Rights Act of 1964, as amended, the Age Discrimination and
Employment Act of 1967, as amended, and/or the Americans With Disabilities
Act of 1990.
9. STOCK OPTIONS; REGISTRATION.
(a) The Company agrees, upon the occurrence of a Filing Event (as
defined below), as promptly as practicable but not later than 45 days after
such occurrence, to (i) file with the Securities and Exchange Commission (the
"SEC"), at the Company's cost and expense, a Registration Statement on Form S-8
(or similar form) with respect to the shares of Common Stock issuable upon
exercise of the Options and the Right (as defined in the Stock Appreciation
Rights Agreement, dated as of October 10, 1997, between the Company and
Executive (the "SAR Agreement)) (ii) maintain the effectiveness of such
Registration Statement (subject to the other provisions of this
Section 9) until all of the Options and the Right shall have been exercised
in full or shall have expired, whichever shall first occur, and (iii)
provide to Executive copies of the Registration Statement and all amendments,
if any, thereto. The Company further agrees to cause any Registration
Statement on Form S-8 filed by the Company on behalf of its other employees
to cover the Options and the Right held by the Executive.
(b) If the Company proposes to effect an underwritten secondary
registration on behalf of DTI Investors LLC or its members, the Company will
provide prompt notice to the Executive thereof and will permit the Executive to
include in such registration shares of Common Stock owned by him with respect
to which the Company has received written request for inclusion therein within
20 days after the receipt of the Company's notice. Common Stock requested by
the Executive to be included in such registration will be included pro rata on
the basis of the number of shares of Common Stock held by the Executive and the
other participants in such registration, subject to reduction, if necessary, if
the managing underwriter for the offering advises the Company that such
reduction is advisable in order to avoid an adverse effect on the proposed
offering. The Company shall bear all expenses in connection with such
registration, other than underwriting discounts and commissions and transfer
taxes, if any, and fees and expenses of the Executive's legal and other
advisers, attributable to the inclusion in such registration of Common Stock
owned by Executive.
(c) The obligations of the Company contained in this Section 9 are
subject to (i) requirements of applicable law, (ii) restrictions that may be
imposed by the Company's underwriters, and (iii) Executive cooperating and
providing any needed consents, agreements (including any required "lock up" or
customary indemnity agreements, to the extent such arrangements are requested
of members of Company management or significant shareholders, generally) and
information. Executive agrees that he will discontinue any exercise of Options
or Rights or sale of shares of Common Stock upon notice from the Company that
an event or development makes amendment or
supplement of any Registration Statement of the Company (or suspension of
effectiveness thereof) necessary, and will not resume such exercise or sale
until the Company informs Executive he may do so (provided that the Company
shall not require such discontinuance for more than 90 days in any 360-day
period). Executive specifically agrees that, in connection with a Filing
Event described in clause (i) of the definition thereof, he will not sell,
transfer or otherwise dispose of any shares of Common Stock, for a period of
180 days following such event, unless the underwriters for the relevant
public offering determine a shorter period to be appropriate.
(d) For the purpose of this Section 9, "Filing Event" shall mean the
earliest to occur of the following events: (i) the sale in a registered public
offering of at least 10% of the shares of Common Stock held at such time by DTI
Investors LLC or its members (taken as a group), (ii) the termination or
liquidation of DTI Investors LLC; and (iii) the date of termination of the
Executive's employment (A) by the Company without Cause or by reason of
disability or by the Executive for Good Reason, (B) as a result of the
expiration of the original Term of this Agreement (December 31, 1999) or (C)
by reason of the Executive's death.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
DAL-TILE INTERNATIONAL INC.
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
-----------------------------------
Jacques Sardas