Document:

Exhibit 10.4

 

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

 

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the “Agreement”) is made on December 12, 2017 (the “Effective Date”), by and between Smart & Final Stores, Inc., a Delaware corporation (the “Company”), and David G. Hirz (the “Executive”).

 

WHEREAS, the Executive is currently employed by the Company as its Chief Executive Officer and President pursuant to the Amended and Restated Employment Agreement with the Company, dated July 20, 2016 (the “Prior Agreement”);

 

WHEREAS, the Company wishes to continue the Executive’s employment in his present position and the Executive wishes to accept such employment, in each case in accordance with the terms and provisions herein contained; and

 

NOW, THEREFORE, in consideration of the mutual representations, warranties, covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows:

 

1.                                      Employment of Executive; Duties.

 

1.1.                            Title; Reporting.  During the Employment Period (as defined in Section 2 hereof) the Executive shall serve as the Chief Executive Officer and President of the Company, reporting directly to the Board of Directors of the Company (the “Board”).  The Executive also shall be nominated to serve as a director on the Board for so long as the Executive remains employed by the Company.

 

1.2.                            Duties.  During the Employment Period, the Executive shall do and perform all lawful services and acts reasonably necessary or advisable and consistent with his position to fulfill the duties and responsibilities of the Executive’s position and shall render such services on the terms set forth herein.  In addition, the Executive shall have such other executive and managerial powers and duties as may reasonably be assigned to the Executive by the Board, commensurate with the Executive serving as the Chief Executive Officer and President.  The Company may reasonably adjust the duties and responsibilities of Executive as the Chief Executive Officer and President, notwithstanding the specific title set forth in Section 1.1 hereof, based upon the Company’s needs from time to time.  Except for sick leave, reasonable vacations and excused leaves of absence, the Executive shall, throughout the Employment Period, devote substantially all of the Executive’s working time, attention, knowledge and skills, to such extent as may be necessary and appropriate as determined by the Executive in his business judgment and in consultation with the Board, faithfully, and to the best of the Executive’s ability, to the duties and responsibilities of the Executive’s position(s) in furtherance of the business affairs and activities of the Company and its subsidiaries.  The Executive shall at all times be subject to, comply with, observe and carry out (a) the Company’s rules, regulations, policies and codes of ethics and/or conduct applicable to its employees generally as currently in effect or as reasonably in effect from time to time and (b) such rules, regulations, policies, codes of ethics and/or conduct, directions and restrictions as the Board may from time to time reasonably establish or approve for senior executive officers of the Company.

 

 

2.                                      Term of Employment.  This Agreement shall become effective as of the Effective Date.  This Agreement shall govern the terms and conditions of the Executive’s employment by the Company, and the termination thereof, from the Effective Date through the third anniversary thereof (the “Initial Term”), provided that on the third anniversary of the Effective Date and each anniversary thereafter, the Term shall be extended for one additional year unless the Company or the Executive gives the other party written notice of its election not to so extend the Term at least 180 days prior to any such anniversary, or unless terminated sooner pursuant to Section 4 hereof.  The Initial Term and each extension thereof, if any, are referred to as the “Term.”  The portion of the Term during which the Executive is actually employed by the Company under this Agreement is referred to as the “Employment Period.”

 

3.                                      Compensation and General Benefits.

 

3.1.                            Base Salary.

 

(a)                                 During the Employment Period, the Company agrees to pay to the Executive an annual base salary in an amount equal to $950,000 (such base salary, as may be increased from time to time pursuant to Section 3.1(b), is referred to herein as the “Base Salary”).  The Base Salary, less amounts required to be withheld under applicable law, shall be payable in equal installments in accordance with the Company’s normal payroll practices and procedures in effect from time to time for the payment of salaries to officers of the Company, but in no event less frequently than semi-monthly.

 

(b)                                 The Board or the Compensation Committee established by the Board (the “Compensation Committee”) shall review the Executive’s performance on an annual basis and, based on such review, may increase the Base Salary, as it, acting in its sole discretion, shall determine to be reasonable and appropriate.

 

3.2.                            Annual Bonus.

 

(a)                                 With respect to each fiscal year of the Company that ends during the Employment Period, the Executive shall be eligible for an annual performance bonus (the “Annual Bonus”) contingent upon the Company’s attainment of annual performance goals that are established by the Board or the Compensation Committee, after consultation with the Executive.

 

(b)                                 The actual amount of the Annual Bonus will be based on the level of achievement of the performance goals for the applicable fiscal year.  The Executive will earn an Annual Bonus equal to 110% of his Base Salary for achievement at 100% of the established target level for such goals (such bonus, the “Target Bonus”).  The Executive will have the potential to earn an Annual Bonus equal to up to 220% of his Base Salary for achievement of “stretch” goals that are established in excess of such target level.

 

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(c)                                  Any Annual Bonus earned shall be paid in a lump sum on or before May 15 next following the end of the fiscal year to which the bonus relates (but no earlier than January 1 of such year), and in accordance with the Company’s normal payroll practices and procedures.  Notwithstanding anything in this Section 3.2 to the contrary, the Annual Bonus (if any) will be earned and payable only if the Executive is employed by the Company on the last day of the fiscal year to which such Annual Bonus relates, except as otherwise expressly provided in Section 4 hereof.

 

3.3.                            Equity Grants.  With respect to each fiscal year of the Company during the Employment Period, the Board, or an appropriate committee thereof, shall consider an annual grant of equity awards to the Executive on terms determined by the Board or applicable committee, with a grant date fair value of not less than $2,500,000; provided, that operating income for the applicable fiscal year is greater than the operating income for the prior applicable fiscal year and, provided further, that the Board or applicable committee shall not be obligated to make such grant.

 

3.4.                            Expenses.  In addition to any amounts to which the Executive may be entitled pursuant to the other provisions of this Section 3 or elsewhere herein, the Executive shall be entitled to receive reimbursement from the Company for all reasonable and necessary expenses incurred by the Executive during the Employment Period in performing the Executive’s duties hereunder on behalf of the Company, subject to, and consistent with, the Company’s policies for expense payment and reimbursement, in effect from time to time.

 

3.5.                            Benefits.

 

(a)                                 During the Employment Period, in addition to any amounts to which the Executive may be entitled pursuant to the other provisions of this Section 3 or elsewhere herein, the Executive shall be entitled to participate in, and to receive benefits under, any benefit plans, arrangements or policies made available by the Company or its subsidiaries to their senior employees generally, including the Company’s 401(k) plan, supplemental deferred compensation plan, executive medical reimbursement plan and other perquisites provided to senior employees generally, subject to and on a basis consistent with the terms, conditions and overall administration of each such plan, arrangement or policy.

 

(b)                                 The Executive shall be entitled to five weeks of paid vacation per calendar year, pro-rated for any partial year of service, in accordance with the standard written policy of the Company or its subsidiaries with regard to vacations of employees.  Unused vacation shall accrue from year to year, but shall be capped at ten weeks.

 

(c)                                  During the Employment Period, the Executive shall receive an automobile allowance of $1,500 per month, and any other automobile benefits consistent with the Company’s automobile policy.

 

(d)                                 Notwithstanding the foregoing, the foregoing benefits may be reduced or eliminated prospectively to the extent the Company determines to reduce or eliminate such benefits for senior executives of the Company and its subsidiaries generally.

 

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4.                                      Termination.

 

4.1.                            General.  The employment of the Executive hereunder (and the Employment Period) shall terminate as provided in Section 2 hereof, unless earlier terminated in accordance with the provisions of this Section 4.

 

4.2.                            Death or Disability of the Executive.

 

(a)                                 The employment of the Executive hereunder (and the Employment Period) shall terminate upon (x) the death of the Executive and (y) at the option of the Company, upon not less than 15 days’ prior written notice to the Executive or the Executive’s personal representative or guardian, if the Executive suffers a “Total Disability” (as defined in Section 4.2(c) hereof).  Upon termination for death or Total Disability:

 

(i)                                     The Company shall pay to the Executive, guardian or personal representative, as the case may be, continued Base Salary at its then current level for a period of 24 months. The continued Base Salary pursuant to this Section 4.2(a) shall be paid in accordance with the Company’s normal payroll practices and procedures in the same manner and at the same time as though the Executive remained employed by the Company.

 

(ii)                                  The Company shall pay to the Executive, guardian or personal representative, as the case may be, a prorated share of the Annual Bonus pursuant to Section 3.2 hereof (based on the period of actual employment) to which the Executive would have been entitled had the Executive worked the full fiscal year during which the termination occurred, based on the actual level of achievement of the applicable goals for such fiscal year.  Any bonus due as a result of the preceding sentence shall be paid in a lump sum at the time and in the manner specified in Section 3.2.

 

(b)                                 The Executive agrees to take all actions as may be reasonably requested by the Company in connection with the purchase and maintenance by the Company of life insurance policies on the Executive maintained by the Company for the sole benefit of the Company, including submitting to a physical examination.

 

(c)                                  For purposes of this Agreement, “Total Disability” shall mean (i) if the Executive is subject to a legal decree of incompetency (the date of such decree being deemed the date on which such disability occurred), (ii) the written determination by a physician selected by the Company (which expense shall be paid by the Company) that, because of a medically determinable disease, injury or other physical or mental disability, the Executive is unable substantially to perform, with or without reasonable accommodation, the material duties of the Executive required hereby, and that such disability has lasted for 90 consecutive days or any 120 days during the immediately preceding 12-month period or is, as of the date of determination, reasonably expected to last six months or longer after the date of determination, in each case, based upon medically available reliable information or (iii) the Executive qualifies for benefits for the balance of the Term under the Company’s long-term disability coverage, if any.   In conjunction with determining mental and/or physical disability for purposes of this Agreement, the Executive hereby consents to (x) any examinations that the Board or the Compensation Committee determines are relevant to a determination of whether the Executive is mentally and/or physically disabled or are required by the Company physician, (y) furnish such medical information as may be reasonably requested and (z) waive any applicable physician patient privilege that may arise because of such examination.  All expenses incurred by the Executive under this subsection shall be paid by the Company.

 

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4.3.                            Termination by the Company Without Cause or Resignation by the Executive For Good Reason.

 

(a)                                 The Company may terminate the Executive’s employment without “Cause” (as defined in Section 4.3(g) hereof), and thereby terminate the Executive’s employment (and the Employment Period) under this Agreement at any time upon written notice to the Executive.

 

(b)                                 The Executive may resign, and thereby terminate the Executive’s employment (and the Employment Period), at any time for “Good Reason” (as defined in Section 4.3(f) hereof) upon not less than 30 days’ and not more than 60 days’ prior written notice to the Company specifying the existence of Good Reason and the reason therefor in reasonable detail; provided, however, that the Company shall have a reasonable opportunity to cure any such Good Reason (to the extent curable) within 30 days after the Company’s receipt of such notice; and provided further that, if the Company is not seeking to cure, the Company shall not be obligated to allow the Executive to continue working during such period and may, in its sole discretion, accelerate such termination of employment (and the Employment Period) to any date during such period. The Executive may not terminate employment under this Agreement for Good Reason regarding any of the Company’s acts or omissions of which Executive had actual notice for 90 days or more prior to giving notice of termination for “Good Reason;” provided that any waiver by the Executive of any conduct, event or occurrence that otherwise would have constituted Good Reason shall not be a waiver of any subsequent conduct, event or occurrence of the same or any other type.

 

(c)                                  In the event the Executive’s employment is terminated pursuant to this Section 4.3, other than a Change in Control Termination (as defined below), then, subject to Section 4.3(e) hereof, the following provisions shall apply:

 

(i)                                     The Company shall continue to pay the Executive the Base Salary (at the Base Salary rate on the date of termination) for a period of 24 months after the date of termination, with all such amounts payable in accordance with the Company’s normal payroll practices and procedures in the same manner and at the same time as though the Executive remained employed by the Company.

 

(ii)                                  The Company shall pay to the Executive a pro-rated share of the Annual Bonus pursuant to Section 3.2 hereof (based on the period of actual employment) to which the Executive would have been entitled had the Executive worked for the full fiscal year during which the termination occurred, based on the actual level of achievement of the applicable goals for such fiscal year.  Any bonus due as a result of the preceding sentence shall be paid in a lump sum at the time and in the manner specified in Section 3.2 hereof.

 

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(iii)                               The Executive shall receive 24 months of service credit with respect to any options to purchase common stock of the Company granted prior to the date of the termination and held by Executive on such date (“Existing Options”); notwithstanding the foregoing, if the Executive’s employment is terminated pursuant to this Section 4.3 on or after December 31, 2020, all Existing Options shall, as of the date of such termination, immediately vest.  The Executive shall have two (2) years after the date of the termination to exercise vested Existing Options, provided that in no event shall any options be exercisable after the expiration of the term of such options.

 

(iv)                              Any restricted stock of the Company granted prior to the date of the termination and held by Executive on such date (“Existing Restricted Stock”) shall, as of the date of such termination, immediately vest with respect to the lesser of (x) 50% of the total number of shares subject to the applicable restricted stock agreement and (y) all of the restricted stock subject to the applicable restricted stock agreement as of the date of such termination; notwithstanding the foregoing, if the Executive’s employment is terminated pursuant to this Section 4.3 on or after December 31, 2020, all Existing Restricted Stock shall, as of the date of such termination, immediately vest.  Notwithstanding the foregoing, no portion of the restricted stock granted pursuant to the Restricted Stock Agreements between Executive and the Company dated May 25, 2017 and December 8, 2017, respectively, shall accelerate pursuant to this Section 4.3(c)(iv)

 

(d)                                 In the event the Executive’s employment is terminated pursuant to this Section 4.3 within 60 days prior to or within one year following a Change in Control (as defined in the Smart & Final Stores, Inc. 2014 Stock Incentive Plan; provided that such Change in Control constitutes a “change in the ownership of the corporation,” a “change in effective control of the corporation” or a “change in the ownership of a substantial portion of the assets of the corporation,” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”)) (a “Change in Control Termination”), then, subject to Section 4.3(e) hereof, the following provisions shall apply:

 

(i)                                     In lieu of the amounts set forth in Section 4.3(c)(i) hereof, Company shall pay the Executive an amount equal to two times (A) the Base Salary (at the Base Salary rate on the date of termination), payable in accordance with Section 4.3(c)(i) hereof, and (B) the Target Bonus (at the Target Bonus rate for the fiscal year of termination), payable in a lump sum on the first regular payroll date after the 60th day after the date of termination.

 

(ii)                                  The Company shall pay to the Executive or the Executive shall receive, as applicable, the other payments and benefits provided in Section 4.3(c)(ii)-(iv) hereof.

 

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(e)                                  As a condition precedent to the Executive’s right to receive the benefits set forth in Section 4.3(c), Section 4.3(d), Section 4.5(b), Section 4.5(c) or Section 4.5(d) hereof, the Executive agrees to execute a release (“Release”) of the Company and its respective Affiliates, officers, directors, stockholders, employees, agents, insurers, representatives and successors from and against any and all claims that the Executive may have against any Person (as defined in Section 5.3(e) hereof) (which Release shall be delivered to Executive within ten days following the date of termination) relating to the Executive’s employment by the Company and the termination thereof and such Release must become effective and enforceable in accordance with its terms on or before the 60th day after Executive’s termination of employment.  Such Release shall be substantially in the form attached hereto as Exhibit A, with such modifications or additions as are necessary or advisable to render such Release enforceable under then-applicable law.  In addition, the Executive’s right to receive the benefits set forth in Section 4.3(c), Section 4.3(d), Section 4.5(b), Section 4.5(c) or Section 4.5(d) hereof is conditioned on the Executive’s compliance with his obligations under Section 5 hereof and under the Fair Competition Agreement attached hereto as Exhibit B.  The payments to the Executive under Sections 4.2(a)(i),  4.3(c)(i), Section 4.3(d)(i), Section 4.5(c)(i) or Section 4.5(d)(i) hereof shall commence on the first regular payroll date after the 60th day after Executive’s termination of employment, and the first payment shall include any amounts that would otherwise have been made to the Executive between the date of termination and the date of first payment.

 

(f)                                   For purposes of this Agreement, the Executive would be entitled to terminate the Executive’s employment for “Good Reason” if, without Executive’s written consent, (i) the Company materially diminishes the Executive’s authority, responsibility or duties, including if the Executive no longer reports directly to the Board, (ii) the Company requires the Executive to relocate to a principal place of employment that is 25 miles further (one-way) from the Executive’s current residence (as of the Effective Date) than the Company’s current headquarters in Commerce, California are from such residence, or (iii) without the Executive’s prior written consent, the Company fails to comply with any material obligation imposed by this Agreement.  Notwithstanding any provision of this Agreement to the contrary, the Company is permitted to reduce the Executive’s Base Salary in connection with a Company-wide reduction in salary or a reduction in salary of the Company’s executive officers, generally, and any such reduction shall not be deemed to be “Good Reason,” provided, that the percentage of any such reduction is no greater than the percentage reduction of any other officer.

 

(g)                                  For purposes of this Agreement, “Cause” means the occurrence of any one or more of the following events:

 

(i)                                     a breach by the Executive of any material provision of this Agreement, including any provision of Section 5 hereof, or a breach of any provision of the Fair Competition Agreement;

 

(ii)                                  the Executive’s (A) having committed any felony or (B) conviction or plea of nolo contendere to any misdemeanor, in each case, that could cause material harm or embarrassment to the Company or any of its subsidiaries or any of its affiliates, in the reasonable judgment of the Board;

 

(iii)                               theft, embezzlement or fraud by the Executive in connection with the performance of the Executive’s duties hereunder;

 

(iv)                              the misappropriation by the Executive of any material business opportunity of the Company or any of its subsidiaries, excluding any activity permitted hereby or authorized by the Board;

 

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(v)                                 any material failure to comply with, observe or carry out the Company’s written rules, regulations, policies and codes of ethics and/or conduct applicable to its employees generally and in effect from time to time, including (without limitation) those regarding conflicts, potential conflicts of interest or the appearance of a conflict of interest;

 

(vi)                              any material failure to comply with, observe or carry out the written rules, regulations, policies, directions, codes of ethics and/or conduct and restrictions established or approved by the Board from time to time for senior executive officers of the Company, including (without limitation) those regarding conflicts, potential conflicts of interest or the appearance of a conflict of interest; and

 

(vii)                           substance abuse or use of illegal drugs that, in the reasonable judgment of the Board, (A) materially impairs the Executive’s performance of the Executive’s duties hereunder or (B) causes or is likely to cause material harm or embarrassment to the Company or any of its subsidiaries.

 

Notwithstanding the foregoing, (A) the Executive shall have a reasonable opportunity to cure any conduct, event or occurrence described in clause (i), (iv), (vi) or (vii) (to the extent curable) within 30 days after the Company notifies the Executive in writing of such conduct, event or occurrence constituting Cause and (B) the Company may not terminate Executive’s employment for Cause (except under clause (ii)) after 90 days after the grounds constituting Cause have been presented to the Board at a duly-called meeting (or, if earlier, and Adam Stein or David Kaplan is a member of the Board, 180 days after either of them has actual knowledge that the Company has the right to terminate the Executive for Cause);  provided that any waiver by the Company of any conduct, event or occurrence that otherwise would have constituted Cause shall not be a waiver of any subsequent conduct, event or occurrence of the same or any other type.

 

4.4.                            Termination For Cause, Voluntary Resignation Other Than For Good Reason or Expiration of the Term.

 

(a)                                 The Company may terminate the employment of the Executive (and the Employment Period) at any time for “Cause.”

 

(b)                                 The Executive may voluntarily resign other than for Good Reason and thereby terminate the Executive’s employment (and the Employment Period) under this Agreement at any time upon not less than 30 days’ prior written notice.

 

(c)                                  The Executive’s employment shall automatically terminate upon expiration of the Term in accordance with Section 2.

 

(d)                                 Upon termination by the Company for Cause, by the Executive as the result of resignation for other than for Good Reason, or upon expiration of the Term, the Executive shall be entitled to receive all amounts of earned but unpaid Base Salary and benefits accrued and vested through the date of such termination.

 

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4.5.                            Retirement by the Executive.

 

(a)                                 The Executive may resign, and thereby terminate the Executive’s employment (and the Employment Period), due to a “Retirement” (as defined in Section 4.5(e) hereof).

 

(b)                                 In the event the Executive’s employment is terminated pursuant to Section 4.5(a) prior to December 31, 2020, then, subject to Section 4.3(e) hereof, the following provisions shall apply:

 

(i)                                     The Executive shall receive 24 months of service credit with respect to any Existing Options.  The Executive shall have two (2) years after the date of the termination to exercise vested Existing Options, provided that in no event shall any options be exercisable after the expiration of the term of such options.

 

(ii)                                  Any Existing Restricted Stock shall, as of the date of such termination, immediately vest with respect to the lesser of (x) 50% of the total number of shares subject to the applicable restricted stock agreement and (y) all of the restricted stock subject to the applicable restricted stock agreement as of the date of such termination.

 

(c)                                  In the event the Executive’s employment is terminated pursuant to Section 4.5(a) on or after December 31, 2020 but prior to December 31, 2022, then subject to Section 4.3(e) hereof, the following provisions shall apply:

 

(i)                                     The Company shall continue to pay the Executive Base Salary (at the Base Salary rate on the date of termination) for a period of 12 months after the date of termination, with all such amounts payable in accordance with the Company’s normal payroll practices and procedures in the same manner and at the same time as though the Executive remained employed by the Company.

 

(ii)                                  Any Existing Options shall, as of the date of such termination, immediately vest.  The Executive shall have two (2) years after the date of the termination to exercise vested Existing Options, provided that in no event shall any options be exercisable after the expiration of the term of such options.

 

(iii)                               Any Existing Restricted Stock shall, as of the date of such termination, immediately vest.  Notwithstanding the foregoing, no portion of the restricted stock granted pursuant to the Restricted Stock Agreements between Executive and the Company dated May 25, 2017 and December 8, 2017, respectively, shall accelerate pursuant to this Section 4.5(c)(iii).

 

(d)                                 In the event the Executive’s employment is terminated pursuant to Section 4.5(a) on or after December 31, 2022, then subject to Section 4.3(e) hereof, the following provisions shall apply:

 

(i)                                     The Company shall continue to pay the Executive Base Salary (at the Base Salary rate on the date of termination) for a period of 24 months after the date of termination, with all such amounts payable in accordance with the Company’s normal payroll practices and procedures in the same manner and at the same time as though the Executive remained employed by the Company.

 

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(ii)                                  A pro-rated share of the Annual Bonus pursuant to Section 3.2 hereof (based on the period of actual employment) to which the Executive would have been entitled had the Executive worked for the full fiscal year during which the termination occurred, based on the actual level of achievement of the applicable goals for such fiscal year, provided that such bonus will not exceed 10% of the Executive’s Base Salary (at the Base Salary rate on the date of termination).  Any bonus due as a result of the preceding sentence shall be paid in a lump sum at the time and in the manner specified in Section 3.2 hereof.

 

(iii)                               Any Existing Options shall, as of the date of such termination, immediately vest.  The Executive shall have two (2) years after the date of the termination to exercise vested Existing Options, provided that in no event shall any options be exercisable after the expiration of the term of such options.

 

(iv)                              Any Existing Restricted Stock shall, as of the date of such termination, immediately vest.  Notwithstanding the foregoing, no portion of the restricted stock granted pursuant to the Restricted Stock Agreements between Executive and the Company dated May 25, 2017 and December 8, 2017, respectively, shall accelerate pursuant to this Section 4.5(d)(iii).

 

(e)                                  For purposes of this Agreement, “Retirement” shall mean that Executive (i) experiences a separation from service (within the meaning of Section 409A of the Code and the regulations thereunder) from the Company, which is (A) after July 20, 2019 and (B) other than a termination pursuant to Sections 4.2, 4.3 or 4.4(a) hereof, (ii) provides at least 180 days’ prior written notice to the Company of his intention to retire pursuant to Section 4.5(a) and (iii) represents in such notice that he does not intend to engage in full-time employment for any Person following such separation from service.

 

4.6.                            Resignation from Officer Positions.  Upon the termination of the Executive’s employment for any reason (unless otherwise agreed in writing by the Company and the Executive), the Executive will be deemed to have resigned without any further action by the Executive, from any and all officer and director positions that the Executive, immediately prior to such termination, (a) held with the Company or any of its subsidiaries and (b) held with any other entities at the direction of, or as a result of the Executive’s affiliation with, the Company or any of its subsidiaries.  If for any reason this Section 4.6 is deemed to be insufficient to effectuate such resignations, then the Executive will, upon the Company’s request, execute any documents or instruments that the Company may deem necessary or desirable to effectuate such resignations.  In addition, the Executive hereby designates the Secretary or any Assistant Secretary of the Company and of any subsidiary to execute any such documents or instruments as the Executive’s attorney-in-fact to effectuate such resignations if execution by the Secretary or any Assistant Secretary of the Company or subsidiary is deemed by the Company or the subsidiary to be a more expedient means to effectuate such resignation or resignations.

 

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4.7.                            Section 409A of the Code.

 

(a)                                 Notwithstanding anything to the contrary in this Agreement, the parties mutually desire to avoid adverse tax consequences associated with the application of Section 409A of the Code to this Agreement and agree to cooperate fully and take appropriate reasonable actions to avoid any such consequences under Section 409A of the Code, including delaying payments and reforming the form of the Agreement if such action would reduce or eliminate taxes and/or interest payable as a result of Section 409A of the Code.  In this regard, notwithstanding anything to the contrary in this Agreement, if the Executive is a “specified employee” within the meaning of Section 409A of the Code at the time of termination of employment, to the extent necessary to comply with Section 409A of the Code, any payment required under this Agreement shall be delayed for a period of six months after termination of employment pursuant to Section 409A of the Code, regardless of the circumstances giving rise to or the basis for such payment.  Payment of such delayed amount shall be paid in a lump sum within ten days after the end of the six month period.  If the Executive dies during the postponement period prior to the payment of the delayed amount, the amounts delayed on account of Section 409A of the Code shall be paid to the personal representative of the Executive’s estate within 60 days after the date of the Executive’s death.

 

(b)                                 Notwithstanding any provision of the Agreement to the contrary, this Agreement is intended to comply with the requirements of Section 409A of the Code. Nothing in this Agreement or otherwise will be construed as an entitlement to or guarantee of any particular tax treatment to the Executive, and Executive will be solely responsible for Executive’s personal income taxes, including taxes or penalties under Section 409A of the Code.  Accordingly, all provisions herein, or incorporated by reference, shall be construed and interpreted to comply with Section 409A of the Code.  Further, for purposes of the limitations on nonqualified deferred compensation under Section 409A of the Code, each payment of compensation under this Agreement shall be treated as a separate payment of compensation.  Any amounts payable solely on account of an involuntary separation from service of Executive within the meaning of Section 409A of the Code shall be excludible from the requirements of Section 409A of the Code, either as involuntary separation pay or as short-term deferral amounts to the maximum possible extent.  Any reimbursements or in-kind benefits provided under this Agreement shall be made or provided in accordance with the requirements of Section 409A of the Code, including, where applicable, the requirement that (i) any reimbursement is for expenses incurred during the period of time specified in this Agreement, (ii) the amount of expenses eligible for reimbursement, or in kind benefits provided, during a calendar year may not affect the expenses eligible for reimbursement, or in kind benefits to be provided, in any other calendar year, (iii) the reimbursement of an eligible expense will be made no later than the last day of the calendar year following the year in which the expense is incurred, and (iv) the right to reimbursement or in kind benefits is not subject to liquidation or exchange for another benefit.  In no event may the Executive, directly or indirectly, designate the calendar year of a payment. To the extent required for purposes of compliance with Section 409A of the Code, termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of any amounts or benefits upon or following a termination of employment unless such termination is also a “separation from service” within the meaning of Section 409A of the Code and the regulations thereunder, and for purposes of any such provision of this Agreement, references to a “termination,” “termination of employment” or like terms shall mean a “separation from service.”

 

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5.                                      Confidentiality and Work Product

 

5.1.                            Confidentiality.

 

(a)                                 In connection with the Executive’s employment with the Company, the Company promises to provide the Executive with access to “Confidential Information” (as defined in Section 5.3(c) hereof) in support of the Executive’s employment duties.  The Executive recognizes that the Company’s business interests require a confidential relationship between the Company and the Executive and the fullest practical protection and confidential treatment of all Confidential Information.  At all times, both during and after the Employment Period, the Executive shall not directly or indirectly: (i) appropriate, download, print, copy, remove, use, disclose, divulge, communicate or otherwise “Misappropriate” (as defined in Section 5.3(d) hereof), any Confidential Information, including, without limitation, originals or copies of any Confidential Information, in any media or format, except for the benefit of the Company and its Affiliates within the course and scope of the Executive’s employment or with the prior written consent of a majority of the members of the Board (not including the Executive); or (ii) take or encourage any action that would circumvent, interfere with or otherwise diminish the value or benefit of the Confidential Information to any of the Company and its Affiliates.

 

(b)                                 All Confidential Information, and all other information and property affecting or relating to the business of the Company Parties (as defined in Section 5.3(b) hereof) within the Executive’s possession, custody or control, regardless of form or format, shall remain, at all times, the property of the respective Company Parties, the appropriation, use and/or disclosure of which is governed and restricted by this Agreement.

 

(c)                                  The Executive acknowledges and agrees that:

 

(i)                                     the Executive occupies a unique position within the Company, and the Executive is and will be intimately involved in the development and/or implementation of Confidential Information;

 

(ii)                                  in the event the Executive breaches this Section 5.1 with respect to any Confidential Information, such breach shall be deemed to be a Misappropriation of such Confidential Information; and

 

(iii)                               any Misappropriation of Confidential Information will result in immediate and irreparable harm to the Company.

 

(d)                                 Upon receipt of any formal or informal request, by legal process or otherwise, seeking the Executive’s direct or indirect disclosure or production of any Confidential Information to any Person, the Executive shall promptly and timely notify the Company and provide a description and, if applicable, hand deliver a copy of such request to the Company.  The Executive irrevocably nominates and appoints the Company as the Executive’s true and lawful attorney-in-fact to act in the Executive’s name, place and stead to perform any act that the Executive might perform to defend and protect against any disclosure of Confidential Information.

 

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(e)                                  At any time the Company may request, during or after the Employment Period, the Executive shall deliver to the Company all originals and copies of Confidential Information and all other information and property affecting or relating to the business of the Company Parties within the Executive’s possession, custody or control, regardless of form or format, including, without limitation any Confidential Information produced by the Executive.  Both during and after the Employment Period, the Company shall have the right of reasonable access to review, inspect, copy and/or confiscate any Confidential Information within the Executive’s possession, custody or control.

 

(f)                                   Upon termination or expiration of this Agreement, the Executive shall immediately return to the Company all Confidential Information, and all other information and property affecting or relating to the business of the Company Parties, within the Executive’s possession, custody or control, regardless of form or format, without the necessity of a prior Company request.

 

(g)                                  During the Employment Period, the Executive represents and agrees that the Executive will not use or disclose any confidential or proprietary information or trade secrets of others, including but not limited to former employers, and that the Executive will not bring onto the premises of the Company or access such confidential or proprietary information or trade secrets of such others, unless consented to in writing by said others, and then only with the prior written authorization of the Company.

 

5.2.                            Work Product/Intellectual Property.

 

(a)                                 Assignment.   The Executive hereby assigns to the Company all right, title and interest to all “Work Product” (as defined in Section 5.3(f) hereof) that (i) relates to any of the Company Parties’ actual or anticipated business, research and development or existing or future products or services, or (ii) is conceived, reduced to practice, developed or made using any equipment, supplies, facilities, assets, information or resources of any of the Company Parties (including, without limitation, any intellectual property rights).

 

(b)                                 Exceptions.  The assignment under Section 5.2(a) shall not extend to any Work Product, the assignment of which is prohibited by California Labor Code Section 2870, which provides as follows:

 

Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employer’s equipment, supplies, facilities, or trade secret information except for those inventions that either:

 

Relate at the time of conception or reduction to practice of the invention to the employer’s business, or actual or demonstrably anticipated research or development of the employer; or Result from any work performed by the employee for his employer.

 

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(c)                                  Disclosure.  The Executive shall promptly disclose Work Product to the Company and perform all actions reasonably requested by the Company (whether during or after the Employment Period) to establish and confirm the ownership and proprietary interest of any of the Company Parties in any Work Product (including, without limitation, the execution of assignments, consents, powers of attorney, applications and other instruments).  The Executive shall not file any patent or copyright applications related to any Work Product except with the Company’s written consent.

 

5.3.                            Definitions.  For purposes of this Agreement, the following terms shall have the following meanings:

 

(a)                                 An “Affiliate” or “Affiliates” of any specified Person means any other Person, whether now or hereafter existing, directly or indirectly controlling or controlled by, or under direct or indirect common control with, such specified Person.  For purposes hereof, “control” or any other form thereof, when used with respect to any Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” shall have meanings correlative to the foregoing.

 

(b)                                 “Company Parties” means the Company, and its direct and indirect subsidiaries and their successors in interest.

 

(c)                                  Confidential Information.

 

(i)                                     Definition.  “Confidential Information” means any and all material, information, ideas, inventions, formulae, patterns, compilations, programs, devices, methods, techniques, processes, know how, plans (marketing, business, strategic, technical or otherwise), arrangements, pricing and other data of or relating to any of the Company Parties (as well as their customers and/or vendors) that is confidential, proprietary or trade secret (A) by its nature, (B) based on how it is treated or designated by a Company Party, (C) because the disclosure of such information would have a material adverse effect on the business or planned business of any of the Company Parties and/or (D) as a matter of law.

 

(ii)                                  Exclusions.   Confidential Information does not include material, data, and/or information (A) that any Company Party has voluntarily placed in the public domain, (B) that has been lawfully and independently developed and publicly disclosed by third parties, (C) that constitutes the knowledge of the Executive prior to the Executive’s employment with the Company or the general non-specialized knowledge and skills gained by the Executive during the Executive’s employment with the Company or (D) that otherwise enters the public domain through lawful means; provided, however, that the unauthorized appropriation, use or disclosure of Confidential Information by the Executive, directly or indirectly, shall not affect the protection and relief afforded by this Agreement regarding such information.

 

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(iii)                               Inclusions.  Confidential Information includes, without limitation, the following information (including, without limitation, compilations or collections of information) relating or belonging to any Company Party (as well as their clients, customers and/or vendors) and created, prepared, accessed, used or reviewed by the Executive during or after the Executive’s employment with the Company: (1) product and manufacturing information, such as ingredients, combinations of ingredients and manufacturing processes; (2) scientific and technical information, such as research and development, tests and test results, formulae and formulations, studies and analysis; (3) financial and cost information, such as operating and production costs, costs of goods sold, costs of supplies and manufacturing materials, non-public financial statements and reports, profit and loss information, margin information and financial performance information; (4) customer related information, such as customer related contracts, engagement and scope of work letters, proposals and presentations, customer-related contacts, lists, identities and prospects, practices, plans, histories, requirements and needs, price information and formulae and information concerning client or customer products, services, businesses or equipment specifications; (5) vendor and supplier related information, such as the identities, practices, history or services of any vendors or suppliers and vendor or supplier contacts; (6) sales, marketing and price information, such as marketing and sales programs and related data, sales and marketing strategies and plans, sales and marketing procedures and processes, pricing methods, practices and techniques and pricing schedules and lists; (7) database, software and other computer related information, such as computer programs, data, compilations of information and records, software and computer files, presentation software and computer-stored or backed-up information including, but not limited to, e-mails, databases, word processed documents, spreadsheets, notes, schedules, task lists, images and video; (8) employee-related information, such as lists or directories identifying employees, representatives and contractors, and information regarding the competencies (knowledge, skill, experience), compensation and needs of employees, representatives and contractors and training methods; and (9) business- and operation-related information, such as operating methods, procedures, techniques, practices and processes, information about acquisitions, corporate or business opportunities, information about partners and potential investors, strategies, projections and related documents, contracts and licenses and business records, files, equipment, notebooks, documents, memoranda, reports, notes, sample books, correspondence, lists and other written and graphic business records.

 

(d)                                 “Misappropriate”, or any form thereof, means:

 

(i)                                     the acquisition of any Confidential Information by a Person who knows or has reason to know that the Confidential Information was acquired by theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy or espionage through electronic or other means (each, an “Improper Means”); or

 

(ii)                                  the disclosure or use of any Confidential Information without the express consent of the Company by a Person who (A) used Improper Means to acquire knowledge of the Confidential Information (B) at the time of disclosure or use, knew or had reason to know that his or her knowledge of the Confidential Information was (x) derived from or through a Person who had utilized Improper Means to acquire it, (y) acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use or (z) derived from or through a Person who owed a duty to the Company to maintain its secrecy or limit its use or (C) before a material change of his or her position, knew or had reason to know that it was Confidential Information.

 

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(e)                                  “Person” means any individual, corporation, partnership, limited liability company, joint venture, association, business trust, joint-stock company, estate, trust, unincorporated organization, government or other agency or political subdivision thereof or any other legal or commercial entity.

 

(f)                                   “Work Product” means all patents and patent applications, all inventions, innovations, improvements, developments, methods, designs, analyses, drawings, reports, creative works, discoveries, software, computer programs, modifications, enhancements, know-how, formulations, concepts and ideas, and all similar or related information (in each case whether or not patentable), all copyrights and copyrightable works, all trade secrets, confidential information, and all other intellectual property and intellectual property rights that are conceived, reduced to practice, developed or made by the Executive either alone or with others in the course of employment with the Company (including employment prior to the date of this Agreement).

 

5.4.                            Remedies.  Because the Executive’s services are unique and because the Executive has access to Confidential Information, the Executive acknowledges and agrees that if the Executive breaches any of the provisions of Section 5 hereof, the Company may suffer immediate and irreparable harm for which monetary damages alone will not be a sufficient remedy.  The restrictive covenants stated in Section 5 hereof are without prejudice to the Company’s rights and causes of action at law.

 

5.5.                            Interpretation; Severability.

 

(a)                                 The Executive has carefully considered the possible effects on the Executive of the covenants not to compete, the confidentiality provisions and the other obligations contained in this Agreement, and the Executive recognizes that the Company has made every effort to limit the restrictions placed upon the Executive to those that are reasonable and necessary to protect the Company’s legitimate business interests.

 

(b)                                 The Executive acknowledges and agrees that the restrictive covenants set forth in this Agreement are reasonable and necessary in order to protect the Company’s valid business interests, including its goodwill.  It is the intention of the parties hereto that the covenants, provisions and agreements contained herein shall be enforceable to the fullest extent allowed by law.  If any covenant, provision or agreement contained herein is found by a court having jurisdiction to be unreasonable in duration, scope or character of restrictions, or otherwise to be unenforceable, such covenant, provision or agreement shall not be rendered unenforceable thereby, but rather the duration, scope or character of restrictions of such covenant, provision or agreement shall be deemed reduced or modified with retroactive effect to render such covenant, provision or agreement reasonable or otherwise enforceable (as the case may be), and such covenant, provision or agreement shall be enforced as modified.  If the court having jurisdiction will not review the covenant, provision or agreement, the parties hereto shall mutually agree to a revision having an effect as close as permitted by applicable law to the provision declared unenforceable.  The parties hereto agree that if a court having jurisdiction determines, despite the express intent of the parties hereto, that any portion of the covenants, provisions or agreements contained herein are not enforceable, the remaining covenants, provisions and agreements herein shall be valid and enforceable.  Moreover, to the extent that any provision is declared unenforceable, the Company shall have any and all rights under applicable statutes or common law to enforce its rights with respect to any and all Confidential Information or unfair competition by the Executive.

 

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6.                                      Miscellaneous.

 

6.1.                            Non-Disparagement.  Each of the parties agree that during the Employment Period or at any time thereafter, such party will not make any statements, comments or communications in any form, oral, written or electronic to any Media or any other Person, which would constitute libel, slander or disparagement of the other party, including, without limitation, any such statements, comments or communications that criticize, ridicule or are derogatory to the Company or the Executive; provided, however, that the terms of this Section 6.1 shall not apply to communications between the Executive and, as applicable, the Executive’s attorneys or other persons with whom communications would be subject to a claim of privilege existing under common law, statute or rule of procedure or with respect to any legal or arbitral proceedings.  The parties further agree that neither party will in any way solicit any such statements, comments or communications from others.

 

6.2.                            ARBITRATION.  Subject to the rights under Section 6.3 hereof and Section 6 of the Fair Competition Agreement to seek injunctive or other equitable relief, binding arbitration shall be the exclusive remedy for any and all disputes, claims or controversies, whether statutory, contractual or otherwise, between the parties hereto arising under or relating to this Agreement or the Executive’s employment by or termination from the Company (including, but not limited to, the amount of damages, or the calculation or any bonus or other amount or benefit due and disputes under the Fair Competition Agreement) (collectively, “Disputes”).  The parties each waive the right to a jury trial and waive the right to adjudicate their disputes under this Agreement and the Fair Competition Agreement outside the arbitration forum provided for in this Agreement, except as otherwise provided in this Section and otherwise in this Agreement.

 

(a)                                 Mediation First.  In the event either party provides a notice of arbitration of any Dispute to the other party, the parties shall promptly proceed to make a good-faith effort to settle the Dispute by agreement, in a full-day, non-binding mediation with a mediator selected from a panel of mediators of JAMS.  The mediation will be governed by JAMS mediation procedures in effect at the time of the mediation.  The Executive acknowledges that JAMS’ current rules are available at www.jamsadr.com, that amendments to the rules are reflected at that website, and that he has had a reasonable opportunity to review the current rules before executing this Agreement.  Executive acknowledges that the Company shall bear the costs for mediation, including the mediator’s fees; provided, however, that the parties shall each bear their own individual attorneys’ fees and costs for mediation.  If for any reason JAMS cannot serve as the mediation administrator, the American Arbitration Association (“AAA”) shall serve as an alternative mediation administrator under the terms of this Agreement.  The Executive acknowledges that AAA’s current rules are available at www.adr.org, that amendments to the rules are reflected at that website, and that he has had a reasonable opportunity to review the current rules before executing this Agreement. The Executive may, but is not required to, be represented by counsel in the mediation.  Any mediators proposed for the panel provided for in this Section 6.2(a) must be available to serve in the Agreed Venue.

 

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(b)                                 General Arbitration Procedure.  In the event that the parties fail to settle the Dispute at the mediation required by Section 6.2(a) of this Agreement, the parties agree to submit the Dispute for binding resolution to a single arbitrator selected from a panel of JAMS arbitrators.  The arbitration will be governed by the JAMS Employment Arbitration Rules and Procedures in effect at the time the arbitration is commenced, subject to the terms and modifications of this Agreement.  Executive acknowledges that JAMS’ current rules are available at www.jamsadr.com, that amendments to the rules are reflected at that website, and that he has had a reasonable opportunity to review the current rules before executing this Agreement.  If for any reason JAMS cannot serve as the arbitration administrator or cannot fulfill the panel requirements of the Arbitration Provision, the AAA shall serve as an alternative arbitration administrator under the terms of this Agreement.  The Executive acknowledges that AAA’s current rules are available at www.adr.org, that amendments to the rules are reflected at that website, and that he has had a reasonable opportunity to review the current rules before executing this Agreement.

 

(c)                                  Arbitrator Selection.  To select the arbitrator, the parties shall make their respective strikes from a panel of former judges and magistrates, to the extent available from JAMS or, in the event JAMS cannot serve as the arbitration administrator or cannot fulfill the panel requirements of the Arbitration Provision, the AAA (the “Panel”).  Any arbitrators proposed for the Panel provided for in this Section 6.2(c) must be available to serve in the Agreed Venue.  If the parties cannot agree upon an arbitrator from the Panel or if such a panel is not available from JAMS or, if applicable, the AAA, then the parties will next make their respective strikes from the panel of all other JAMS arbitrators or, if applicable, AAA arbitrators, available to serve in the Agreed Venue.

 

(d)                                 VENUE.  The parties stipulate and agree that the exclusive venue of any such arbitration proceeding (and of any other proceeding, including any court proceeding, under this Agreement) shall be Los Angeles County, California (the “Agreed Venue”).

 

(e)                                  Authority and Decision.  The arbitrator shall have the authority to award the same damages and other relief that a court could award.  The arbitrator shall issue a reasoned award explaining the decision and any damages awarded.  The arbitrator’s decision will be final and binding upon the parties and enforceable by a court of competent jurisdiction.  The parties will abide by and perform any award rendered by the arbitrator.  In rendering the award, the arbitrator shall state the reasons therefor, including (without limitation) any computations of actual damages or offsets, if applicable.

 

(f)                                   Fees and Costs.  In the event of arbitration under the terms of this Agreement, the fees charged by JAMS or other arbitration administrator and the arbitrator shall be borne solely by the Company.  Additionally, the Company will bear all other costs related to the arbitration, assuming such costs are not expenses that the Executive would be required to bear if he were bringing the action in a court of law.  Otherwise, the parties shall each bear their own costs, expenses and attorneys’ fees incurred in arbitration; provided, however, that the prevailing party shall be entitled to recover and have awarded its attorneys’ fees, court costs, arbitration expenses, and its portion of the fees and costs charged by JAMS or other arbitration administrator, regardless of which party initiated the proceedings, in addition to any other relief to which it may be entitled, to the extent permitted by applicable law.  The Executive may but is not required to, be represented by counsel in arbitration.

 

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(g)                                  Limited Scope.   The following are excluded from binding arbitration under this Agreement: claims for workers’ compensation benefits or unemployment benefits; replevin; and claims for which a binding arbitration agreement is invalid as a matter of law.

 

6.3.                            Injunctive Relief.  The parties hereto may seek injunctive relief in arbitration; provided, however, that as an exception to the arbitration agreement set forth in Section 6.2 hereof, the parties, in addition to all other available remedies, shall each have the right to initiate an action in any court of competent jurisdiction in order to request preliminary or temporary injunctive or other equitable relief regarding the terms of Sections 5 or 6.2 hereof pending final resolution of the matters, including permanent injunctive relief, from the arbitrator.  The exclusive venue of any such proceeding shall be in the Agreed Venue.  The parties agree (a) to submit to the jurisdiction of any competent court in the Agreed Venue, (b) to waive any and all defenses either party may have on the grounds of lack of jurisdiction of such court and (c) that neither party shall be required to post any bond, undertaking or other financial deposit or guarantee in seeking or obtaining such equitable relief.  Evidence adduced in any such proceeding for an injunction may be used in arbitration as well.  The existence of this right shall not preclude or otherwise limit the applicability or exercise of any other rights and remedies that a party hereto may have at law or in equity.

 

6.4.                            Settlement of Existing Rights.  In exchange for the other terms of this Agreement, the Executive acknowledges and agrees that: (a) the Executive’s entry into this Agreement is a condition of employment and/or continued employment with the Company, as applicable; (b) except as otherwise provided herein, this Agreement will replace any existing employment agreement between the parties, including the Prior Agreement and thereby act as a novation, if applicable; (c) the Executive is being provided with access to Confidential Information, including, without limitation, proprietary trade secrets of one or more Company Parties, to which the Executive has not previously had access; (d) all Company inventions and intellectual property developed by the Executive during any past employment with the Company and all goodwill developed with the Company’s clients, customers and other business contacts by the Executive during any past employment with Company, as applicable, is the exclusive property of the Company, to the maximum extent allowable under California Labor Code Section 2870 (set forth above); and (e) all Confidential Information and/or specialized training accessed, created, received or utilized by the Executive during any past employment with Company, as applicable, will be subject to the restrictions on Confidential Information described in this Agreement, whether previously so agreed or not.

 

6.5.                            Indemnification.  The Executive shall be entitled from the date hereof until the end of the Employment Period in the capacity as an officer or director of the Company or any of their subsidiaries to the benefit of the indemnification provisions contained in the By-Laws of the Company, or as a matter of law, whichever is greater.  In addition, during the term of the Executive’s employment, and, where applicable, under the terms of the relevant liability policy, thereafter, the Executive shall be covered under any directors’ and officers’ insurance policy maintained by the Company.

 

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6.6.                            280G.  In connection with any “change in the ownership or effective control” of the Company or any “change in the ownership of a substantial portion of the assets” of the Company (each as defined under Section 280G of the Code), entitlements of the Executive that are described in Section 2800(b)(2)(A)(i) of the Code shall be reduced to the extent necessary to avoid any portion of any such entitlement being treated as a “parachute payment” within the meaning of Section 280G(b)(2) of the Code.  Notwithstanding the foregoing, no such reduction shall occur if, on an after-tax basis (considering federal income, excise and social security taxes, and state and local income taxes applicable to the Executive) such payments to the Executive without reduction would exceed such payments after the reduction provided for in the preceding sentence.  Any entitlements of the Executive which shall be reduced pursuant to this Section 6.6 shall be determined in a manner consistent with Section 409A of the Code and the reduction of entitlements shall be made in the following order:  (i) any cash severance payments otherwise payable that are exempt from Section 409A of the Code, (ii) any other cash payments or benefits otherwise payable that are exempt from Section 409A of the Code, but excluding any payment attributable to the acceleration of vesting or payment with respect to any stock option or other equity award with respect to the Company’s stock that are exempt from Section 409A of the Code, (iii) any payments attributable to the acceleration of vesting or payment with respect to any stock option or other equity award with respect to the Company’s stock that are exempt from Section 409A of the Code and (iv) any payments that are subject to Section 409A of the Code in a pro-rata manner.

 

6.7.                            Post-Termination Assistance.  During the 24 months following the termination of the Executive’s employment for any reason, the Executive shall cooperate, at the reasonable request of the Company (i) in the transition of any matter for which the Executive had authority or responsibility during the Employment Period, or (ii) with respect to any other matter that relates to or arises from any matter with which the Executive was involved during his employment with the Company.  The Executive shall be entitled to reimbursement of any out-of-pocket expenses he incurs in providing such assistance upon submission of documentation supporting such expenses.  In addition, with respect to any (a) month in which the Executive is required to spend in excess of 10 hours of his time or (b) calendar year in which the Executive is required to spend in excess of 50 hours of his time, in either case pursuant to this Section 6.7, the Company will compensate the Executive for such excess hours at a rate per hour equal to the quotient of (i) the Base Salary as of the date of termination divided by (ii) 2080.  The Company shall provide reasonable notice of any need for assistance, and the Executive shall not be required by the Company to provide any assistance to the extent it interferes with his employment or business activities after reasonable attempts by the Executive to mitigate such interference.

 

6.8.                            Entire Agreement; Waiver.  This Agreement contains the entire agreement among the parties hereto with respect to the subject matter hereof, and supersedes any and all prior understandings or agreements, whether written or oral, among them.  Without limiting the foregoing, the Executive expressly acknowledges that the Prior Agreement is superseded by this Agreement.  No modification or addition hereto or waiver or cancellation of any provision hereof shall be valid except by a writing signed by the party to be charged therewith.  No delay on the part of any party to this Agreement in exercising any right or privilege provided hereunder or by law shall impair, prejudice or constitute a waiver of such right or privilege.

 

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6.9.                            Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of California without regard to principles of conflict of laws.

 

6.10.                     Successors and Assigns; Binding Agreement.  The rights and obligations of the parties under this Agreement shall be binding upon and inure to the benefit of the parties hereto and their heirs, personal representatives, successors and permitted assigns.  This Agreement is a personal contract, and, except as specifically set forth herein, the rights and interests of the Executive herein may not be sold, transferred, assigned, pledged or hypothecated by any party without the prior written consent of the others.  As used herein, the term “successor” as it relates to the Company, shall include, but not be limited to, any successor by way of merger, consolidation or sale of all or substantially all of such Person’s assets or equity interests.

 

6.11.                     Representation by Counsel; Independent Judgment.  Each of the parties hereto acknowledges that (a) it or the Executive has read this Agreement in its entirety and understands all of its terms and conditions, (b) it or the Executive has had the opportunity to consult with any individuals of its or the Executive’s choice regarding its or the Executive’s agreement to the provisions contained herein, including legal counsel of its or the Executive’s choice, and any decision not to was the Executive’s or its alone and (c) it or the Executive is entering into this Agreement of its or the Executive’s own free will, without coercion from any source, based upon its or the Executive’s own independent judgment.

 

6.12.                     Interpretation.  The parties and their respective legal counsel actively participated in the negotiation and drafting of this Agreement, and in the event of any ambiguity or mistake herein, or any dispute among the parties with respect to the provisions hereto, no provision of this Agreement shall be construed unfavorably against any of the parties on the ground that the Executive, it, or the Executive’s or its counsel was the drafter thereof.

 

6.13.                     Survival.  The provisions of Sections 4.6, 4.7, 5 and 6 hereof shall survive the termination of this Agreement.

 

6.14.                     Notices.  All notices and communications hereunder shall be in writing and shall be deemed properly given and effective when received, if sent by facsimile or telecopy, or by postage prepaid by registered or certified mail, return receipt requested, or by other delivery service which provides evidence of delivery, as follows:

 

If to the Company, to:

 

Smart & Final Stores, Inc. 
 600 Citadel Drive
 Commerce, California 90040 
 Attention: General Counsel

 

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with a copy (which shall not constitute notice) to:

 

Ares Management LLC
 2000 Avenue of the Stars, 12th Floor
 Los Angeles, CA  90067
 Attention: Dennis Gies
 Telephone: (310) 201-4100
 Facsimile: (310) 201-4170

 

and

 

Proskauer Rose LLP
 2049 Century Park East, Suite 3200
 Los Angeles, CA  90067
 Attention:  Michael A. Woronoff
 Telephone: (310) 284-4582
 Facsimile: (310) 557-2193

 

If to the Executive, to:

 

David G. Hirz
 12062 Woodbine Drive 
 Santa Ana, CA 92705

 

With a copy to:

 

Latham & Watkins LLP
 355 South Grand Avenue 
 Los Angeles, CA 90071-1560 
 Attention: Joseph B. Farrell

Telephone: (213) 891-7944
 Facsimile: (213) 891-8763

 

or to such other address as one party may provide in writing to the other party from time to time.

 

6.15.                     No Conflicts.  The Executive represents and warrants to the Company that his acceptance of employment and the performance of his duties for the Company will not conflict with or result in a violation or breach of, or constitute a default under any contract, agreement or understanding to which he is or was a party or of which he is aware and that there are no restrictions, covenants, agreements or limitations on his right or ability to enter into and perform the terms of this Agreement.

 

6.16.                     Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.  Facsimile transmission of any signed original document or retransmission of any signed facsimile transmission will be deemed the same as delivery of an original.  At the request of any party, the parties will confirm facsimile transmission by signing a duplicate original document.

 

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6.17.                     Captions.  Paragraph headings are for convenience only and shall not be considered a part of this Agreement.

 

6.18.                     No Third Party Beneficiary Rights.  Except as otherwise provided in this Agreement, no entity shall have any right to enforce any provision of this Agreement, even if indirectly benefited by it.

 

6.19.                     Withholding.  Any payments provided for hereunder shall be paid net of any applicable withholding required under Federal, state or local law and any additional withholding to which Executive has agreed.

 

6.20.                     Severability.  If any term, provision, covenant or condition of this Agreement, or the application thereof to any person, place or circumstance, shall be held to be invalid, unenforceable or void, the remainder of this Agreement and such term, provision, covenant or condition as applied to other persons, places and circumstances shall remain in full force and effect.

 

6.21.                     Whistleblower Laws and the Defend Trade Secrets Act.  Nothing in this Agreement shall prohibit Executive from reporting or disclosing information under the terms of the Company’s Reporting Suspected Violations of Law Policy or such similar policy as the Company may have in effect from time to time.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

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IN WITNESS WHEREOF, the parties have duly executed this Agreement, intending it as a document under seal, to be effective for all purposes as of the Effective Date.

 

	
 
    	
SMART &   FINAL STORES, INC.
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Leland P. Smith
    
	
 
    	
Name:
    	
Leland   P. Smith
    
	
 
    	
Title:
    	
Senior   Vice President and General Counsel
    
	
 
    	
 
    
	
 
    	
EXECUTIVE
    
	
 
    	
 
    
	
 
    	
/s/   David G. Hirz
    
	
 
    	
Name:   David G. Hirz
    
				

 

[Signature Page to Hirz Employment Agreement]

 

 

Exhibit A

 

FORM OF SEPARATION AND RELEASE AGREEMENT

 

The parties to this Separation and Release Agreement (this “Agreement”) are Smart & Final Stores, Inc., a Delaware corporation (the “Company”), and David G. Hirz (“Executive”).  This Agreement sets forth the terms of Executive’s separation from employment with the Company.  In exchange for the benefits and promises set forth below, the parties agree as follows.

 

1.     Released Parties.  The Company, its affiliates and any of their respective past or present partners, principals, shareholders, managers, directors, officers, employees, agents, representatives, employee benefit plans, trustees or insurance companies, or any of their respective predecessors, successors or assigns collectively are referred to as the “Released Parties” in this Agreement.

 

2.     No Admission.  This Agreement shall not be construed as an admission of liability or wrongdoing by any Released Party or Executive.

 

3.     Termination of Employment.  Termination of Executive’s employment with the Company shall be effective as of [·] (the “Termination Date”), regardless of the date of Executive’s execution of this Agreement.  Executive shall refer all persons making inquiries or seeking employment references to the Company’s Human Resources Department, which shall respond to all such inquiries with the provision only of Executive’s dates of employment, salary history and last position held.

 

4.     Separation Pay and Other Payments. Notwithstanding any other agreement, arrangement or understanding of any kind, if any, and provided that Executive (a) has not tendered a written notice of revocation pursuant to Section 9 and (b) is not in breach of any provision of this Agreement or of any post-termination restrictive covenants applicable to Executive, including the covenants contained in the Fair Competition Agreement entered into by Executive, the Company will pay to Executive the payments and benefits (“Separation Pay”) provided for under the terms of that certain Employment Agreement, dated as of [·], 2016, between the Company and Executive (the “Employment Agreement”), at the time and in the manner specified under the Employment Agreement.  From this amount, the Company will withhold such amounts as are required by law. Executive will not be entitled to the Separation Pay referenced herein unless Executive returns an executed copy of this Agreement by no later than [·](1) and this Agreement is not revoked pursuant to Section 9.

 

Executive acknowledges and agrees that (a) the Separation Pay constitutes consideration which, but for the mutual covenants set forth herein and in the Employment Agreement, the Company is not obligated to provide, and Executive is not entitled to receive, and (b) Executive is not entitled to receive any other compensation or benefits of any sort, except for accrued but unpaid salary through the Termination Date, accrued but unused vacation pay through the Termination Date, accrued and vested benefits under employee benefit plans of the Company or its subsidiaries in accordance with the terms of such benefit plans, or as otherwise required under applicable state or federal law, from any Released Party.

 

(1)  Insert date that is 21 days after the Company executes and delivers release to Executive.

 

 

5.     No Claims.  Executive represents and warrants that Executive (a) has not brought or filed (or assigned to any other person the right to bring or file) any claims or charges against any Released Party, with any governmental authority or agency, court or arbitral body and (b) is not aware of any basis to bring any such claim or charge.  To the extent such an obligation is allowed by applicable law, Executive agrees not to bring or file any such claim or charge that is based on facts that occurred prior to the execution of this Agreement.

 

6.     Release of Claims.  In consideration of the Separation Pay and the other terms and provisions of this Agreement, except for the rights and obligations contained in this Agreement, Executive, on behalf of Executive and Executive’s heirs and assigns, shall and does hereby forever relieve, release and discharge the Released Parties from any and all claims, charges, complaints, debts, liabilities, demands, obligations, liens, promises, acts, agreements, losses, costs, expenses (including without limitation attorneys’ fees), damages, actions, and causes of action, of whatever kind or nature, whether known or unknown, accrued or not yet accrued, suspected or unsuspected, that Executive had, now has, or may hereafter have against any Released Party by reason of any matter, cause or thing whatsoever from the beginning of time to the effective date of this Agreement (collectively, “Claims”).  This release includes, but is not limited to, any claim for (a) violation of any federal, state or local statute, ordinance or regulation relating to wages, employment benefits, discrimination, harassment, or retaliation, specifically including, without limitation, the Age Discrimination in Employment Act, 29 U.S.C. §§ 623 et seq., the California Fair Employment and Housing Act, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, the Family Medical Leave Act, the California Family Rights Act, any claims arising under the California Labor Code, and further including any regulation of any administrative agency or governmental authority (including, without limitation, opinions issued by the California Division of Labor Standards Enforcement and the U.S. Department of Labor), relating to wages, employment benefits, discrimination, harassment, or retaliation; (b) breach of oral, implied, or written contract; (c) wrongful termination of employment; (d) breach of the implied covenant of good faith and fair dealing; (e) negligent or intentional infliction of mental or emotional distress; (f) any non-statutory tort or contractual claim (including, without limitation, slander, invasion of privacy, defamation, fraud, constructive discharge, violation of public policy, and intentional or negligent misrepresentation); (g) wages, penalties or benefits; and (h) attorneys’ fees.  This Agreement does not release any rights, claims or obligations (i) that Executive may have as an equity holder of the Company, (ii) that cannot, as a matter of law, be released by private agreement, such as rights or claims Executive may have arising under the California Workers’ Compensation Act or California Labor Code Section 2802, (iii) under provisions of the Employment Agreement that survive the termination of Executive’s employment or the expiration or termination of the Employment Agreement, (iv) under any written agreement between Executive and the Company that provides for indemnification, including reimbursement of out-of-pocket expenses for post-employment cooperation pursuant to Section 6.7 of the Employment Agreement, or (v) vested accrued benefits earned under an employee benefit plan maintained by the Company or its subsidiaries and governed by the Employee Retirement Income Security Act of 1974, and each of the foregoing is expressly excluded from the definition of “Claims.”

 

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7.     Waiver of Section 1542.  Executive expressly waives all rights afforded by Section 1542 of the Civil Code of the State of California, which states as follows:

 

“A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.”

 

Executive understands the significance of Executive’s release of unknown claims and waiver of statutory protection against a release of unknown claims.  Executive expressly assumes the risk of such unknown and unanticipated claims and agrees that this Agreement applies to all Claims, whether known, unknown or unanticipated.

 

8.     Voluntary Agreement.  Executive acknowledges the significance and consequences of this Agreement, that it is voluntary, that it has not been given as a result of any coercion, and expressly confirms that it is to be given full force and effect according to all of its terms, including those relating to unknown Claims.  Executive has been advised of Executive’s right to seek the advice of an attorney prior to signing this Agreement.  Executive and Company each acknowledge that they have signed this Agreement only after full reflection and analysis, that they understand it and are entering into it voluntarily.  Executive acknowledges that the consideration set forth in Section 4 is satisfactory and adequate in exchange for Executive’s promises and releases contained herein.

 

9.     Period for Consideration of Agreement.  Executive acknowledges that, before signing this Agreement, Executive was given a period of at least 21 days to consider this Agreement. Executive has the right to change Executive’s mind and cancel this Agreement by providing written notice to the Company no later than seven days following the date that Executive has signed it.  This Agreement will not be effective until the end of this seven-day period.

 

Executive acknowledges and agrees that (a) if Executive wishes to revoke this Agreement, Executive must do so in writing, and that such revocation must be signed by Executive and received by the Company no later than 5:00 pm Pacific Time on the 7th day after Executive has signed this Agreement and (b) if Executive revokes this Agreement, Executive shall have no right to receive the Separation Pay or any other benefits hereunder.

 

10.  Confidentiality.  Executive shall not disclose the terms or the existence of this Agreement to anyone (other than Executive’s family members, attorneys, accountants, tax return preparers and estate planning advisors who agree to be bound by the confidentiality provisions of this Agreement) other than as required by court order, legal process or applicable law.

 

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11.  Obligations Under Other Agreements.  Executive acknowledges that Executive’s obligations under this Agreement are in addition to the obligations under other agreements entered into between or among Executive and any Released Party, including the Fair Competition Agreement among Executive, Smart & Final Holdings Corp. and the Company, which continue in full force and effect following the termination of Executive’s employment with the Company, including, without limitation, obligations of confidentiality.

 

12.  No Interference or Disparagement.  Executive shall take no action from this date forward that might (a) interfere with the activities of any Released Party or (b) damage the reputation of any Released Party.  Without limiting the foregoing, Executive is prohibited to make private or public comments, statements, or writings that are critical or disparaging of any Released Party, except as required by applicable law or pursuant to judicial process.  The Company will direct its directors and executive officers to not make any private or public comments, statements, or writings that are critical or disparaging of Executive, except as required by applicable law or pursuant to judicial process, or in connection with normal internal communications among the Released Parties made in good faith.

 

13.  Applicable Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of California, without regard to principles of conflicts of laws.

 

14.  Arbitration.  Any action brought by or on behalf of Executive, his agents, heirs, executors or administrators against the Company or any other Released Party must be in accordance with the provisions of Section 6.2 of the Employment Agreement.

 

15.  Severability.  The provisions contained in this Agreement are considered by the parties to be reasonable in all circumstances.  However, if any of such provisions shall, either by itself or when taken with others, be adjudged to be invalid as exceeding what is reasonable for the protection of the interests of the Company, but would be valid if any particular restriction or provision were deleted, restricted, limited, reduced, curtailed or otherwise modified in a particular manner, then said provision shall apply with any such modifications as may be necessary to make it valid and effective and the remaining provisions shall be unaffected thereby.

 

16.  No Representation. Executive acknowledges that in signing this Agreement, Executive has not relied upon any representation or statement not set forth in this Agreement made by the Company or any of its respective representatives.

 

17.  Specific Performance. The parties agree that violation of this Agreement may cause irreparable harm that cannot be fully compensated for by damages alone. Accordingly, without limiting any of the parties’ rights and remedies, each shall be entitled to equitable remedies, including without limitation specific performance and injunctive relief against the breach or threatened breach of this Agreement, without the necessity of posting a bond.

 

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18.  Tender of Severance Payment as a Condition to Challenge This Agreement.  Should Executive attempt to challenge the enforceability of this Agreement, as a further limitation on any right to make such a challenge, Executive shall initially submit to the Company the total proceeds provided to Executive through such date as Separation Pay, plus interest at the standard statutory rate, and invite the Company to retain such monies and agree with Executive to cancel this Agreement.  In the event the Company accepts this offer, the Company shall retain such monies, no further Separation Pay shall be paid, and this Agreement shall be canceled.  In the event the Company does not accept such offer, the Company shall so notify Executive and shall place such monies (and any other Separation Pay as it otherwise would come due) into an interest-bearing escrow account pending resolution of the dispute as to whether this Agreement will be set aside or otherwise rendered unenforceable.

 

19.  Cooperation.  Executive shall cooperate with the Company and its respective affiliates and their respective counsel in connection with any investigation, administrative proceeding or litigation relation to any matter that occurred during Executive’s employment in which Executive was involved or about which Executive has knowledge.  The Company agrees to reimburse Executive promptly for actual out-of-pocket expenses incurred by him in connection with assisting the Company in the manner described in the immediately preceding sentence in accordance with the policies of the Company then in effect generally applicable to senior executives of the Company.

 

20.  Successors and Assigns.  This Agreement shall inure to the benefit of and shall be binding upon the predecessors, successors and assigns of the parties hereto, and each of them.  Nothing herein shall act to create, nor is this Agreement intended to create, any third-party beneficiaries other than the Released Parties.

 

21.  Unconditional Release.  Solely with respect to Executive’s release of Claims as provided in Section 6, Executive hereby expressly assumes the risk of any mistake of fact or that the true facts might be other than or different from the facts now known or believed to exist, and it is the express intention of the parties to forever settle, adjust and compromise any and all disputes between and among them with respect to any Claim, finally and forever, and without regard to who may or may not have been correct in their respective understandings of the facts or the law relating thereto.

 

22.  Amendment and Waiver.  This Agreement may be amended, waived or discharged only by a writing signed by Executive and by a duly authorized representative of the Company (other than Executive).  No failure or neglect of any party hereto in any instance to exercise any right, power or privilege hereunder or under law shall constitute a waiver of any other right, power or privilege or of the same right, power or privilege in any other instance.  All waivers by any party hereto must be contained in a written instrument signed by the party to be charged and, in the case of the Company, by a duly authorized representative of the Company (other than Executive).

 

23.  Headings and Captions.   The headings and captions herein are provided for reference and convenience only.  They shall not be considered part of the Agreement and shall not be employed in the construction of the Agreement.

 

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24.  Cooperativeness.  All parties have cooperated in the drafting and preparation of this Agreement, and it shall not be construed more favorably for or against any party.

 

25.  Counterparts.  This Agreement may be executed in one or more counterparts (including by electronic or facsimile transmission), all of which taken together shall constitute one agreement.

 

	
SMART & FINAL   STORES, INC.
    	
EXECUTIVE
    
	
 
    	
 
    
	
 
    	
 
    
	
By:
    	
 
    	
 
    	
By:
    	
 
    
	
Its:
    	
 
    	
 
    	
Name:
    	
 
    
	
Dated:
    	
 
    	
 
    	
Dated:
    	
 
    

 

6

 

Exhibit B

 

FAIR COMPETITION AGREEMENT

 

This Fair Competition Agreement (“Agreement”) is made on November 15, 2012 by and among SF CC Holdings, Inc., a Delaware corporation (“Holdings”), Smart & Final Holdings Corp. a Delaware Corporation (the “Company”), and David G. Hirz (the “Executive”).

 

Executive’s non-competition and non-solicitation covenants, as reflected in this Agreement, are an essential inducement to Holdings to enter into the transactions (the “Purchase”) described in that certain Purchase and Sale Agreement pursuant to which Holdings will purchase all of the shares of common stock of the Company, whereby the Company will become a wholly owned subsidiary of Holdings.  Executive acknowledges and agrees that he holds a substantial equity interest in the Company, and as a result has a substantial interest in the consummation of the Purchase.

 

The Company has offered employment or continued employment to Executive.  During the course of his employment with the Company, Executive has developed and will develop, at the Company’s and Holdings’ expense, important relationships with customers and prospective customers of the Company.  Executive has had access to and will continue to have access to certain confidential methods, practices, information and procedures with which the Company and its subsidiaries conduct their business and of certain confidential information regarding the Company’s and its subsidiaries’ customers or prospective customers.

 

In consideration of the Purchase and the mutual promises and covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which hereby is acknowledged, the parties hereto agree as follows:

 

1.                                      No Competing Employment.  During the Non-Compete Restricted Period, Executive shall not in any manner, without the prior written consent of the Company and Holdings (A) directly or indirectly, whether as an investor, officer, director, owner, member, employee, consultant or otherwise, provide services or capital to any Person (as defined below) or any business that is materially engaged or planning to be materially engaged in the Business of the Company (as defined below) or any similar business in the Territory (as defined below).  “Business of the Company” means engaging in, owning or operating any (i) supermarket or grocery store, including but not limited to wholesale or warehouse stores, (ii) drug store, including but not limited to wholesale or warehouse stores, to the extent that a substantial portion of the products sold by such drug store are the same as or similar to products customarily sold at stores operated by the Company or any of its subsidiaries, (iii) non-retail distribution channel for products that are the same as or similar to products customarily sold by the Company or any of its subsidiaries, or (iv) any other business or activity conducted by the Company or any of its subsidiaries as of the closing of the Purchase; or (B) solicit in any capacity or encourage any Person who is, or was within the then-most recent 12-month period (x) a vendor or supplier of the Company or any of its subsidiaries or (y) any other Person that has a business relationship with the Company or any of its subsidiaries (other than a retail customer), to terminate or reduce its relationship with the Company or any of its subsidiaries.  Notwithstanding the foregoing provisions of this Section 1, Executive is not prohibited from owning, directly or indirectly, up to 5% of any class of securities or debt that is listed on a national securities exchange or quoted on an automated quotation system.

 

 

“Non-Compete Restricted Period” means the period from the date hereof through the second anniversary of the termination of Executive’s employment for any reason, so long as the Company or any of its subsidiaries (or any person deriving title to the goodwill or ownership from the Company) carries on the Business of the Company (or any like business) in the Territory.  “Territory” means the geographic area where the Business of the Company has been carried on and where the Company or any of its subsidiaries has bona fide intentions to extend the Business of the Company as of the closing of the Purchase, including (without limitation) the states of California, Arizona, Nevada, Washington, Oregon and Idaho, and the Mexican states of Baja California and Sonora.

 

2.                                      No Soliciting.  During the Non-Solicit Restricted Period, Executive shall not, directly or indirectly, whether for his own account or for the account of any other individual, partnership, firm, corporation or other business organization (each, a “Person”) (other than the Company) (A) (i) solicit in any capacity, encourage to terminate, or otherwise interfere with the relationship of, any individual who is, or was within the then-most recent 12-month period, employed by, or otherwise engaged to perform services for, the Company or any of its subsidiaries or (ii) endeavor to entice away from the Company or any of its subsidiaries any such individual; provided that general advertising not directed specifically at employees of the Company or any of its subsidiaries shall not be deemed to violate this clause (A); or (B) solicit in any capacity or encourage any Person who is, or was within the then-most recent 12-month period, a vendor, supplier or licensor of the Company or its subsidiaries with respect to the Business of the Company to terminate or reduce its relationship with the Company or any of its subsidiaries.  “Non-Solicit Restricted Period” means the period from the date hereof through the second anniversary of the termination of Executive’s employment for any reason.

 

3.                                      Confidentiality.  Executive recognizes that the services to be performed by him hereunder are special, unique and extraordinary in that, by reason of his employment hereunder, he may acquire confidential information and trade secrets concerning the operation of Holdings, the Company or any of their subsidiaries, the use or disclosure of which could cause Holdings, the Company, their subsidiaries or their equity holders substantial losses and damages which could not be readily calculated and for which no remedy at law would be adequate. Accordingly, Executive covenants and agrees with Holdings and the Company that he will not at any time, except in performance of his obligations to Holdings or the Company, as required by law or legal process, or with the prior written consent of Holdings and the Company, directly or indirectly, either disclose to any Person, or use for his personal benefit, any secret or confidential information that he may learn or has learned by reason of his association with Holdings, the Company or their subsidiaries.  As used herein “confidential information” means any proprietary, non-public secret or otherwise confidential information of Holdings, the Company or any of their subsidiaries, including trade secrets and other confidential or proprietary business, technical, personnel or financial information, whether or not Executive’s work product, in written, graphic, oral or other tangible or intangible forms, including specifications, samples, records, data, computer programs, drawings, diagrams, models, customer names, ID’s or e-mail addresses, business or marketing plans, studies, analyses, projections and reports, communications by or to attorneys (including attorney-client privileged communications), memos and other materials prepared by attorneys or under their direction (including attorney work product), and software systems and processes.  Any information that is not readily available to the public shall be considered to be a trade secret and confidential and proprietary, even if it is not specifically marked as such, unless Holdings and the Company advise Executive otherwise in writing.

 

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4.                                      Exclusive Property.  Executive hereby acknowledges and agrees that all confidential and proprietary information including all business records, papers, computer software, computer data and documents generated by Holdings, the Company or any of their subsidiaries or kept or made by Executive relating to the Business of the Company is and shall remain the exclusive property of the Company (the “Proprietary Property”). Upon termination of his employment, Executive hereby agrees that, as of the date of such termination, he shall return or have returned to the Company all property of the Company, including Proprietary Property then in the possession of Executive or in his dominion and all property including copies thereof made available to Executive in connection with his services to the Company, including any and all records, drawings, manuals, reports, papers and documents kept or made by Executive in connection with his employment with the Company, vendor and customer lists, financial data, keys and security access cards.

 

5.                                      Inventions.  Executive hereby assigns and conveys to the Company all of his right, title and interest in and to all Inventions (as defined below) developed, discovered, improved, authored, derived, invented or acquired by him within the period beginning on the first day of his employment with Company. Executive further agrees that he shall, without the payment of royalty or any other consideration therefor:

 

(a)                   apply, at the Company’s request and expense, for such United States and foreign patents, copyrights, trademarks or service marks, as the case may be, as the Company shall direct; and

 

(b)                   deliver promptly to the Company, without charge to the Company but at its expense, such written instruments, and do such other acts, as may be reasonably necessary, in the opinion of the Company, to obtain and maintain United States and foreign patents, copyrights, trademarks or service marks related to each such Invention.

 

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As used herein, “Inventions” means all work product, inventions, discoveries, ideas, concepts, designs, software programs, and improvements of any sort, whether patentable, copyrightable or not, that are developed, discovered, improved, authored, derived, invented or acquired by Executive, whether alone or jointly with others, and whether during business hours or thereafter, and that are either, directly or indirectly, related to the scope of Executive’s employment by the Company or make use, in any manner, of the resources or any proprietary information of Holdings, the Company or their subsidiaries.  It is understood that the term “Invention” includes all know-how and Technical Data relating to the foregoing, and all patents, copyrights, trademarks and service marks, and applications therefore, of the United States or any other country related to the foregoing. “Technical Data” means all written, printed and other tangible materials embodying or containing know-how, and includes all correspondence, designs, processes, source codes, object codes, formulas, drawings and tracings, specifications and engineering data, reporting formats, memoranda and notebooks, and all copies thereof, together with all models and prototypes of every description.  Notwithstanding the foregoing, the assignment provided for in this section shall not apply to any invention that qualifies for exemption from assignment under the provisions of Section 2870 of the California Labor Code.

 

6.                                      Injunctive Relief.  Without intending to limit the legal or equitable remedies available to Holdings or the Company, Executive acknowledges that a breach by him of the covenants contained herein may result in material irreparable injury to Holdings, the Company, their subsidiaries and their respective affiliates for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of such a breach or threat thereof, Holdings and the Company shall be entitled to obtain from any court of competent jurisdiction a temporary restraining order or a preliminary or permanent injunction restraining Executive from engaging in activities prohibited by this Agreement or such other relief as may be required to specifically enforce any of the covenants in this Agreement without the necessity of posting a bond, and in the case of a temporary restraining order or a preliminary injunction, without having to prove special damages.

 

7.                                      Extension of Restricted Period. The Restricted Period shall be extended by the length of any period during which Executive is in breach of any of the terms of this Agreement.

 

8.                                      Disparagement.  Executive agrees that during the course of employment and after the termination of employment with the Company, except as may be required by applicable law or legal process, Executive will not disparage Holdings, the Company or their subsidiaries, or any of their respective products, services, agents, employees, directors, stockholders and affiliates.

 

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9.                                      Reasonableness.  Executive understands and agrees that the nature of the Business of the Company is highly competitive and that one of the most valuable assets being obtained in the Purchase is the Company’s goodwill in the marketplace and among the Company’s customers, which Executive was paid to help develop and maintain, and that the Territory includes the areas in which, as of the closing date of the Purchase, the Company and its subsidiaries have developed, or planned to exploit, the goodwill of the Company.  Accordingly, Executive, the Company and Holdings hereby agree and acknowledge that the duration, scope and geographic area applicable to the restrictions set forth in this Agreement are fair, reasonable and necessary. Executive agrees that any harm to Executive caused by the enforcement of this Agreement will be outweighed by the harm to Holdings, the Company, their subsidiaries and their respective affiliates should this Agreement not be enforced.  If at any time any of the provisions of this Agreement shall be deemed invalid or unenforceable or are prohibited by the laws of the jurisdiction where they are to be performed or enforced, by reason of being vague or unreasonable as to duration or geographic scope or scope of activities restricted, or for any other reason, such provisions shall be considered divisible and shall become and be immediately amended to include only such restrictions and to such extent as shall be deemed to be reasonable and enforceable by the court or other body having jurisdiction over this Agreement; and Holdings, the Company and Executive agree that the provisions of this Agreement, as so amended, shall be valid and binding as though any invalid or unenforceable provision had not been included herein.

 

10.                               Integration with Employment Agreement.  Executive acknowledges that the restrictions contained in this Agreement are in addition to the restrictions contained in his Employment Agreement with Holdings and the Company.

 

11.                               Governing Law.  This Agreement will be construed and enforced in accordance with the laws of the State of California, without regard to its principles of conflicts of laws.

 

12.                               Venue.  Each of the parties hereto irrevocably submits to the exclusive jurisdiction of the state and federal courts located in Los Angeles County in California for the purposes of any suit, action or other proceeding arising out of or in connection with this Agreement or any transaction contemplated hereby, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum.

 

13.                               Construction.     As used herein, (a) “or” shall mean “and/or” and (b) “including” or “include” shall mean “including, without limitation.”

 

[Remainder of Page Intentionally Left Blank]

 

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IN WITNESS WHEREOF, the parties have executed and delivered this agreement as of the date first written above.

 

	
 
    	
SF   CC HOLDINGS, INC.
    
	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:   
    	
/s/   Adam Stein
    
	
 
    	
Name:   Adam Stein
    
	
 
    	
Title:   Vice President
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
SMART &   FINAL HOLDINGS CORP.
    
	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:   
    	
/s/   Richard N. Phegley
    
	
 
    	
Name:   Richard N. Phegley
    
	
 
    	
Title:   Senior Vice President and Chief Financial Officer
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
EXECUTIVE
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
/s/   David G. Hirz
    
	
 
    	
Name:   David G. Hirz
    

 

[Signature Page to Fair Competition Agreement]

 

 

Smart & Final Stores, Inc.

600 Citadel Dr.

Commerce, CA 90040

September 23, 2014

 

David G. Hirz

12062 Woodbine Drive

Santa Ana, CA 92705

 

Re:          Fair Competition Agreement

 

Dear Mr. Hirz:

 

Reference is made to the Fair Competition Agreement (the “Fair Competition Agreement”), dated November 15, 2012, by and among Smart & Final Stores, Inc., f/k/a SF CC Holdings, Inc., Smart & Final LLC successor by merger to Smart & Final Holdings Corp. (collectively, the “Companies”) and you.

 

To the extent not affecting the enforceability of any provision of the Fair Competition Agreement (including, without limitation, Section 1 thereof (No Competing Employment) (the “Non-Compete”)), the Companies hereby confirm that they will not seek to enforce the Non-Compete after the first anniversary of the termination of your employment.

 

Nothing herein is intended to modify the Fair Competition Agreement, which shall continue to be and remain in full force and effect in accordance with its terms.

 

Sincerely,

 

[Remainder of Page Intentionally Left Blank]

 

 

	
 
    	
Smart &   Final Stores, Inc.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    	
By:
    	
/s/   Richard N. Phegley
    
	
 
    	
 
    	
Name:   
    	
Richard   N. Phegley
    
	
 
    	
 
    	
Title:
    	
Senior   Vice President and Chief Financial Officer
    
	
 
    	
 
    
	
 
    	
Smart &   Final LLC
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    	
By:
    	
/s/   Richard N. Phegley
    
	
 
    	
 
    	
Name:   
    	
Richard   N. Phegley
    
	
 
    	
 
    	
Title:
    	
Senior   Vice President, Chief Financial Officer and TreasurerExhibit 10.17

 

	
 
    	

    
	
 
    	
 
    
	
Jeff D. Whynot
    	
600 Citadel Drive
    
	
Senior Vice President –   Human Resources
    	
Commerce, California   90040
    
	
(323) 869-7642
    	
Fax 877 804-3392
    
	
jeff.whynot@smartandfinal.com
    	
 
    

 

February 23, 2017

 

Derek Jones

4105 Yarrow Drive, Northeast

Grand Rapids, MI  49525

 

Offer of Employment

 

Dear Derek:

 

I am pleased to offer you the position of President, Cash & Carry.  In that capacity you will report directly to Dave Hirz, President & CEO of Smart & Final Stores, Inc. (the “Company” or “Smart & Final”). Your office will be located in Portland, Oregon.

 

Employment.

 

Your first date of employment is tentatively set for Monday, April 10, 2017.

 

As is Smart & Final’s policy with all its associates, your employment is deemed “at will” and may not be made otherwise except in writing by the CEO.  Please acknowledge your acceptance of this offer letter and the items contained herein by executing the enclosed copy and returning it to me by Friday, March 3, 2017 or it will be deemed to have expired.  As a condition of employment, you will be required to execute the Smart & Final Arbitration Agreement.

 

Compensation.

 

Your base salary will be $9,615.38 per week, which is paid on a biweekly basis and is $500,000 if annualized. You will be eligible for a merit review in March of 2018.

 

You will be a participant in an annual incentive program under the Company’s annual bonus plan as in effect from time to time.  Subject to approval of the Compensation Committee of the Board of Directors, your annual target is expected to be 70% of base salary and a maximum of 200% of the target.  The performance criteria for 2017 are based upon Cash & Carry Stores performance against budget for EBITDA (65%) and comparable store sales (20%), and against pro forma new store sales (15%).  You will be eligible for your full bonus for 2017, and it will not be prorated. You will be provided the 2017 plan document for all program details.

 

We are offering a $200,000 sign-on bonus paid in four equal installments of $50,000: within 30 days of your hire date, at six months, at one year and at 18 months of employment.  You must be employed at the end of each installment period to be eligible for that installment payment.

 

Equity.

 

We are offering you a new hire equity grant with an estimated grant date value of $650,000 which will be issued 50% in stock options, at a 4 year pro rata time vest, and 50% in restricted shares, at a three year pro rata time vest, pursuant to the Smart & Final Stores, Inc. 2014 Stock Incentive Plan, pending approval by either the Board of Directors or the Compensation 

 

 

Committee of the Board of Directors.  The exact amount of shares and details of the program will be defined in separate communications.  You are eligible to participate in the annual grant program starting in 2018.

 

Benefits.

 

You will accrue 4 weeks of vacation per year and the accrual is capped at 8 weeks (two times your annual accrual).  We understand that you will be taking a pre-planned vacation starting on April 28th and you will be taking time off in May for your daughters’ graduation ceremonies.

 

You will be eligible for medical, dental, vision, and life insurance, at 1x your annual salary.  You are also eligible to participate in the Executive Medical Reimbursement Plan.  You may participate in the 401(k) plan with a company match of fifty cents on the dollar up to your first six percent of salary deferred for a potential match of 3% a year.  You will also be eligible to participate in the Supplemental Deferred Compensation Plan.  You are also eligible to participate in the executive financial planning program through HPM Partners. We will reimburse your monthly COBRA expenses to help bridge to the effective date of your medical coverage, which we expect to start on June 1, 2017.  You will also be eligible for a company car, including a gasoline card, and company insurance.  You are included in the Executive Severance Program at the Tier II level, which is a one year severance program.  Notwithstanding the foregoing, the Company may modify or terminate any employee benefit or fringe benefit plan at any time.

 

Relocation.

 

We are offering a relocation package to include:

 

·                                          Temporary housing for 6 months

 

·                  2 trips a month to home & back for you or for your wife to travel while in temporary housing (12 trips total between the two of you)

 

·                                          Movement of household goods

·                                          Reasonable costs associated with selling your current home

 

·                  Brokerage fee (up to 6%)

·                  Title charges

·                  Escrow charges

·                  Pest inspection

·                  Natural hazard report

 

·                                          Reasonable costs associated with buying a new home

 

·                  Appraisal fee

·                  Flood Zone fee

·                  Funding fee

·                  Tax service fee

·                  Settlement/closing fee

·                  Doc prep fees

·                  Endorsement fee

·                  Title insurance

·                  Inspection fee

·                  Courier fees

·                  Recording fees

·                  Pool inspection

·                  Loan Processing Fee

 

·                                          Gross up to cover income tax related to the relocation package as determined by the Company

 

2

 

·                                          All Company commitments to reimburse for relocation expenses are subject to the Company’s reimbursement policies and expire at the end of 18 months following your start date

 

Should you voluntarily resign or be terminated for “Cause” as defined in the 2014 Stock Incentive Plan prior to completing two years of service, you agree to repay the gross sign-on bonus and relocation expenses on a click down using a reduction of 1/24th for each month of completed service.

 

Tax Withholding.

 

The Company may withhold from any and all amounts payable under this offer letter such federal, state and local taxes as may be required to be withheld pursuant to any applicable law or regulation.

 

To comply with some formalities, please be prepared to demonstrate proof of citizenship so that an I-9 can be filed under the Immigration Reform and Control Act of 1986.  Also, in an effort to be consistent with our hiring practices across the board, all associates are required to successfully complete a drug and background screening as a condition of employment.

 

Payments and benefits under this offer letter will be paid in accordance with Annex A.

 

I genuinely look forward to you joining our team at an exciting time of growth at Smart & Final.  We are looking forward to the valuable contributions you will bring to the Company.  Congratulations and welcome aboard!

 

	
 
    	
Very truly yours,
    
	
 
    	
 
    
	
 
    	
/s/ Jeff D. Whynot
    
	
 
    	
 
    
	
 
    	
Jeff D. Whynot
    
	
 
    	
Senior Vice President,   Human Resources
    

 

 

Agreed to and accepted this 1st day of March 2017.

 

 

	
 
    	
/s/ Derek Jones
    	
 
    
	
 
    	
Derek Jones
    	
 
    
	
 
    	
 
    	
 
    
	
Cc:
    	
Dave Hirz
    	
 
    

 

3

 

ANNEX A

 

Code Section 409A Compliance

 

Payments and benefits under this offer letter are intended to comply with, or be exempt from, Internal Revenue Code Section 409A and the regulations and guidance promulgated thereunder (collectively “Code Section 409A”) and, accordingly, to the maximum extent permitted, this offer letter shall be interpreted to be in compliance therewith.  In no event whatsoever shall the Company be liable for any additional tax, interest or penalty that may be imposed on you by Code Section 409A or any damages for failing to comply with Code Section 409A.

 

With regard to any provision of this offer letter that provides for reimbursement of costs and expenses or in-kind benefits, except as permitted by Code Section 409A, (i) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, (ii) the amount of expenses eligible for reimbursement, or in-kind benefits, provided during any taxable year shall not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year, provided that the foregoing clause (ii) shall not be violated without regard to expenses reimbursed under any arrangement covered by Internal Revenue Code Section 105(b) solely because such expenses are subject to a limit related to the period the arrangement is in effect and (iii) such payments shall be made on or before the last day of your taxable year following the taxable year in which the expense occurred.  Any tax gross-up payment as provided herein shall be made in any event no later than the end of the calendar year immediately following the calendar year in which you remit the related taxes.

 

For purposes of Code Section 409A, your right to receive any installment payments pursuant to this offer letter shall be treated as a right to receive a series of separate and distinct payments.  Whenever a payment under this offer letter specifies a payment period with reference to a number of days (e.g., “payment shall be made within thirty (30) days following the date of termination”), the actual date of payment within the specified period shall be within the sole discretion of the Company.

 

A termination of employment shall not be deemed to have occurred for purposes of any provision of this offer letter providing for the payment of any amounts or benefits upon or following a termination of employment that are considered “non-qualified deferred compensation” under Code Section 409A unless such termination is also a “separation from service” within the meaning of Code Section 409A and, for purposes of any such provision of this offer letter, references to a “termination,” “termination of employment” or like terms shall mean “separation from service.”  If you are deemed on the date of termination to be a “specified employee” within the meaning of that term under Code Section 409A(a)(2)(B), then with regard to any payment that is considered non-qualified deferred compensation under Code Section 409A payable on account of a “separation from service,” such payment or benefit shall be made or provided at the date which is the earlier of (A) the expiration of the six (6)-month period measured from the date of such “separation from service”, and (B) the date of your death (the “Delay Period”).  Upon the expiration of the Delay Period, all payments and benefits delayed pursuant to this paragraph (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid or reimbursed to you in a lump sum and any remaining payments and benefits due under this offer letter shall be paid or provided in accordance with the normal payment dates specified for them herein.

 

4

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