EMPLOYMENT AGREEMENT
This Agreement dated as of October 18, 2006, by and between FIVE
STAR
GROUP, INC. ("Five Star"), a Delaware Corporation (hereinafter
called the
Company") and BRUCE SHERMAN (hereinafter called the
"Employee").
WHEREAS, the Company desires to employ Employee upon the terms
and
conditions hereinafter set forth and Employee is willing to serve
in the employ
of the Company on a full-time basis upon the terms and conditions
hereinafter
stated;
NOW, THEREFORE, the Company and Employee, each in consideration of
the
promises of the other hereafter contained, agree as follows:
1. Term, Position and Responsibilities. Employee agrees to serve as
the
Chief Executive Officer of the Company, except as otherwise
provided for herein,
and to devote all his business time, energy and ability to the
Company for a
period commencing on October 18, 2006 and terminating on December
31, 2010, (the
"Employment Term"), unless sooner terminated in accordance with the
provisions
of this Agreement. Employee shall have the position, duties and
responsibilities
delegated to him from time to time by the Board of Directors of the
Company,
provided however, the Board of Directors shall have the power to
assign Employee
to another responsible position. The services to be rendered to the
Company by
the Employee pursuant to this Agreement shall include, but not be
limited to,
managing the performance of sales employees and the marketing and
promotion of
the Company's products.
2. Loyalty and Diligence. Employee shall at all times exert his
best
efforts to promote the success of the Company and shall discharge
his duties and
responsibilities in a trustworthy manner. Employee shall do nothing
which will
in any way impair or prejudice the name or reputation of the
Company.
3. Base Salary. During the Employment Term, subject to all of the
terms
and conditions of this Agreement, Employee shall be paid an annual
base salary
of $262,500, payable in weekly installments, less such deductions
or amounts to
be withheld as shall be required by law. Effective as of the second
year of the
Employment Term, the base salary then in effect shall be increased
by the
greater of (i) 3% or (ii) the percentage increase in the U. S.
Bureau of Labor
Statistics ("BLS") Consumer Price Index for All Urban Consumers:
Selected Areas,
All Items Index ("CPI-U") for Nassau and Suffolk Counties (or the
next broadest
geographic index then published by BLS, such as, by way of example,
the New York
City Metropolitan Area) during the twelve month comparison period
ending in
December immediately preceding the commencement of the contract
year for which
compensation is to be adjusted. The increase in CPI for the 2007
contract year
shall be based on the CPI increase, if any, for the twelve months
ending
December 2006; the increase in CPI for the 2008 contract year shall
be based
upon the CPI increase, if any, for the twelve months ending
December 2007; the
increase in CPI for the 2009 contract year shall be based upon the
CPI increase,
if any, for the twelve months ending December 2008; and the
increase in CPI for
the 2010 contract year shall be based upon the CPI increase, if
any, for the
twelve months ending December 2009.
4. Bonus
Employee will be eligible to receive an annual bonus ('Bonus") for
all years in
the Employment Term, subject to all of the terms and conditions of
this
Agreement. Payment of the Bonus shall be contingent upon an annual
increase in
the Company's Earnings Before Income Tax, Depreciation and
Amortization
("EBITDA") for each year, over the prior year, calculated in
accordance with
generally accepted accounting principles consistently applied
("GAAP"). Payment
of the Bonus shall be made on March 31 of the year following the
year with
respect to which the Bonus is earned. For the year 2006, Employee's
Bonus shall
be $75,000 provided and on condition that there is any increase in
EBITDA over
2005. For all other years (i.e., 2007 through 2010), the Bonus
shall be equal to
$500,000 multiplied by the actual percentage increase in EBITDA, if
any, for the
year with respect to which the Bonus is earned, over the prior
year, based upon
a baseline EBITDA of $1.6 million or actual, whichever is greater.
The following
chart is included in this agreement as illustrative of the
foregoing calculation
for any given year with the understanding that the actual bonus
amount will be
pro-rated based upon the actual percentage increase in EBITDA, as
aforesaid, but
in no event to exceed $250,000 per year:
PERCENTAGE INCREASE IN EBITDA
BONUS AMOUNT
50.0%
$250,000
37.5%
$187,500
25.0%
$125,000
12.5%
$ 62,500
The obligation to pay any Bonus earned with respect to the year
2010 shall
survive the expiration of the Employment Term,
Employee will also be eligible to receive an additional annual
super-bonus
("Super-bonus") for all years in the Employment Term, subject to
all of the
terms and conditions of this Agreement. Payment of the Super-bonus
shall be
contingent upon an annual increase in the Company's EBITDA for each
year, over
the prior year, calculated in accordance with GAAP, based upon a
baseline EBITDA
of $1.6 million or actual, whichever is greater. Payment of the
Super-bonus
shall be made on March 31 of the year following the year with
respect to which
the Super-bonus is earned, commencing with the bonus for the 2007
fiscal year.
The following chart is included in this agreement as illustrative
of the
foregoing calculation for any given year, with the understanding
that the actual
Super-bonus amount will be pro-rated based upon the actual
percentage increase
in EBITDA, as aforesaid, but in no event to exceed $250,000 per
year.
PERCENTAGE INCREASE IN EBITDA
ADDITIONAL BONUS AMOUNT
150%
$250,000
125%
$187,500
100%
$125,000
75%
$ 62,500
2
<PAGE>
5. Other Benefits.
5.1 During the Employment Term, Employee shall be entitled to
participate and shall be included in the Five Star Group 401(K)
Plan to the
extent that he is eligible under its general provisions, and to
participate in
all of the Company's benefit plans such as group insurance,
hospitalization,
medical and disability plans in accordance with their provisions,
and shall be
afforded participation in other benefits extended by the Company
from time to
time to its employees, such as vacations, holidays, sick leave and
related
programs. The Company may, at any time, terminate any of these
plans or benefits
with respect to all of its employees, to the extent permitted by
law, without
obligation to Employee.
5.2 During the Employment Term, the Company shall provide
Employee
with an automobile for his business use and shall reimburse
Employee for all
reasonable expenses reasonably related to the performance of
Employee's duties
hereunder, including the cost of gasoline, maintenance and
insurance for his
automobile and his lease payment.
5.3 During the Employment Term, Employee shall be entitled to 30
days
paid vacation each calendar year at such time or times as shall be
convenient to
Employee and the Company.
5.4 Subject to shareholder approval, Employee shall be granted
options
to purchase up to an aggregate of 400,000 shares of the common
stock of the
Company. The exercise price of the options shall be equal to the
closing price
of the common stock of the Company on October 18, 2006. The options
shall be
granted as follows, contingent upon an annual increase in the
Company's EBITDA
for each year, over the prior year, calculated in accordance with
GAAP. In March
2008, the maximum number of shares which Employee shall be eligible
to be
granted is 140,000 and in March 2009 and March 2010, the maximum
number of
shares which Employee shall be eligible to be granted is 130,000.
The following
chart is included in this agreement as illustrative of the
foregoing calculation
for any given year, commencing with March 2008 (in respect of the
year 2007,
with the understanding that the actual number of shares will be
pro-rated based
upon the actual percentage increase in EBITDA, as aforesaid, based
upon a
baseline EBITDA of $1.6 million or actual, whichever is greater,
but in no event
to exceed 140,000 shares for 2007 and 130,000 shares for 2008 and
2009,
respectively:
PERCENTAGE INCREASE IN EBITDA
SHARES
50.0%
140,000
37.5%
95,000
25.0%
70,000
12.5%
35,000
3
<PAGE>
The right to receive and exercise the option to purchase shares
based upon any
increase in EBITDA for 2010 over 2009 shall survive the expiration
of the
Employment Term.
5.5 Employee will be reimbursed for his reasonable expenses
(the
reasonableness thereof to be determined in accordance with the
Company's past
practice) actually incurred or paid by him during the Employment
Term, in
promoting the business of the Company upon presentation of a
written itemized
account and proper receipts.
5.6 The Company presently maintains an office for the Employee at
1600
Old Country Road, Plainview, New York. The Company agrees to
continue to
maintain this or a similar office for the Employee during the
Employment Term at
a location mutually acceptable to the parties.
6. Termination.
6.1 Notwithstanding the provisions of paragraph 1 hereof, or
any other provision of the Agreement regarding termination or
discharge, the
Company may immediately terminate the employment of Employee upon
the occurrence
of any of the following events:
(a) the death of Employee;
(b) the breach by Employee of any of the terms of this
Agreement, provided that the Company shall give 15 days notice
prior to
termination for any breach of any of the terms of this Agreement
which
are capable of cure;
(c) the gross neglect by Employee of his duties hereunder
continuing for 30 days after written warning issued to the
Employee
setting forth the conduct constituting such gross neglect;
(d) the conviction of Employee for any felony or any crime
involving moral turpitude;
(e) the conviction of Employee of any lesser crime or offense
involving the property of the Company or a
