Exhibit 10.3
EMPLOYMENT
AGREEMENT
THIS EMPLOYMENT AGREEMENT (this
“ Agreement ”) is made as of April 12,
2006, by and among Festival Fun Parks, LLC, a Delaware limited
liability company (the “ Company ”), Palace
Entertainment Holdings, Inc., a Delaware corporation (“
Holdings ”) and Daniel S. Martinez (the “
Executive ”), each a “ Party ” and
collectively the “ Parties .” Unless
otherwise indicated, capitalized terms used herein are defined in
Section 2.1 .
ARTICLE I
EMPLOYMENT TERMS
1.1
Employment
. The Company will employ the
Executive, and the Executive accepts employment with the Company,
upon the terms and conditions set forth in this Agreement for the
period beginning on the closing date of the Acquisition (the
“ Effective Date ”) and ending as provided in
Section 1.4(a) hereof (the “ Employment
Period ”).
1.2
Position and Duties
.
(a)
Generally . The Executive shall serve as the Chief
Operating Officer of each of Holdings and the Company and, in such
capacity shall be responsible for the general management of the
business, affairs and operations of Holdings and the Company, shall
perform such duties as are customarily performed by a chief
operating officer of a company of a similar size and shall have
such power and authority as shall reasonably be required to enable
him to perform his duties hereunder; provided, however, that
in exercising such power and authority and performing such duties,
he shall at all times be subject to the authority and control of
the Chief Executive Officer and the Boards of Directors of Holdings
and the Company. At all times that Executive is employed by
Holdings and/or the Company as the Chief Operating Officer, he
shall be permitted to attend, as a non-voting observer, all
meetings (including participation in telephonic meetings) of the
Board of Directors of the Company and Holdings or any committee
thereof and to receive copies of all written materials (including
copies of meeting minutes) given to directors in connection with
such meetings; provided that Holdings and the Company shall not be
in default of such obligation to the extent Executive is appointed
to the Board of Directors of Holdings and the Company.
(b)
Duties and
Responsibilities . The
Executive shall report to the Chief Executive Officer and the Board
of Directors of the Company and shall devote his full business time
and attention to the business and affairs of Holdings, the Company
and its Subsidiaries. The Executive shall perform his duties
and responsibilities in a diligent, trustworthy, businesslike and
efficient manner. The Executive shall not engage in any other
business activities that could reasonably be expected to conflict
with the Executive’s duties, responsibilities and obligations
hereunder. During the Employment Period, the Executive shall
promptly bring to the Company or its Subsidiaries, as applicable,
all investment or business opportunities relating to the activities
described in Section 1.9(a) of which the Executive
becomes aware.
1.3
Compensation
.
(a)
Base Salary
. The Executive’s base salary
shall be $275,000.00 per annum (the “ Base Salary
”). The Base Salary payable for Fiscal Year 2006 shall be pro
rated based on the
number of days from and including the Effective
Date through and including December 31, 2006. The Base Salary
will be payable to the Executive by the Company in regular
installments in accordance with the Company’s general payroll
practices. The Executive shall receive such increases in his Base
Salary as the Board of Directors of the Company may approve in
its sole discretion from time to time; provided that the
Executive’s Base Salary will be reviewed not less often than
annually.
(b)
Bonus .
(i) For Fiscal Year 2006, the
Executive shall receive an annual cash bonus, payable to Executive
on or before April 30, 2007, in an amount determined in the
sole discretion of the Company’s Board of Directors, which
amount shall be deemed earned if Executive is employed as of
December 31, 2006.
(ii) For Fiscal Year 2007 and
for each subsequent Fiscal Year during the Term (as defined below),
the Executive shall be eligible to receive an annual cash bonus
(the “ Annual Cash Bonus ”), which shall consist
of two separate components and be payable to Executive on or before
the end of the fourth month following the end of the relevant
Fiscal Year, but in the event that the Company has not received its
audited financial statements for the relevant Fiscal Year by the
date that is three and one-half months after the end of such
relevant Fiscal Year, the Company shall make such payment within
fifteen days but not later than the last day of the calendar year
following such Fiscal Year) after the Company’s receipt of
audited financial statements for such Fiscal Year, so long as
Executive is employed by the Company on the last day of such Fiscal
Year, as follows:
(A)
if the Company’s EBITDA for a
Fiscal Year is greater than or equal to the EBITDA Target for such
Fiscal Year, Executive shall receive an Annual Cash Bonus for such
Fiscal Year equal to 100% of Executive’s Base Salary;
and
(B)
if the Company’s EBITDA for a
Fiscal Year is greater than or equal to the EBITDA Target for such
Fiscal Year, Executive shall receive an additional Annual Cash
Bonus for such Fiscal Year equal to the product of the Available
Cash Flow Excess multiplied by 25%.
(iii) For Fiscal Year 2007
only, the Annual Cash Bonus, if any, payable to Executive pursuant
to this Section 1.3(b)(ii)(A) and (B) , shall be
increased on a pro rata basis to include the complete months in
Fiscal Year 2006 following the date the Acquisition is consummated
minus any annual bonus amount paid to Executive pursuant to
Section 1.3(b)(i) (which shall be deducted first out of
any amount payable to Executive pursuant to
Section 1.3(b)(ii)(A) and second out of any
amount payable to Executive pursuant to
Section 1.3(b)(ii)(B) ).
(iv) Notwithstanding
anything in this Section 1.3(b) to the contrary
and in lieu of any cash obligation, the Company shall pay all of
Executive’s Annual Cash Bonuses in the form of
Class C Units with a Fair Market Value (as defined in the LLC
Agreement) equal to the Annual Cash Bonus owed at such time to the
Executive, until the aggregate cost basis of (x) Class A
Units issued to Executive under that certain Investment Agreement
dated as of the date
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hereof, (y) any additional Class A Units
purchased pursuant to Section 3.1 and (z) any Class C
Units issued (excluding any Class C Units withheld pursuant to
Section 1.3(c)) to Executive in respect of the Annual Cash
Bonuses equals $1,250,000. For purposes of determining Fair Market
Value under this Section 1.3(b)(iv), the Company shall provide
Executive a draft analysis at least ten (10) business days
before such determination and shall consider in good faith the
Executive’s comments and questions prior to finalizing such
determination. For the avoidance of doubt, the Class C Units
shall be treated identical to Class A Units that Executive
acquires on the date hereof pursuant to the terms of the Investment
Agreement, other than for distributions upon a liquidation as set
forth in Section 10.2 of the LLC Agreement and the requirement
for Executive to disgorge distributions if there are not sufficient
profits to allocate to Executive, as set forth in Section 10.3
of the LLC Agreement.
(c)
Withholding
. All payments made under this
Agreement (including Base Salary, bonus payments, and
other amounts) shall be subject to withholding for income taxes,
payroll taxes and other legally required deductions. For bonus
payments made in the form of Class C Units, Executive
shall elect whether to have the Company withhold on such amounts by
withholding an appropriate number of Class C Units or other
cash compensation payable to Executive, or by the Executive funding
the withholding obligation through a cash payment to the
Company.
(d)
Expenses . The Company will reimburse the Executive for
all reasonable expenses incurred by him in the course of performing
his duties under this Agreement which are consistent with the
Company’s policies in effect at that time with respect to
travel, entertainment and other business expenses, subject to the
Company’s requirements with respect to reporting and
documentation of such expenses.
(e)
Vacation; Holiday Pay and Sick
Leave . The Executive
shall be entitled to four (4) weeks’ paid vacation in
each calendar year, which if not taken during any year may be
carried forward to any subsequent year. Executive shall receive
holiday pay and paid sick leave as provided to other executive
employees of Holdings and the Company. Upon cessation of
Executive’s employment for any reason, Executive shall
receive pay for all accrued and unused vacation, calculated at his
base salary rate in effect at the time of the cessation of his
employment, provided that the amount of vacation that Executive
shall be entitled to accrue during the Term shall be in accordance
with Company policy and in no event shall such accrued vacation
exceed 8 weeks at any given time.
(f)
Additional Benefits
. During the Employment Period, the
Executive shall be entitled to participate (for himself and, as
applicable, his dependents) in the group medical, life, 401k and
other insurance programs, employee benefit plans and perquisites
which may be adopted by the Board for participation by the
Company’s senior management or executives, as well as dental,
life and disability insurance coverage, with payment of, or
reimbursement for, such insurance premiums by the Company, subject
to, in all cases, the terms and conditions established by the Board
with respect to such plans (collectively, the “
Benefits ”); provided, however, that the Board, in its
discretion, may revise the terms of any Benefits so long as
such revision does not have a disproportionately negative impact on
the Executive vis-à-vis other Company employees, to the extent
applicable.
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(g)
Incentive Unit Grant
. On the Effective Date, the
Executive shall receive a grant (the “ Equity Grant
”) of 1020.28 Class B-1 Units, 1700.47 Class B-2
Units and 680.19 Class B-3 Units (as defined in the LLC
Agreement) of Palace Holdings Group, LLC. The Equity Grant shall be
subject to the terms and provisions of the LLC Agreement including,
without limitation, the vesting, forfeiture, repurchase and
giveback provisions of Sections 3.1(c), 10.3 and 11.3 of the LLC
Agreement.
(h)
Director and Officer
Insurance . The Company
shall use commercially reasonable efforts to purchase and maintain
a Directors and Officers liability insurance policy on terms and
conditions deemed acceptable to the Board of Directors, acting in
good faith, which policy will cover Executive at all times during
his employment.
(i)
Potential Board Seat
. The Company agrees that during the
Term it may consider Executive’s request to be appointed
to the Board of Directors of Holdings and the Company.
(j)
Potential Adjustments for
Significant Transactions . In the event that the Company acquires a
material Family Entertainment Center or similar business, then the
Company and Executive shall discuss in good faith adjustments to
Executive’s overall compensation package to compensate
Executive for increases in his job duties.
1.4
Term and Termination
.
(a)
Duration . The Employment Period shall commence on the
Effective Date and shall terminate three (3) years from the
Effective Date (the “ Term ”), unless earlier
terminated by the Company or the Executive as set forth in this
Section 1.4 . The Term of the Agreement shall renew
automatically for one-year periods, unless either party gives the
other party written notice of its intention not to renew the
Agreement no later than 90 days prior to the expiration of the then
current Term. This Agreement may be terminated during the Term
upon the first to occur of (i) termination of the
Executive’s employment by the Company for Cause,
(ii) termination of the Executive’s employment by the
Company without Cause, (iii) the Executive’s resignation
with Good Reason, (iv) the Executive’s resignation other
than for Good Reason, or (v) the Executive’s death or
Disability. The Executive shall not terminate the Agreement with or
without Good Reason, unless he gives the Company written notice
that he intends to terminate the Agreement at least 90 days prior
to the Executive’s proposed Termination Date. Upon
termination of this Agreement, the Executive shall execute and
deliver to the Company a release in form and substance
acceptable to the Company.
(b)
Severance Upon Termination
Without Cause or Upon Resignation by the Executive For Good
Reason . If the
Employment Period is terminated by the Company without Cause or if
the Executive resigns for Good Reason, subject to the
Executive’s continued performance of the terms of this
Agreement that survive the Termination Date, the Executive will be
entitled to receive (1) (i) if such termination occurs
prior to the eighteen-month anniversary of the Effective Date, his
Base Salary for the greater of (x) twelve months and (y) the period
of time remaining in such eighteen-month period, (ii) if such
termination occurs after the eighteen-month anniversary of the
Effective Date, his base salary equal to twelve months and
(2) if such termination or resignation occurs between
October 1 and December 31, Executive will be entitled to
a prorated Annual Cash Bonus based on the number of days during
the
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relevant Fiscal Year that precede the date of
termination (each of (1) and (2) referred to as the
“ Severance Payment ”). The Executive also shall
be entitled to receive payment for all reimbursable expenses or
other entitlements then due and owing to the Executive as of the
Termination Date. In the event that the Executive breaches his
obligations under Section 1.6 , 1.7 , 1.8
or 1.9 of this Agreement, the Company’s obligation to
make any Severance Payments and provide any Benefits shall cease as
of the date of such breach.
(c)
Death and Disability
. In the event of the Company
terminates this Agreement due to the death or Disability of the
Executive, the Executive shall be entitled to no severance or other
termination benefits from and after the termination of his
employment, except as provided in Section 1.4(b) hereof.
Any other rights and benefits the Executive may have under
employee benefit plans and programs of the Company generally in the
event of the Executive’s Disability shall be determined in
accordance with the terms of such plans and programs. In the event
of Executive’s death, any rights and benefits that the
Executive’s estate or any other person may have under
employee benefit plans and programs of the Company generally in the
event of the Executive’s death shall be determined in
accordance with the terms of such plans and programs.
(d)
Salary and Other Payments Through
Termination . If the
Executive’s employment with the Company is terminated during
the Term (i) by the Company for Cause or (ii) by the
Executive other than for Good Reason, the Executive will be
entitled to receive his Base Salary through the Termination Date,
but will not be entitled to receive any Severance Payments or
Benefits after the Termination Date. The Executive shall be
entitled to receive payment for all reimbursable expenses or other
entitlements then due and owing to the Executive as of the
Termination Date.
(e)
Other Rights
. Except as set forth in
Section 1.4(b) , all of the Executive’s rights to
Base Salary, Benefits and Annual Cash Bonuses hereunder (if any)
which accrue or become payable after the termination of the
Employment Period shall cease upon such termination.
1.5
Key Man Life Insurance
. The Company shall have the right
to purchase in the Executive’s name a “key man”
life insurance policy naming the Company or any of its Subsidiaries
as the sole beneficiary thereunder. The Executive agrees to take
all reasonable measures necessary to effect the foregoing,
including without limitation submitting to a physical examination
for the purpose of determining eligibility therefore and
cooperating with any matters related to the application for, and if
obtained, the maintenance of, such insurance policy. If Executive
is found ineligible for some reason for such “key man”
life insurance either at the inception of his employment or at
anytime thereafter, this ineligibility will not affect
Executive’s employability under this Agreement or constitute
Cause for termination of Executive’s employment.
1.6
Confidential
Information .
(a)
The Executive shall not disclose or,
directly or indirectly, use at any time, during the Employment
Period or thereafter, any Confidential Information (as defined
below) of which the Executive is or becomes aware, whether or not
such information is developed by his, except to the extent that
(i) such disclosure or use is required by the
Executive’s performance of the duties assigned to the
Executive by the Board, (ii) the Executive is required by
subpoena or
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similar process to disclose or discuss any
Confidential Information, provided, that in such case, the
Executive shall promptly inform the Company of such event and
shall cooperate with the Company in attempting to obtain a
protective order or to otherwise restrict such disclosure or
(iii) such Confidential Information becomes generally known to
and available for use by the public, other than as a result of any
action or inaction by the Executive. At the Company’s
expense, the Executive shall take all appropriate steps to
safeguard Confidential Information and to protect it against
disclosure, misuse, espionage, loss and theft. The Executive
acknowledges that the Confidential Information obtained by him
(i) during the course of his employment with the Company or
(ii) during the course of his employment with VisionMaker and
its Subsidiaries in connection with the Acquisition is the sole and
exclusive property of the Company and its Subsidiaries, as
applicable.
(b)
The Executive understands that the
Company and its Subsidiaries will receive from third parties
confidential or proprietary information (“ Third Party
Information ”) subject to a duty on the part of the
Company and its Subsidiaries to maintain the confidentiality of
such information and to use it only for certain limited purposes.
During the Employment Period and thereafter, and without in any way
limiting the provisions of Section 1.6(a) above,
the Executive will hold Third Party Information in the strictest
confidence and will not disclose to anyone (other than personnel of
the Company or its Subsidiaries who need to know such information
in connection with their work for the Company or its Subsidiaries)
or use, except in connection with his work for the Company or its
Subsidiaries, Third Party Information unless expressly authorized
by the Board in writing.
(c)
As used in this Agreement, the term
“ Confidential Information ” means information
that is not generally known to the public and that is used,
developed or obtained by Holdings and its Subsidiaries (including
the Company and its Subsidiaries) and any of the Company’s
predecessor entities in connection with its business, including but
not limited to (i) business development, growth and other
strategic business plans, (ii) properties available for
acquisition, financing development or sale, (iii) accounting
and business methods, (iv) services or products and the
marketing of such services and products, (v) fees, costs and
pricing structures, (vi) designs, (vii) analysis,
(viii) drawings, photographs and reports, (ix) computer
software, including operating systems, applications and program
listings, (x) flow charts, manuals and documentation, (xi) data
bases, (xii) inventions, devices, new developments, methods and
processes, whether patentable or unpatentable and whet
