Exhibit 10.1
SECOND AMENDED AND
RESTATED
EMPLOYMENT
AGREEMENT
EMPLOYMENT
AGREEMENT originally effective as of September 11, 2006, then
amended and restated as of December 31, 2008, and now amended and
restated as of July 2, 2009 (the “Agreement”), by and
among HIRSCH INTERNATIONAL CORP., a Delaware corporation with
offices located at 50 Engineers Road, Hauppauge, New York 11788
(the "Company") and PAUL E. GALLAGHER, residing at 52 Sandy Hill
Road, The Carriage House, Oyster Bay Cove, New York 11771 (the
“Executive”).
W I T N E S S E T H
:
WHEREAS, the
Company is engaged in importing, marketing, manufacturing, and
distributing commercial embroidery equipment and related goods and
services; and
WHEREAS, the
Company wishes to assure itself of the services of the Executive
for the period provided in this Agreement, and the Executive is
willing to continue to serve in the employ of the Company on a
full-time basis for said period upon the terms and conditions
hereinafter provided;
WHEREAS, on
September 11, 2006 (“Original Effective Date”), the
Company and Executive entered into an employment agreement (the
“Original Agreement”) governing the terms of the
Executive’s employment with the Company,
WHEREAS, the
Company administered this employment agreement in good faith
compliance with the requirements of Section 409A of the Internal
Revenue Code of 1986, as amended and the regulations and other
guidance promulgated thereunder (“Section 409A”), and
then amended and restated this employment agreement as of December
31, 2008, to comply with the requirements of Section 409A;
and
WHEREAS, in
connection with that certain proposed merger of HIC Acquisition
Company, a Delaware corporation and wholly-owned subsidiary of
Hirsch Holdings, Inc., a Delaware corporation, with and into the
Company, the Company and the Executive have agreed to modify
certain terms of the employment agreement as amended and restated
as of December 31, 2008.
NOW, THEREFORE, the
employment agreement is amended and restated, effective as of the
Original Effective Date, to read as follows:
1.
Employment
. The Company,
pursuant to the terms and conditions set forth in this Agreement,
hereby agrees to continue to employ the Executive, who accepts such
continued employment with the Company as its President and Chief
Executive Officer and such other positions and duties of a
responsible nature as the Company’s Board of Directors may
from time to time determine and assign to him commensurate with the
described offices. Throughout the Term (as defined herein), the
Executive shall devote all of his business time, attention and
energy to his duties and to the business and affairs of the Company
and shall not engage, directly or indirectly, in any other
business, employment or occupation.
2.
Term . The term of this Agreement shall commence as of
September 11, 2006 hereof (the “Commencement Date”) and
shall terminate on the date immediately preceding the fourth
anniversary date of the Commencement Date (the
“Term”).
3.1 As
full compensation for all services to be rendered by the Executive
to the Company pursuant to the terms of this Agreement, the
Executive shall receive a base salary (the “Base
Salary”) at the rate of (i) Three Hundred Seventy Five
Thousand ($375,000.00) Dollars per year during the first year of
the Term, (ii) Four Hundred Thousand ($400,000.00) Dollars per year
during the second year of the Term, and (iii) Four Hundred Twenty
Five Thousand
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($425,000.00)
Dollars per year during the third and fourth years of the Term. The
Base Salary shall be payable at such regular times and intervals as
the Company customarily pays its employees from time to
time.
3.2 The
Executive shall have the right to participate, on the same basis as
other executive employees of the Company, in the Company’s
employee benefit programs, if any, including, without limitation,
group life, health, accident and hospitalization insurance programs
covering the Executive and his dependents.
3.3 The
Executive shall be entitled to participate in and receive a bonus
under the Company’s Annual Incentive Plan for Key Executive
Officers, (the “Incentive Plan”) as that plan shall be
adopted and implemented by the Compensation Committee of the Board
of Directors from time to time, substantially as described in
Appendix A hereto. The Executive’s Target Incentive
Percentage and Stretch Incentive Percentage under the Incentive
Plan shall be 50 percent and 100 percent, respectively, of Base
Salary. All such bonuses shall become due on the last day of the
Company’s fiscal year with respect to which the bonus relates
and shall be payable as soon as practicable following the issuance
of the independent audit report for the fiscal year, but in no
event later than the fifteenth day of the third month following the
end of the fiscal year to which the bonus relates.
3.4 The
Company shall award to the Executive options
(“Options”) to purchase a total of Five Hundred and
Twenty Five Thousand (525,000) Shares of the Company’s Class
A Common Stock (the “Company Stock”) pursuant to the
Company’s 2003 Stock Option Plan at the times and subject to
the conditions hereinafter set forth:
(a) Seventy
Five Thousand (75,000) Options issued on the date of execution of
the Original Agreement, at a strike price of $2.12 per share, upon
the terms and
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conditions set
forth in the Company’s standard Incentive Stock Option
Agreement, substantially in the form annexed hereto as Appendix
B;
(b) Seventy
Five Thousand (75,000) Options granted on September 11, 2007, at a
strike price equal to the closing price of the Company Stock on the
date of grant, substantially upon terms and conditions comparable
to those set forth in Appendix B hereto, provided the Executive is
actively employed on that date;
(c) Seventy
Five Thousand (75,000) Options granted on September 11, 2008, at a
strike price equal to the closing price of the Company Stock on the
date of grant, substantially upon terms and conditions comparable
to those set forth in Appendix B hereto, provided the Executive is
actively employed on that date; and
(d) Three
Hundred Thousand (300,000) Options granted on the date of execution
of the Original Agreement, at a strike price of $2.12 per share,
upon the terms and conditions set forth in Appendix B hereto,
except that the following provisions with respect to limitations on
exercise of such options shall be inserted in lieu of Paragraph 3
of Appendix B:
“3.
Limitations on Exercise of the Option . The Incentive Option
shall be exercisable as follows:
(a) One
Hundred Thousand (100,000) Shares commencing on the date
immediately following the period that the closing price of the
Common Shares on the Nasdaq Capital Market (or such other exchange
or automated quotation system on which the Common Shares are
traded) remains at or above Two Dollars and Fifty Cents ($2.50) for
at least 20 consecutive trading days.
(b) One
Hundred Thousand (100,000) Shares commencing on the date occurring
after September 11, 2007 immediately
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following the
period that the closing price of the Common Shares on the Nasdaq
Capital Market (or such other exchange or automated quotation
system on which the Common Shares are traded) remains at or above
Three Dollars ($3.00) for a period of at least 20 consecutive
trading days.
(c) One
Hundred Thousand (100,000) Shares commencing on the date occurring
after September 11, 2008 immediately following the period that the
closing price of the Common Shares on the Nasdaq Capital Market (or
such other exchange or automated quotation system on which the
Common Shares are traded) remains at or above Three Dollars and
Fifty Cents ($3.50) for a period of at least 20 consecutive trading
days thereafter.
The Incentive
Option granted hereby shall have a term of five (5) years, unless
earlier terminated as hereinafter set forth.”
3.5 The
Company shall deduct from the Executive’s Base Salary and any
bonus payment which Executive may receive any federal, state or
city withholding taxes, social security contributions and any other
amounts which may be required to be deducted or withheld by the
Company pursuant to any federal, state or city laws, rules or
regulations.
3.6 The
Company shall reimburse the Executive, or cause him to be
reimbursed, for all reasonable out-of-pocket expenses incurred by
him in the performance of his duties hereunder or in furtherance of
the business and/or interests of the Company; provided, however,
that the Executive shall have previously furnished to the Company
an itemized account, satisfactory to the Company, in substantiation
of such expenditures. Any such reimbursement payment shall be made
no later than the last day of the calendar year following the
calendar year in which the reimbursable expense is
incurred.
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3.7 During
the Term, the Executive shall be entitled to the full-time use of a
Company vehicle. The Company shall purchase and maintain all
relevant insurance for said vehicle and shall reimburse Executive
for all fuel and repairs for said vehicle. Repairs, insurance costs
and fuel expenses will be reimbursed along with usual and customary
business related expenses in accordance with Section 3.6
above. Any such reimbursement payment shall be made no later than
the last day of the calendar year following the calendar year in
which the reimbursable expense is incurred.
3.8 During
the Term, Executive shall be entitled to four (4) weeks paid
vacation per year to be taken in accordance with Company policy and
procedure.
4.
Indemnification . The Company undertakes, to the maximum
extent permitted by law, to defend, indemnify and hold the
Executive harmless from and against all claims, damages, losses and
expenses, including reasonable attorneys’ fees and
disbursements, arising out of the performance by the Executive of
his duties pursuant to this Agreement, in furtherance of the
Company’s business and within the scope of his
employment.
5.1
Death . If the Executive dies during the Term, he shall be
entitled to receive his Base Salary through the end of the month
during which death occurs plus a pro rata portion, based upon his
period of service to the Company, of the amount, if any, he would
have been entitled to receive under the Incentive Plan if his
employment had continued until the end of the fiscal year payable
pursuant to the terms of the Incentive Plan.
5.2
Disability . The Company may terminate the employment of the
Executive by reason of disability by giving notice of such
termination as of the end of any month after the Executive becomes
disabled. For purposes of this Agreement, the Executive shall be
deemed to be “disabled” if the Executive is unable to
engage in any substantial gainful activity by
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reason of any
medically determinable physical or mental impairment that can be
expected to result in death or can be expected to last for a
continuous period of not less than 12 months. In the event of such
termination for disability, and subject to the limitations of
Section 5.6, the Executive shall be entitled to receive his
Base Salary through the end of the month during which disability
occurs plus a pro rata portion, based upon his period of service to
the Company, of the amount, if any, he would have been entitled to
receive under the Incentive Plan if his employment had continued
until the end of the fiscal year.
5.3
Termination for Cause . The Company shall have the right to
terminate employment of the Executive for “Cause” if
one or more of the following acts shall occur:
(a) Executive
shall have committed a material breach of any of the provisions or
covenants of this Agreement;
(b) Executive
shall have committed an act of gross negligence in the performance
of his duties or obligations hereunder, or, without proper cause,
shall have willingly refused or habitually neglected to perform his
employment duties or obligations under this Agreement;
(c) Executive
shall have committed any material act of willful misconduct,
dishonesty or breach of trust which shall directly or indirectly
cause the Company or any of its subsidiaries to suffer any loss,
fine, civil penalty, judgment, claim, damage or expense;
or
(d) Executive
shall have been convicted of, or shall have plead guilty or nolo
contendere to, a felony.
The Company may
terminate the employment of Executive for Cause by delivering
notice (the “Termination Notice”) of such intention to
Executive, describing with reasonable detail the events or the acts
or omissions of the Executive constituting the basis for
termination; provided, however, with respect to any act or omission
set forth in clauses (a) and (b) of this Section 5.3,
such
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termination shall
not be effective until thirty (30) days following the Termination
Notice, during which time the Executive shall have an opportunity
to cure or remedy such act or omission. If the Company terminates
the employment of the Executive for Cause, the Executive shall be
entitled to receive only his Base Salary through the end of the
month in which the Termination Notice is effective.
5.4
Severance Payments . In addition to the amounts described
above in this Section 5, if termination of employment shall
occur before the consummation of an Excluded Transaction (as
defined in Section 9.2(a)) as a result of one of the following
listed events, the Company shall provide to the Executive severance
payments in the amounts and benefits as described below:
(a) If
this Agreement is terminated prior to the expiration of its Term
due to Executive’s death or disability as set forth in
Sections 5.1 and 5.2, respectively, above then, subject to the
limitations of Section 5.6, the Company shall continue the
Executive’s monthly Base Salary, in accordance with its
regular payroll practices, at the rate then in effect, for a period
of 6 months, (the “Severance Payment Period”). At all
times, the right to all such monthly payments made under this
Section 5.4(a) shall be treated as the right to a series of
separate payments within the meaning of 26 CFR
§1.409A-2(b)(2)(iii).
(b) If
prior to or at the expiration of the Term, the Company fails to
offer Executive continuing employment with the Company as its Chief
Executive Officer or Chief Operating Officer at substantially the
same level of Base Salary, employee benefits and bonus compensation
as are set forth in Sections 3.1, 3.2 and 3.3, respectively, of
this Agreement; then, subject to the limitations of
Section 5.6, the Company shall continue the Executive’s
monthly Base Salary, in accordance with its regular payroll
practices, at the rate then in effect, for a period of 6 months,
(the “Severance Payment Period”). At all times, the
right to all such monthly payments
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made under this
Section 5.4(b) shall be treated as the right to a series of
separate payments within the meaning of 26 CFR
§1.409A-2(b)(2)(iii).
(c) If
the Company terminates the Executive without Cause, materially
reduces his base compensation or responsibilities, or commits any
other material breach of the provisions of this Agreement and fails
to cure or remedy such reduction or breach within thirty (30) days
following its receipt of written notice thereof given by the
Executive (at the end of which time this Agreement shall be deemed
terminated), which notice shall be provided within ninety (90) days
following the initial existence of the event that constitutes a
material breach of the provisions of this Agreement, then, subject
to the limitations of Section 5.6, the Company shall continue
the Executive’s monthly Base Salary, in accordance with its
regular payroll practices, at the rate then in effect for a period
of 12 months, or if shorter, for the period from the date of
termination through and including the month of March, 2011 (the
“Severance Payment Period”). At all times, the right to
all such monthly payments made under this Section 5.4(c) shall
be treated as the right to a series of separate payments within the
meaning of 26 CFR §1.409A-2(b)(2)(iii).
(d) During
the Severance Payment Period the Executive shall continue to
participate in the Company’s employee benefit programs, as
provided in Section 3.3, including, without limitation, any
health, accident and hospitalization insurance programs covering
the Executive and his dependents. In addition, the Company shall
pay to the Executive, a pro rata portion of any bonus payment that
would have become due and payable to Executive pursuant to
Section 3.3, above, if his employment had continued through
the Severance Payment Period.
(
