EXHIBIT
10.1
SEPARATION, CONSULTING AND
GENERAL RELEASE AGREEMENT
This Separation,
Consulting and General Release Agreement (this
“Agreement”) is being entered into by and between
Source Interlink Companies, Inc. (“Source” or the
“Company”) and Jason Flegel (“Flegel”)
(collectively, the “Parties”) as of the date of
Flegel’s execution of this Agreement (the “Date of this
Agreement”), subject to the provisions of Section 5(b)
below.
WHEREAS, Flegel
was employed by the Company pursuant to an Executive Employment
Agreement dated as of February 28, 2005 (the “Employment
Agreement”);
WHEREAS, subject
to the provisions of Section 5(b) below, the Parties wish to
terminate their employment relationship and the Employment
Agreement on mutually acceptable terms and conditions effective as
of October 31, 2007; and
THEREFORE in
consideration of the foregoing promises and the terms and
conditions set forth below, the Parties agree as
follows:
1.
Termination . Subject to the provisions of Section
5(b) below, Flegel acknowledges (a) the termination of the
Employment Agreement, and (b) the termination of his employment
from any and all positions within the Company or any of its
affiliates, as an employee and/or officer effective as of 5:00 p.m.
on October 31, 2007 (the “Termination Date”), and
hereby resigns from such positions. In consideration of the
foregoing, the Company shall pay to Flegel the sum of One Hundred
Twenty Thousand ($120,000) (the “Termination Fee”)
which shall be payable in six equal installments of $20,000 each on
the 15 th day of each calendar month commencing on
November 15, 2007 such that the final installment shall be paid on
April 15, 2008. Subject to the provisions of Section 4 below,
Flegel understands that he is giving up any right or claim to
compensation or benefits of employment with the Company beyond the
Termination Date, including without limitation, any compensation,
benefits or other rights under the Employment Agreement, except
that he shall be entitled to the compensation and benefits provided
in this Agreement.
2.
Consulting Agreement . Provided that Flegel timely
signs and delivers, and does not revoke, this Agreement, Flegel
shall become a consultant to the Company upon the terms set forth
herein.
a.
Term. The term of Flegel’s consulting arrangement shall
begin on the Termination Date and end on April 30, 2008, unless
earlier terminated due to Flegel’s death or disability (the
“Term”).
b.
In the event of a termination of Flegel’s consulting services
for Disability or death, the Company shall have no obligation to
provide any future payments or benefits
pursuant to this Agreement after the date of
Disability or death, except the Company shall remain obligated to
pay the Termination Fee as set forth in Section 1, any Earned but
Unpaid Compensation as set forth in Section 2(e) and any
un-reimbursed expenses incurred during the Term as set forth in
Section 2(i). For purposes of the preceding sentence,
“Disability” shall mean a determination by the Board
that Flegel has been unable to perform consulting services
effectively for thirty (30) or more consecutive days, or for sixty
(60) or more days in any calendar year. For purposes of this
Section 2(b) and Section 11(c) below, “Earned but
Unpaid” with respect to the compensation provided for in
Section 2(e) shall mean that all events required to have occurred
for Flegel to be entitled to payment of compensation have occurred
during the Term and within the time frame required under Section
2(e), but the compensation has not yet been paid.
c.
Reporting Relationship. Flegel shall report to James R.
Gillis or such senior-level executive(s) as James R. Gillis may
designate from time to time (the
“Supervisor”).
d.
Duties. The Company hereby appoints Flegel as an independent
consultant to the Company, and Flegel hereby accepts such
appointment. During the Term, Flegel shall provide such
consulting services to the Company and its subsidiaries, as the
Supervisor may reasonably request, from time to time, in connection
with the business opportunities described in Schedule A to this
Agreement. This Agreement does not create any employment or
agency relationship between Flegel and the Company. The
relationship of Flegel during the Term will be solely as an
independent contractor to the Company. The Company has not
authorized Flegel to, and Flegel acknowledges that he has no
authority to, commit, bind or speak for the Company, and Flegel
shall not knowingly do any act which might cause any third party to
reasonably believe that Flegel has the power or authority to
contract or incur any commitment on behalf of Company, or that
Flegel is an employee or agent of Company. Subject to Section
11 below, the Company agrees and acknowledges that Flegel shall be
permitted to have a financial interest in, work for, consult with,
advise, assist or otherwise be connected with any other business or
enterprise during the Term. In addition, the Company agrees
that Flegel’s employment by or performance of services for or
on behalf of his father, S. Leslie Flegel (“SLF”) or
another party on behalf of SLF, or the solicitation of
Flegel’s employment or service by, for or on behalf of SLF or
by another party on behalf of SLF will not be a violation of
Section 13d of the Separation, Consulting and General Release
Agreement between SLF and the Company dated November 10, 2006, and
the Company shall provide a letter to SLF to such effect. The
foregoing sentence shall not constitute a consent to or waiver of
any provision of this Agreement, including those set forth in
Sections 10 and 11 hereof.
e.
Consulting Compensation Payments. As compensation to Flegel
for the services to be performed by him during the Term under the
consulting arrangement with the Company, Flegel shall receive from
the Company the four payments described in Schedule A, in each case
payable not later than 15 days after the execution of the agreement
or agreements which are described as being part of the project to
be completed under the applicable part of Schedule A.
The Company shall
have sole and absolute discretion to determine whether or not to
pursue the agreement or agreements which are described as
being part of the project to be completed under Schedule A and
nothing in this Agreement shall be interpreted to obligate the
Company to pursue such agreement(s) or approve or agree to any such
agreement(s); provided however that the Company and Flegel agree to
deal with each other in good faith with respect to the pursuit of
the projects by the stated completion date, as is described in
Schedule A. If the Company pursues such any such agreement or
or agreements, then the Company shall have sole and absolute
discretion to accept or reject any proposed terms related thereto
and to elect not to enter into any definitive agreement(s).
If the Company elects for any reason not to pursue any such
agreement or agreements, or pursues but ultimately elects for any
reason not to enter into definitive agreement(s) on or before the
stated completion date, the Company shall have no liability to
Flegel and no obligation pay Flegel any of the compensation
payments referenced above.
f.
Healthcare Insurance. During the Term, the Company shall
provide Flegel with healthcare insurance substantially similar to
that provided to Flegel immediately prior to the execution of this
Agreement under and subject to the same terms and conditions
(including without limitation contribution to premiums,
deductibles, co-payments and caps) as are applicable to executive
officers generally during the Term. Flegel shall not be
entitled to participate in the Execucare Program. To
accomplish this provision, the Company shall, if at all possible,
provide for Flegel’s participation in the Company’s
healthcare insurance plan. In the event that the Company cannot
include Flegel in the Company’s healthcare insurance plan,
the Company may satisfy its obligations under this Section by
paying a proportionate part of Flegel’s COBRA premium so long
as he remains eligible for COBRA benefits during the Term.
Flegel may elect to continue or commence COBRA coverage at the end
of the Term.
g.
Except as set forth in Section 2(f), Flegel acknowledges that
during the Term and as an independent contractor, Flegel will not
be eligible for or receive any benefits for which employees of the
Company are eligible. Notwithstanding the above, Flegel will
assume responsibility and pay for the three life insurance policies
(issued by First Colony) on his life owned and/or paid for by the
Company and the Company agrees to cooperate with Flegel to
effectuate his assumption of ownership and responsibility for such
policies.
h.
Expense Reimbursement. The Company shall pay directly, or
shall reimburse Flegel for, reasonable and necessary expenses
approved in advance by the Supervisor and incurred by Flegel during
the Term in the interest of the business of the Company. The
Company acknowledges that Flegel is likely to be required to travel
to perform his duties under Section 2(d) of this Agreement.
Flegel’s travel expenses and accommodations shall be
consistent with Company’s regular practices for senior
executives’ travel. All such expenses paid by Flegel
shall be promptly reimbursed by the Company upon presentation by
Flegel of an itemized account of such expenditures, sufficient to
support their deductibility by the Company for federal income tax
purposes (without regard to whether or not the Company’s
deduction for such
expenses is limited for
federal income tax purposes), such submissions to be made within
thirty (30) days after the date such expenses are
incurred.
i.
Accrued Vacation. Notwithstanding Section 4.6 of the
Employment Agreement, the Company shall pay Flegel a total of
$18,269.60 as full compensation for Flegel’s unused vacation
days that have accrued for 2007 through the Termination Date.
Subject to Section 4 of this Agreement, such payment shall be paid
to Flegel on the same date as the payment of his final paycheck due
under the Employment Agreement.
3.
Sole Financial Obligation . The compensation and
benefits set forth in Section 1 and 2 of this Agreement are the
sole and exclusive financial obligations of the Company to Flegel
under this Agreement or otherwise in connection with Flegel’s
employment, consulting, or the termination of his employment or
consulting. Notwithstanding the above, Flegel’s rights
under any applicable retirement, deferred compensation, 401k,
pension, stock, stock option or restricted stock plan shall not be
modified by this Agreement, and his rights shall be consistent with
the provisions of such plans and agreements entered into pursuant
to those plans. Flegel understands that, leaving aside any
rights under any applicable retirement, deferred compensation,
401k, pension, stock, stock option or restricted stock plan and
leaving aside Flegel’s right to indemnification under
applicable law and the Company’s articles and bylaws for
claims brought against him arising out of his service as an officer
of the Company and its subsidiaries and affiliates, he is otherwise
giving up any and all rights and benefits of
employment.
4.
Tax Withholding . The Company shall withhold from any
payment or benefit under Section 2 of this Agreement any and all
withholding taxes it believes are required by applicable law, and
to otherwise take all actions it believes necessary to satisfy it
obligations to pay such withholding taxes. With regard to
payments and benefits provided under Section 2 of this Agreement
and subject to the foregoing sentence, the Company will not
withhold any state or federal FICA or other withholding taxes,
social security taxes, Medicare taxes, disability or other
insurance payments or any other taxes, assessments or payments
(collectively, “Employment Taxes”). To the extent
applicable, the Company will issue to Flegel an Internal Revenue
Service Form 1099 at the time, in the manner and containing the
information required by the Internal Revenue Code of 1985, as
amended (the “Code”). To the extent not withheld,
Flegel shall be solely responsible for the payment of any and all
Employment Taxes and any other taxes, assessments or payments owed
in connection with its receipt of compensation paid by Company
hereunder.
5.
Release by Flegel .
a.
General Release . In exchange for the payments and benefits
provided in this Agreement, Flegel does hereby settle, waive,
release and forever discharge the Company, its parent, subsidiary
and affiliate corporations, and each of their respective past and
present parents, subsidiaries, affiliates, associates, owners,
members, stockholders, predecessors, successo
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