Employment Agreement - Pyramid Breweries Inc. and Martin Kelly
EMPLOYMENT AGREEMENT AND FIRST AMENDMENT BETWEEN THE REGISTRANT AND MARTIN KELLY
This agreement is dated and made effective the 9th day of August, 1999 (the
"Effective Date") between Martin Kelly ("Executive") and Pyramid Breweries Inc.,
a Washington Corporation ("Company").
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1. Employment. Company employs Executive and Executive accepts employment on
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the terms and conditions in this agreement.
2. Duties. Executive is employed in the capacity of President and Chief
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Operating Officer. In this capacity, Executive shall have primary
responsibility for the planning and execution of all brewing, retailing,
sales and marketing operations. Executive shall report directly to, and
take direction from, the Company's Chief Executive Officer. Executive shall
perform the duties customarily performed by a president and chief operating
officer, provided that Executive's precise duties may be changed, extended
or curtailed, from time to time, at the Chief Executive Officer's
direction, and Executive shall assume and perform the further reasonable
responsibilities and duties so assigned from time to time.
3. Intensity of Effort; Other Business. Executive shall devote his entire
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working time, attention, and efforts to Company's business and affairs,
shall faithfully and diligently serve Company's interests and shall not
engage in any business or employment activity that is not on Company's
behalf (whether or not pursued for gain or profit) except for (a)
activities approved in writing in advance by the Board and (b) passive
investments that do not involve Executive providing any advice or services
to the businesses in which the investments are made.
4. Term. The term of this agreement is of indefinite duration. As stated in
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paragraph 9 below, this agreement and Executive's employment relationship
may be terminated at any time, with or without cause.
5. Compensation. Executive's compensation shall be as follows:
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(a) Executive's salary shall be $7,423.00 payable every two weeks (equal
to $193,000 on an annualized basis). Payday is the Friday following
each two-week period. Beginning in the year 2001, Executive's salary
shall be reviewed on January 1st each year and increased as determined
in the Chief Executive Officer's sole discretion.
(b) Executive will be eligible to receive a personal performance bonus
each year of up to an additional $30,000 as determined by the Chief
Executive Officer based upon performance criteria established in the
Quarterly Bonus Program at his discretion. Executive is eligible for
the personal performance bonus for any quarter only if Executive
remains employed by Company at least through the last day of each
quarter. If Executive's employment ends prior to the last day of a
quarter, Executive will be ineligible for any portion of the remaining
personal performance bonus for that year, save that if the Company
shall terminate employment without cause, Executive shall be eligible
for a pro-rata portion of that quarter's personal performance bonus.
The personal performance bonus, if any, shall be paid on or before the
end of the following quarter.
(c) Executive will also be eligible to receive a corporate bonus each year
of up to an additional $20,000 as determined by the Board of Directors
Compensation Committee's review of the Company's performance in the
past year compared to the budget plan for that year. If Executive's
employment ends prior to December 31, Executive will be ineligible for
any portion of the corporate performance bonus for that year. The
corporate performance bonus, if any, shall be paid on or before April
15 of the following year.
(d) Executive shall be eligible for stock options and/or other incentive
compensation only as stated in Non-Qualified Stock Option Agreements
between the Company and Executive.
(e) Executive shall receive a car allowance of $300 per month, plus
reimbursement for gas purchased by employee for business use.
6. Benefit Plans. Executive (and qualifying immediate family members where
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applicable) shall be eligible to participate in the Company's Employee
Benefit Package offered generally to employees, which currently includes
health insurance through Blue Cross of Washington, life and AD&D insurance,
fifty percent (50%) Company-payment of vision and dental, maternity leave,
health insurance continuation, sick leave, paid vacation, holidays, and
401(k). The exact terms and
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conditions of the Company's benefits, including eligibility are governed by
the benefit plans, not this agreement or any summary provided to Executive.
7. Vacation and Sick Leave. Executive shall be entitled to four weeks (20
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days) of paid vacation and five days of paid sick leave per calendar year
(prorated if this agreement begins and/or ends in the middle of a calendar
year). Up to three weeks (15 days) of vacation not used in any calendar
year may be carried over into the next calendar year; otherwise unused
vacation is forfeited at the end of the calendar year. Upon termination of
employment for any reason, Executive shall be paid for earned but unused
vacation. Sick leave may be accumulated up to a maximum of twenty (20)
days. Unused sick leave is not paid upon termination of employment,
regardless of the reason.
8. Business Expenses. Executive is authorized to incur reasonable travel and
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entertainment expenses to promote Company's business. Company shall
reimburse Executive for those expenses. Executive shall provide to Company
the itemized expense account information that Company reasonably requests.
9. Termination. Executive's employment may be terminated as follows; in which
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event Executive's compensation and benefits shall terminate except as
otherwise provided below:
(a) Without Cause or Good Reason. Either party may terminate Executive's
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employment at any time by giving fourteen (14) calendar days' advance
written notice of termination to the other without the necessity of
cause or good reason.
(b) By Company for Cause. Company may terminate Executive's employment
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for cause, without advance written notice of termination, by giving
written notice of such termination. Any termination of Executive's
employment for cause must be approved by a majority of the Board other
than Executive. Executive must be given reasonable advance notice of
the meeting at which his or her termination is to be considered, and a
reasonable opportunity to address the Board. For purposes of this
agreement "cause" means and is limited to dishonesty, fraud,
commission of a felony or of a crime involving moral turpitude,
harassment or illegal discrimination of any nature, including sexual
harassment, destruction, theft, or unauthorized use or distribution of
Company property or confidential information, fighting with an
employee or customer or vendor, intoxication at work, use of alcohol
to an extent that it impairs Executive's performance of his or her
duties, use of illegal drugs at any time, malfeasance or gross
negligence in the performance of Executive's duties, violation of law
in the course of employment, Executive's failure or refusal to perform
his or her duties, Executive's failure or refusal to follow reasonable
instructions or directions, misconduct, or any material beach of
Executive's duties or obligations to Company.
(c) Death. Executive's employment shall terminate automatically upon
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Executive's death.
(d) Permanent Disability. Company may terminate Executive's employment
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immediately if Executive becomes permanently disabled. For purposes of
this agreement Executive will be considered "permanently disabled" if,
for a continuous period of twenty-four (24) weeks or more, Executive
has been unable to perform the essential functions of the job because
one or more mental or physical illnesses and/or disabilities, provided
that Company may grant Executive unpaid leave if and to the extent
that, in Company's judgment, doing so is required by law.
10. Termination Payments.
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(a) Termination Without Cause.
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(i) If Company terminates Executive's employment when neither
cause nor permanent disability exists, Company shall pay
Executive, as liquidated damages and in lieu of all other
remedies to which Executive might be entitled arising out of the
termination, termination payments equal to six month's salary
plus a pro rata share of any personal performance bonus for
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which Executive is eligible in the year of termination. For the
same six-month period, Company shall continue to provide at the
Company's cost, the Company's medical benefits to employee and
qualifying family members. Such liquidated damages shall be paid
only if Executive executes a full and final general release of
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all claims against Company (including Company's officers,
directors, agents, employees and assigns) arising out of
Executive's employment relationship with Company.
(ii) In addition, if Company terminates Executive's employment
when neither cause nor permanent disability exists, but Company
gives Executive less than the fourteen (14) days' advance written
notice called for above, Company shall pay Executive, as
liquidated damages and in lieu of all other remedies to which
Executive might be entitled arising out of Company's failure to
give fourteen (14) days' advance written notice, termination
payments equal to the additional salary Executive would have
received if Company had given Executive fourteen (14) days'
advance written notice of termination.
(iii) Termination payments shall be paid out at Executive's normal
payroll rate on regular payroll days subject to normal payroll
deductions, commencing first with the termination payments called
for by subpart (ii), if any, followed by the termination payments
called for by subpart (i). Any reimbursable expenses incurred
prior to termination will be paid immediately upon termination.
(b) All Other Terminations. In all cases of termination or expiration of
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this agreement or of Executive's employment (including, but not
limited to, a termination of Executive by Company for cause of
Executive's resignation of employment), Executive's compensation and
benefits shall terminate on the date the employment ends and Executive
shall not be entitled to any termination payments or damages.
11. Confidentiality/Unfair Competition. Executive agrees that Company has many
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substantial, legitimate business interests that can be protected only by
Executive agreeing not to compete with Company unfairly. These interests
include, without limitation, Company's contacts and relationships with its
supply sources, Company's reputation and goodwill in the industry, and
Company's rights in its confidential information. Executive agrees that
information not generally known to the public to which Executive has been
or will be exposed as a result of Executive's employment by Company is
confidential information that belongs to Company. This includes information
developed by Executive, alone or with others, or entrusted to Company by
its supply sources, customers or others. Company's confidential information
includes, without limitation, information relating to Company's trade
secrets, know-how, procedures, pricing, products, services, purchasing,
accounting, marketing, sales, supply sources, employees, and customers and
active prospects and their related needs. Executive will hold Company's
confidential information in strict confidence and will not disclose or use
it except as authorized by Company and for Company's benefit. Executive
also will not disparage Company or its business or services. Executive will
not, apart from good faith competition, interfere with Company's
relationships with its clients, employees, vendors, bankers or others.
12. Possession of Materials. Executive agrees that upon conclusion of
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employment or request by Company, Executive shall turn over to Company all
documents, files, office supplies and any other material or work product in
Executive's possession or control that were created pursuant to or derived
from Executive's services for Company.
13. Nonraiding of Employees. Executive recognizes that Company's workforce is
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a vital part of its business. Therefore, Executive agrees that for twelve
(12) months after Executive's employment with Company ends, regardless of
the reason it ends, Executive will not solicit, directly or indirectly, any
employee to leave his or her employment with Company. For purposes of this
agreement, the phrase "shall not
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solicit, directly or indirectly," includes, without limitation, that
Executive (a) shall not identify any Company employees to any third party
as potential candidates for employment, such as by disclosing the names,
backgrounds and qualifications of any Company employees; (b) shall not
personally or through any other person approach, recruit or otherwise
solicit employees of Company to work for any other employer; and (c) shall
not participate in any pre-employment interviews with any person who was
employed by Company while Executive was employed or retained by Company.
14. Dispute Resolution. Company and Executive agree to resolve all disputes
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arising out of their employment relationship by the following alternate
dispute resolution process: (a) Company and Executive agree to seek a fair
and prompt negotiated resolution; but if this is not successful, (b) all
disputes shall be resolved by binding arbitration; provided that during
this process, (c) at the request of either party, not made later than
seventy-five (75) days after the initial arbitration demand, the parties
agree to attempt to resolve any dispute by non-binding third-party
intervention including either mediation or evaluation or both (but without
delaying the arbitration hearing date). By entering into this contract,
both parties give up their right to have the dispute decided in court by a
judge or jury. The provisions of the Washington arbitration statute,
Chapter 7.04 RCW, are incorporated herein to the extent not inconsistent
with the other terms of this agreement.
(a) Binding Arbitration. Any controversy or claim arising out of or
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connected with Executive's employment at Company, including but not
limited to claims for compensation or severance and claims of wrongful
termination, age, sex, racial or other discrimination, or civil rights
violations shall be determined by arbitration commenced in accordance
with RCW 7.04.060, provided that the total award by a single
arbitrator (as opposed to a majority of three arbitrators) shall not
exceed Two Hundred Fifty Thousand Dollars ($250,000). If either party
asserts in good faith that it is entitled to an award over Two Hundred
Fifty Thousand Dollars ($250,000), there shall be three (3)
arbitrators. The location of the arbitration shall be Seattle,
Washington, or such other city to which the parties may agree. If
Company and Executive cannot agree on the arbitrator(s), then the
arbitrator(s) shall be selected by the administrator of the American
Arbitration Association (AAA) office nearest the city where the
arbitration is to be conducted. Each arbitrator shall be an attorney
with at least 15 years' experience in commercial law or judicial
arbitration experience. All statutes of limitations, which would
otherwise be applicable, shall apply to any arbitration proceeding
hereunder. Any issue about whether a controversy or claim is covered
by this agreement shall be determined by the arbitrator(s).
(b) Procedures. The arbitration shall be conducted in accordance with
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this agreement using as appropriate the AAA Employment Dispute
Resolution Rules in effect on the date hereof. There shall be no
discovery or dispositive motion practice (such as motions for summary
judgment or to dismiss or the like) except that the arbitrator(s)
shall authorize such discovery as may be shown to be necessary to
ensure a fair hearing, and no such discovery shall extend the time
limits contained herein. The arbitrator(s) shall not be bound by the
rules of evidence or of civil procedure, but rather may consider such
writings and oral presentations as reasonable business people would
use in the conduct of their day-to-day affairs, and may require both
parties to submit some or all of their respective cases by written
declaration or such other manner of presentation as the arbitrator(s)
may determine to be appropriate. The par-ties agree to limit live
testimony and cross-examination to the extent necessary to ensure a
fair hearing on material issues.
(c) Hearing; Law; Appeal Limited. The arbitrator(s) shall take such steps
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as may be necessary to hold a private hearing within one hundred
twenty (120) days of the initial request for arbitration and to
conclude the hearing within two (2) days; and the arbitrator(s)'s
written decision shall be made not later than fourteen (14) calendar
days after the hearing. The parties agree that they have included
these
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time limits in order to expedite the proceeding, but they are not
jurisdictional, and the arbitrator(s) may for good cause allow
reasonable extensions or delays, which shall not affect the validity
of the award. The written decision shall contain a brief statement of
the claim(s) determined and the award made on each claim. In making
the decision and award the arbitrator(s) shall apply applicable
substantive law. Absent fraud, collusion or willful misconduct by an
arbitrator, the award shall be final and judgment may be entered in
any court having jurisdiction thereof. The arbitrator(s) may award
injunctive relief or any other remedy available from a judge,
including the joinder of parties or consolidation of this arbitration
with any other involving common issues of law or fact or which may
promote judicial economy, and may award attorneys' fees and costs to
the prevailing party, but shall not have the power to award attorneys'
fees and costs to the prevailing party, but shall not have the power
to award punitive or exemplary damages. The decision and award of the
arbitrators need not be unanimous; rather, the decision and award of
two (2) arbitrators shall be final.
(d) Injunctive Relief. In the case of a breach of any of Executive's
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obligations to Company, Company may request a court of competent
jurisdiction to issue such temporary or interim relief (including
temporary restraining orders and preliminary injunctions as may be
appropriate, either before arbitration is commenced or pending the
outcome of arbitration. No such request shall be a waiver of the right
to submit any claim or controversy to arbitration. Any issues of law
or fact, which arise in connection with such request, shall, at
Company's election, be determined by arbitration in accordance with
subparagraph (a) through (c) above,
15. Attorneys' Fees; Venue and Jurisdiction. In any lawsuit or arbitration
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arising out of or relating to this agreement or Executive's employment,
including without limitation arising from any alleged tort or statutory
violation, the prevailing party shall recover reasonable costs and
attorneys' fees, including on appeal. Venue and jurisdiction of any lawsuit
involving this agreement or Executive's employment shall exist exclusively
in state and federal courts in King County, Washington, unless injunctive
relief is sought by Company and, in Company's judgment, that relief might
not be effective unless obtained in some other venue. The provisions of
this Section are subject to and do not supersede the dispute resolution
provisions described above.
16. Governing Law. This agreement shall be governed by the internal laws of
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the state of Washington without giving effect to provisions thereof related
to choice of laws or conflict of laws.
17. Saving Provision. If any part of this agreement is held to be
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unenforceable, it shall not affect any other part. If any part of this
agreement is held to be unenforceable as written, it shall be enforced to
the maximum extent allowed by applicable law. The confidentiality,
possession of materials, non-competition and nonraiding provisions of this
agreement shall survive after Executive's employment by Company ends,
regardless of the reason it ends, and shall be enforceable regardless of
any claim Executive may have against Company.
18. Waiver. No waiver of any provision of this agreement shall be valid unless
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in writing, signed by the party against whom the waiver is sought to be
enforced. The waiver of any breach of this agreement or failure to enforce
any provision of this agreement shall not waive any later breach.
19. Assignment; Successors. Company may assign its rights and delegate its
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duties under this agreement. Executive may not assign his or her rights or
delegate his or her duties under this agreement.
20. Binding Effect. This agreement is binding upon the parties and their
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personal representatives, heirs, successors and assigns.
21. Counterparts. This agreement may be executed in any number of
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counterparts, each of which shall be an original and all of which, taken
together, shall constitute a single agreement.
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22. Complete Agreement. This agreement, together with the Employee Stock
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Option Agreement dated August 9, 1999, and the offer letter to
Executive dated June 18, 1999, is the final and complete expression of
the parties' agreement relating to Executive's employment. Only a
writing signed by both parties may amend this agreement; it may not be
amended orally or by course of dealing. The parties are not entering
into this agreement relying on anything not set out in this agreement.
This agreement shall control over any contrary policies or procedures
of Company, whether in effect now or adopted later. Company's policies
and procedures that do not conflict with this agreement, whether in
effect now or adopted later, shall apply or not apply to Executive as
determined by Company in its discretion.
DATED as of the date first written above.
EXECUTIVE: /s/ Martin Kelly
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COMPANY: PYRAMID BREWERIES INC.
By /s/ GEORGE HANCOCK
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Its: Chief Executive Officer
<PAGE>
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
BETWEEN MARTIN KELLY AND PYRAMID BREWERIES INC.
2. Modification. Pursuant to paragraph 22 of the Employment Agreement dated
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August 9, 1999, (the "Original Agreement") between Pyramid Breweries Inc.,
a Washington corporation ("Company"), and Martin Kelly ("Executive")
requiring a writing signed by both parties to amend the Original Agreement,
effective this 16th day of February, 2000 (the "Effective Date"), Executive
and Company hereby agree to rescind in its entirety paragraph 5 of the
Original Agreement and replace the same with the following:
"5. Compensation. Executive's compensation will be as follows:
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(a) Salary. From December 9, 1999 through December 31, 2000, Company will
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pay Executive a base salary in the gross amount of $8,076.92, less
authorized and required deductions, payable every two weeks (equal to
the gross amount of $210,000.00 on an annualized basis). Payday is the
Friday following each two-week period. Beginning in the year 2001,
Executive's salary will be reviewed January 1st each year and adjusted
as determined in the sole discretion of the Chairman of the Board of
Directors ("Chairman") and the Board of Directors Compensation
Committee ("Compensation Committee").
(b) Stock Options. Company grants Executive the option to purchase 50,000
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shares of Company at a price equal to the average closing price of all
trading days from December 16, 1999, to December 31, 1999, in
accordance with the terms and conditions of the Fast Forward Program
and the Parties' January 3, 2000 Non-Qualified Stock Option Agreement,
copies of each of which are attached hereto and incorporated herein by
reference.
(c) Year 2000 Incentive Compensation.
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(1) Annual EBITDA Bonuses. If, during the period January 1, 2000
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through December 31, 2000, Executive achieves Company's Earnings
Before Interest Taxes Depreciation and Amortization ("EBITDA")
goal set forth in Company's Year 2000 Business Plan (the "Plan"),
a copy of which is attached hereto and incorporated herein by
reference, Company will pay Executive a one-time, lump sum EBITDA
Bonus in the gross amount of $25,000.00, less authorized and
required deductions. Further, if, during the same period, the
actual EBITDA results exceed Company's EBITDA budget by at least
10%, Company will pay Executive an additional one-time, lump sum
EBITDA Bonus in the gross amount of $21,000.00 (10% of base
salary), less authorized and required deductions. Further,
Company will pay Executive an additional lump sum EBITDA Bonus in
the gross amount of $2,100, less authorized and required
deductions, for each additional one percent (I%) that the actual
EBITDA results exceed Company's EBITDA budget during the same
period by greater than ten percent (10%).
(2) Annual Consolidated Net Sales Bonus. If, during the period
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January 1, 2000 through December 31, 2000, Executive achieves
Company's Consolidated Net Sales goal set forth in the Plan,
Company will pay Executive a one-time, lump sum Consolidated Net
Sales Bonus in the gross amount of $12,500.00, less authorized
and required deductions.
(3) Quarterly Project Bonuses.
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(i) First Quarter. If, prior to the end of the first
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quarter of 2000, Executive performs, and presents to the
Board of Directors ("Board") in a form to be determined by
the Chairman and the Compensation Committee, a strategic
analysis with recommendations exploring and evaluating
whether Company's Alehouse Division should expand to
additional markets to support deeper penetration by
Company's core beer and soda business, Company will pay
Executive a one-time, lump sum Project Bonus in the gross
amount of $6,250.00, less authorized and required
deductions.
(ii) Second Quarter. If, prior to the end of the second
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quarter of 2000, Executive performs, and presents to the
Board in a form to be determined by the Chairman and the
Compensation Committee, a strategic analysis with
recommendations exploring and evaluating whether new beer
and soda brand acquisitions will expand Company's current
revenue and profit base at a faster rate than organic growth
alone, Company will pay Executive a one-time, lump sum
Project Bonus in the gross amount of $6,250.00, less
authorized and required deductions.
(4) Eligibility and Payment. If Executive's employment ends prior to
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December 31, 2000, in the event of any annual bonus, or the last
day of the quarter in the event of any quarterly bonus,
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Executive will be ineligible for any portion of that bonus;
provided, however, that if Company terminates Executive's
employment without cause, Company will pay Executive a pro-rata
share of that bonus. Quarterly bonuses, if any, will be paid on
or before the last day of the following quarter, and annual
bonuses, if any, will be paid on or before April 15, 2001.
(d) Car Allowance. Executive shall receive a car allowance of $300 per
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month in addition to reimbursement for gas purchased by Executive for
business use."
3. Full Effect of Remaining Terms/Complete Agreement. Any and all terms and
conditions contained in the Original Agreement, other than those contained
in paragraph 5 and with the exception of paragraph 10 (a)(i) which is to be
amended to "termination payments and medical benefits equal to one year's
salary" (increased from six months), are unchanged by this Amendment and
remain in full effect. This Agreement, together with the Original Agreement
and exhibits attached hereto and incorporated herein by reference, is the
final and complete expression of the parties' amendment to the Original
Agreement.
DATED as of the Effective Date first written above.
EXECUTIVE: /s/ Martin Kelly
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COMPANY: PYRAMID BREWERIES INC.
By /s/ GEORGE HANCOCK
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Its: Chief Executive Officer