THIS EMPLOYMENT AGREEMENT (“Agreement”) is made, entered into and is effective this October 17, 2006 (“Effective Date”) by and between CarMax, Inc., a Virginia corporation, and its affiliated companies (collectively, the “Company”), and Thomas J. Folliard (the “Executive”).
WHEREAS, the Company recognizes the Executive’s intimate knowledge and experience in the business of the Company, and has appointed the Executive as its President and Chief Executive Officer (“CEO”);
WHEREAS, the Executive will develop and come in contact with the Company’s proprietary and confidential information that is not readily available to the public, and that is of great importance to the Company and that is treated by the Company as secret and confidential information;
WHEREAS, the Company and the Executive desire to agree upon the terms, conditions, compensation and benefits of the Executive’s future employment;
WHEREAS, upon execution of this Agreement, any prior employment agreement between the Executive and the Company, whether oral or written, will have no force and effect with respect to the terms and conditions of Executive’s employment and will be replaced and superseded by the terms of this Agreement; and
WHEREAS, pursuant to the Executive’s appointment as the Company’s President and CEO, the Company has granted the Executive an award of options to purchase 100,000 shares of Company common stock pursuant to the Company’s 2002 Stock Incentive Plan, as amended and restated;
NOW, THEREFORE, in consideration of the Executive’s appointment as the Company’s President and CEO, and the award of options, and of the premises, mutual covenants and agreements of the parties set forth in this Agreement, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows:
Article 1. Term
1.1 Initial Term. The Company hereby agrees to employ the Executive and the Executive hereby accepts employment as President and CEO of the Company, in accordance with the terms and conditions set forth herein, for an initial period of two (2) years, commencing as of the Effective Date of this Agreement (“Initial Term”); subject, however, to earlier termination as expressly provided herein.
1.2 Renewal Periods. The Initial Term will automatically be extended for an additional period of one (1) year at the end of the Initial Term, and then again each successive year thereafter (collectively, the “Renewal Period(s),” which, together with the Initial Term, constitute the “Term” of this Agreement); subject, however, to earlier termination as expressly provided herein.
1.3 Expiration of Term. The Term of this Agreement will not be extended if either party gives notice of non-renewal, delivered at least ninety (90) days before the end of the Initial Term or any Renewal Period, as the case may be. If the Executive’s employment continues beyond the expiration of the Term of this Agreement, such employment shall be at-will.
Article 2. Position and Responsibilities
During the Term, the Executive agrees to serve as President and CEO of the Company. In his capacity as President and CEO of the Company, the Executive shall report directly to the Board of Directors of the Company (“Board”) and shall have the duties and responsibilities of President and CEO of the Company and such other duties and responsibilities not inconsistent with the performance of his duties as President and CEO of the Company. As soon as may be practicable, the Executive shall be appointed as a member of the Board. The Executive’s principal work location shall be the corporate headquarters of the Company located in the Richmond, Virginia metropolitan area.
Article 3. Standard of Care
3.1 General. During the Term, the Executive shall devote his full business time, attention, knowledge and skills to the Company’s business and interests. The Executive covenants, warrants, and represents that he shall:
||Devote his best efforts and talents to the performance of his employment obligations and duties for the Company;|
||Exercise the highest degree of loyalty and the highest standards of conduct in the performance of his duties;|
||Observe and conform to the Company’s bylaws and other rules, regulations, and policies established or issued by the Company; and|
||Refrain from taking advantage, for himself or others, of any corporate opportunities of the Company.|
3.2 Forfeiture and Return of Incentive Compensation. It is the Company’s expectation that the Executive will discharge his duties hereunder with utmost attention to the standards set forth in Section 3.1. In the event the Board determines that the Executive has engaged in conduct constituting Cause (as defined in Section 7.6(a)), which conduct directly results in the filing of a restatement of any financial statement previously filed with the Securities and Exchange Commission (or other governmental agency) under the Federal securities laws, the Executive shall immediately (a) forfeit all unpaid Affected Compensation (as defined below) and (b) upon demand by the Company repay to the Company all Affected Compensation received or realized by the Executive together with interest at the prime rate in effect from time to time as reported in The Wall Street Journal; provided, however, that the forfeiture and repayment provisions of this Section 3.2 shall not apply to conduct constituting “gross negligence” under Section 7.6(a)(ii) or to conduct under Section 7.6(a)(iii), Section 7.6(a)(vii) or Section 7.6(a)(viii). “Affected Compensation” means any payment to the Executive, any award or vesting of any equity or other short-term or long-term incentive compensation to the Executive, or any before-tax proceeds of a sale of previously awarded equity compensation realized by the Executive, in any instance in which (i) the payment, award or vesting of the foregoing was expressly conditioned upon the achievement of certain financial results that were subsequently the subject of such restatement, and (ii) a lesser amount of payment, award or vesting or before-tax proceeds of a sale of any of the foregoing would have been made to, vested in or otherwise earned or realized by, the Executive based upon such restated financial results.
Article 4. Other Activities
During the Term, the Executive shall comply with the provisions of Article 8 herein. Furthermore, during his employment, the Executive agrees to obtain the Board’s written consent before entering into any other occupation, even if dissimilar to that of the Company, including, without limitation, service as a member of a board of directors of one or more other companies. Such consent may be granted or withheld, in the Board’s sole discretion. The Executive may participate on charitable and civic boards, and in educational, professional, community and industry affairs, without Board consent, provided that such participation does not interfere with the performance of his duties.
Article 5. Compensation and Benefits
As remuneration for all services to be rendered by the Executive during the Term, and as consideration for complying with the covenants herein during and after the termination or expiration of the Term, the Company shall pay and provide to the Executive the following compensation and benefits:
5.1 Base Salary. During the Term, the Company shall pay the Executive a base salary (“Base Salary”) in an amount established and approved by the Compensation and Personnel Committee of the Board (“Compensation Committee”); provided, however, that such Base Salary shall be established at a rate of not less than $700,000 per year, except as otherwise provided in this Section 5.1 below. This Base Salary shall be subject to all appropriate federal and state withholding taxes and payable in accordance with the normal payroll practices of the Company. The Compensation Committee shall review and adjust the Base Salary as it deems appropriate at least annually during the Term; provided, however, that the Executive’s Base Salary shall not be decreased without the Executive’s written consent, other than across-the-board reductions applicable to all senior officers of the Company. If adjusted, the Base Salary shall be so adjusted for all purposes of this Agreement.
5.2 Annual Bonus. In addition to his Base Salary, the Executive shall be entitled to participate in the Company’s Annual Performance-Based Bonus Plan (“Annual Bonus Plan”), as such Annual Bonus Plan may exist from time to time during the Term. Under the Company’s Annual Bonus Plan, the Executive has the opportunity to earn an annual bonus with respect to any fiscal year of the Company (“Annual Bonus”). The Annual Bonus will be determined by a formula approved each fiscal year by the Compensation Committee (the “Annual Bonus Formula”) in its sole discretion. At the beginning of each fiscal year, the Compensation Committee will authorize, in accordance with the Annual Bonus Plan, the Executive’s Annual Bonus for that fiscal year, which shall be targeted at one hundred percent (100%) of the Executive’s Base Salary for that fiscal year (“Target Bonus Rate”). The specified Target Bonus Rate may be increased from time to time by the Compensation Committee but shall not be decreased without the Executive’s written consent. Depending upon the actual financial performance recorded by the Company for any given fiscal year, the Executive’s Annual Bonus may be increased or decreased solely in accordance with the Annual Bonus Formula and otherwise in accordance with the Annual Bonus Plan.
5.3 Long-Term Incentives. During the Term, the Executive shall be eligible to participate in the Company’s 2002 Stock Incentive Plan, as amended and restated (or any successor incentive plan thereto), to the extent that the Compensation Committee, in its sole discretion, determines is appropriate. The Compensation Committee will make its determination consistent with the methodology used by the Company for compensating the Executive’s peer executives. Additionally, the Executive shall be entitled to participate in all other incentive plans, whether equity-based or cash-based, applicable generally to his peer executives within the Company.
5.4 Retirement and Deferred Compensation Plans. During the Term, the Executive shall be entitled to participate in all tax-qualified and nonqualified retirement and deferred compensation plans, policies and programs applicable generally to his peer executives within the Company, subject to the eligibility and participation requirements of such plans, policies and programs.
5.5 Welfare Benefit Plans. During the Term, the Executive and the Executive’s family will be entitled to participate in all welfare benefit plans, policies and programs, including those defined under Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended, provided by the Company to his peer executives within the Company, subject to the eligibility requirements and other provisions of such plans, policies and programs.
5.6 Fringe Benefits. During the Term, the Executive will be entitled to fringe benefits in accordance with the plans, policies and programs of the Company in effect for his peer executives within the Company.
5.7 Vacation. During the Term, the Executive will be entitled to participate in the Company’s Time Away paid time off program for salaried employees (or successor paid time off program) as that program is administered by the Company and as it may be amended or modified from time to time; provided, in all events, the Executive will be entitled to not less than 30 days of paid vacation each fiscal year.