8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of report (Date of earliest event reported): December 16, 2005

EXCELLIGENCE LEARNING CORPORATION

(Exact Name of registrant as specified in its charter)

Delaware	0-32613	77-0559897
(State of other jurisdiction of Incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

2 Lower Ragsdale Drive, Monterey, California 93940

(Address of principal executive offices) (Zip Code)

(831) 333-2000

(Registrant’s telephone number, including area code)

N/A

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01.  Entry Into a Material Definitive Agreement.

On December 16, 2005, Excelligence Learning Corporation (the “Company” or the “Registrant”) entered into a new employment agreement with Judith McGuinn to serve as the Registrant’s Executive Vice President and Chief Operating Officer from January 1, 2006 through December 31, 2008. Under the employment agreement, Ms. McGuinn is entitled to receive an annual base salary of $225,000.

Pursuant to the agreement, the Company may terminate Ms. McGuinn at any time for “cause.” Under the agreement, “cause” means (a) misappropriation of any material funds or property of the Company or of any of its related companies; (b) unjustifiable neglect of duties under the agreement; (c) conviction of a felony involving moral turpitude; (d) gross misconduct and/or the failure to act in good faith to the material detriment of the Company; or (e) willful and bad faith failure to obey reasonable and material orders given by the Company. The breach, misconduct or failure under clauses (b), (d) and (e) is subject to a cure period of three business days. Upon termination for “cause,” Ms. McGuinn is entitled to payment of her salary earned and benefits accrued as of the date of the termination.

The agreement is also terminable by the Company in the case of Ms. McGuinn’s death or disability for three consecutive full calendar months, or for 80% or more of the normal working days during six consecutive full calendar months. Upon termination for death or disability, the Company must pay Ms. McGuinn or her estate, as applicable, the specified compensation earned and benefits accrued by her at the time of such termination.

If, during the term of the agreement, Ms. McGuinn’s position is eliminated for any reason and/or (a) her title is lowered; (b) her place of business is relocated at least 30 miles from the Company’s headquarters on the effective date of the agreement; or (c) any reason other than for “cause” (as defined in the agreement), her death or her disability, the Company must pay her base salary in effect at the time of termination through December 31, 2008. In addition, if Ms. McGuinn is terminated within two years after a change of control, she will be entitled to a severance payment equal to 200% of her annual base salary under this Agreement, paid in four equal quarterly installments during the year following her date of termination. Under either of these circumstances, Ms. McGuinn will have no obligation to mitigate her lost compensation and the Company will reimburse her for insurance premiums incurred as a result of the continuation of her benefits coverage required by COBRA.

The foregoing description of the material terms of Ms. McGuinn’s employment is qualified in its entirety by reference to the provisions of the employment agreement between her and the Registrant, a copy of which is attached hereto as Exhibit 10.1.

Item 9.01.  Financial Statements and Exhibits.

(c) Exhibits:

10.1 Employment Agreement, dated as of December 16, 2005 and effective as of January 1, 2006, by and between the Registrant and Judith McGuinn.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: December 20, 2005

EXCELLIGENCE LEARNING CORPORATION
By:	/s/ Ronald Elliott
	Name:	Ronald Elliott
	Title:	Chief Executive Officer

EX-10.1

Exhibit 10.1

EMPLOYMENT AGREEMENT

This employment agreement (this “Agreement”) is effective January 1, 2006, between Excelligence Learning Corporation (“Employer”) and Judith McGuinn (“Employee”).

WHEREAS, Employer desires the services of Employee in order to retain Employee’s experience, abilities, and knowledge, and is therefore willing to engage her services on the terms and conditions set forth herein; and

WHEREAS, Employee desires to be employed by Employer and is willing to do so on the terms and conditions set forth herein.

NOW THEREFORE, in consideration of the above recitals and of the mutual promises and conditions set forth in this Agreement, it is agreed as follows:

1. Duration: Subject to earlier termination as provided in this Agreement, Employee shall be employed for a term beginning January 1, 2006, and continuing through December 31, 2008. If Employer intends to employ Employee after the termination of this Agreement, the parties will meet at least sixty (60) days prior to the expiration of this Agreement to make a good faith attempt to negotiate a new agreement.

2. Place of Employment: Unless the parties agree otherwise in writing, during the employment term, Employee shall perform the services Employee is required to perform under this Agreement at Employer’s headquarters (which are currently located at 2 Lower Ragsdale Drive, Suite 200, Monterey, California, 93940); provided, however, that Employer may from time to time require Employee to travel temporarily to other locations on Employer’s business.

3. Duties and Authority: Employer shall employ Employee as Executive Vice President and Chief Operating Officer or in such other capacity or capacities as Employer may from time to time prescribe. Employee shall have the full power and authority to manage and conduct business for the Employer, subject to the directions and policies of Employer as they may be, from time to time, stated either orally or in writing.

4. Reasonable Time and Effort: During Employee’s employment, Employee shall devote such time, interest, and effort to the performance of this Agreement as may be fairly and reasonably necessary. Except with the prior written approval of the Chief Executive Officer, Employee, during the term of this Agreement or any renewal thereof, will not (i) accept any other employment, (ii) serve on the board of directors or similar body of any other business entity, (iii) engage directly or indirectly, in any other business activity (whether or not pursued for pecuniary advantage) that is or may be competitive with, or that might place her in a competing position to, that of Employer or any of its Affiliates. For this purpose, “Affiliate” shall mean any partnership, joint venture, limited liability company or corporation that, directly or indirectly through one or more intermediaries Controls, or is Controlled by, or is under common Control with, Employer. For this purpose, the term “Control” includes, without limitation, the possession, directly or indirectly, of the power to direct the management and policies of a partnership, joint venture, limited liability company or corporation, whether through the ownership of voting securities, by contract or otherwise.

5. Salary: During the term of this Agreement, Employer agrees to pay Employee a base salary of $225,000 per year. The base salary shall be payable as a current salary on a bi-weekly basis. Employer, in its sole discretion, may increase Employee’s base salary or any other benefits but may not decrease Employee’s salary during the term of this Agreement. At Employee’s request, Employee will receive a salary review at or near the end of each twelve (12) month period during the term.

If, during the term of this Agreement, Employee’s employment is terminated for any reason other than due to a Change in Control (as set forth in the next paragraph) and apart from the reasons set forth in Sections 10, 11 or 12 hereof, or if (i) Employee’s title is lowered, or (ii) Employee’s place of business is relocated at least thirty (30) miles from Employer’s headquarters on the effective date of this Agreement, Employer shall continue to pay Employee’s base salary in effect at the time of Employee’s termination of employment through December 31, 2008. In such case, Employee will have no obligation to mitigate her lost compensation. Employer will also reimburse Employee’s insurance premiums incurred as a result of the continuation of Employee’s benefits coverage required by COBRA.

If Employee is terminated within two years after a Change of Control (defined below), and such termination is not for a reason set forth in Sections 10, 11 or 12 hereof, Employee shall be entitled to a severance payment equal to 200% of Employee’s annual base salary under this Agreement, paid in four equal quarterly installments during the year following the Employee’s date of termination In such case, Employee will have no obligation to mitigate her lost compensation. Employer will also reimburse Employee’s insurance premiums incurred as a result of the continuation of Employee’s benefits coverage required by COBRA.

For purposes of this Agreement, “Change in Control” shall mean any of the following events:

a) The acquisition, directly or indirectly, by any “person” or “group” (as those terms are defined in Sections 3(a)(9), 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), of “beneficial ownership” (as determined pursuant to Rule 13d-3 under the Exchange Act) of 40% or more of the combined voting power of Employer’s then outstanding “Voting Securities” (defined as the common stock of Employer, together with any other securities of Employer that are entitled to vote generally in the election of directors of Employer) other than an acquisition by (i) any stockholder of Employer which, on the date hereof, owns more than 30% of the combined voting power of Employer’s outstanding Voting Securities (or any “group” of which any such stockholder is a part), (ii) a subsidiary of Employer or (iii) any employee benefit plan (or any related trust) sponsored or maintained by Employer or a subsidiary of Employer;

b) Individuals who, as of the effective date of this Agreement, constitute the Board of Directors of Employer (the “Incumbent Board”) cease for any reason to constitute a majority of the members of the Board; provided, however, that any individual who becomes a director after the effective date of this Agreement whose election, or nomination for election by Employer’s stockholders, was approved by a vote of at least a majority of the members of the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any individual whose initial assumption of office occurs as a result of an actual or threatened

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election contest relating to the election or removal of the directors of Employer or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board; or

c) Consummation by Employer of (i) a merger, reorganization, consolidation or similar transaction (any of the foregoing, a “Merger”) in which the beneficial owners of Employer’s Voting Securities immediately before such Merger beneficially own, immediately after such Merger, directly or indirectly, less than 50% of the combined voting power of the Voting Securities of Employer resulting from such Merger or (ii) the sale or other disposition of all or substantially all of the assets of Employer; or

d) Approval by the stockholders of Employer of a plan of liquidation or dissolution of Employer.

Notwithstanding any of the foregoing, a Change in Control shall not have been deemed to occur if, in advance of such event, Employer and Employee agree in writing that such event shall not constitute a Change in Control for purposes of this Agreement.

Whenever compensation is payable to Employee during a time when Employee is partially or totally disabled and such disability would entitle Employee to disability income or to salary continuation payments from Employer according to the terms of any plan now or hereafter provided by Employer or according to any policy of Employer in effect at the time of such disability, Employee shall apply for such disability income or salary continuation, and the compensation payable to Employee under this Agreement shall be inclusive of any such disability income or salary continuation and shall not be in addition to such disability income or salary continuation. If disability income is payable to Employee by an insurance company under an insurance policy paid for by Employer, the compensation payable to Employee under this Agreement shall be inclusive of the amounts paid to Employee by that insurance company and shall not be in addition to the amounts paid to Employee by that insurance company.

6. Additional Benefits: During the employment term, Employee shall be entitled to receive all other benefits of employment generally available to Employer’s other senior managerial employees as she becomes eligible for them, including medical, dental, life and disability insurance benefits, and participation in Employer’s 2001 Amended and Restated Stock Option and Incentive Plan, pension plan, quarterly bonus plan and/or profit-sharing plan.

Employer reserves the right to modify, suspend or discontinue any and all of the above benefit plans, policies and practices at any time without notice to or recourse to Employee so long as such action is taken generally with respect to other similarly situated persons and does not single out Employee.

7. Paid Time Off: Employee shall be entitled to thirty (30) business days of Paid Time Off (“PTO”) each calendar year. PTO will continue to accrue so long as Employee’s total accrued PTO does not exceed thirty-five (35) business days. In the event Employee’s accrued PTO should reach thirty-five (35) business days, Employee will cease to accrue further PTO until Employee’s accrued PTO falls below that level. Other than the accrual and maximum accrual of PTO as set forth in this Section 8, Employee’s PTO shall be governed by the PTO provisions of the Excelligence Learning Corporation Employee Manual.

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8. Expense Reimbursement: During the employment term, to the extent that such expenditures satisfy the criteria under the Internal Revenue Code for deductibility by Employer (whether or not fully deductible) for federal income tax purposes as ordinary and necessary business expenses, Employer shall reimburse Employee promptly for reasonable business expenses, including travel, entertainment, parking, business meetings, and professional dues, made and substantiated in accordance with the policies and procedures established from time to time by Employer with respect to Employer’s other similarly situated employees.

9. Termination: Employer may terminate this Agreement at any time for cause. Under this Agreement, the term “cause” shall mean (i) misappropriation of any material funds or property of Employer or of any of its related companies; (ii) unjustifiable neglect of duties under this Agreement; (iii) conviction of a felony involving moral turpitude; (iv) gross misconduct and/or the failure to act in good faith to the material detriment of Employer, or (v) willful and bad faith failure to obey reasonable and material orders given by Employer; provided that in each such case (other than (i) or (iii)) prompt written notice of such cause is given to Employee specifying in reasonable detail the facts giving rise to the notice and that continuation of such cause will result in termination of employment, and such cause is not cured within three (3) business days after receipt by Employee of such notice. If this Agreement is terminated as set forth in this paragraph, then payment of the specified salary earned and benefits accrued as of the date of the termination shall be payment in full of all compensation payable under this Agreement.

10. Termination Because of Death: In the event that Employee dies during the term of this Agreement, this Agreement shall be terminated on the last day of the calendar month of her death and Employer shall be required to pay to Employee’s estate the specified salary and any additional benefits accrued by Employee through the date of termination.

11. Termination Because of Disability: If, at the end of any calendar month during the initial term or any renewal term of this Agreement, Employee is and has been for the three (3) consecutive full calendar months then ending, or for 80% or more of the normal working days during the six (6) consecutive full calendar months then ending, unable due to mental or physical illness or injury to perform Employee’s duties under this Agreement, Employer shall have the right, subject to applicable federal and state law, to terminate Employee’s employment, and Employer shall only be obligated to pay Employee the specified compensation earned and benefits accrued by Employee through the date of termination.

12. Agreement Survives Combination or Dissolution: This Agreement shall not be terminated by Employer’s voluntary or involuntary dissolution or by any merger in which Employer is not the surviving or resulting corporation, or on any transfer of all or substantially all of Employer’s assets. In the event of any such merger or transfer of assets, the provisions of this Agreement shall be binding on and inure to the benefit of the surviving business entity or the business entity to which such assets shall be transferred.

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13. Notices: All notices that either party is required or may desire to serve upon the other may be served either personally or sent certified mail / return receipt requested or sent by overnight delivery addressed to the other party, or to such other address as either party may provide in writing to the other party, as follows:

To Employer: Ronald Elliott, Excelligence Learning Corporation, 2 Lower Ragsdale Drive, Suite 200, Monterey, California 93940.

To Employee: Judith McGuinn, [Address].

14. Employee Manual: Employee acknowledges that Employee has been provided a copy of the Excelligence Learning Corporation Employee Manual. It is agreed and understood that the Employee Manual represents guidelines that the Company may change from time to time in its sole discretion. It is not intended to be a contract. To the extent that this Agreement conflicts with the Employee Manual, the terms of this Agreement pertain to Employee’s employment.

15. Nondisclosure of Confidential Information or Trade Secrets: In the course of Employee’s employment with Employer, Employee will have access to confidential records and data pertaining to Employer’s customers and its operations. Such information is considered secret and is disclosed to Employee in confidence. Furthermore, all memoranda, notes, records, computer files, and other documents or tangible material made or compiled by Employee, or made available to Employee during the term of this Agreement concerning the business of Employer, shall be the sole property of Employer and shall be delivered to Employer on the expiration or termination of this Agreement, or at another time on request. During Employee’s employment with Employer and thereafter, Employee shall keep in confidence and shall not directly or indirectly disclose any secret or confidential information belonging to Employer or any of its related companies except as required in the course of Employee’s employment by Employer and/or authorized in writing by Employer, or required by law.

16. Governing Law: This Agreement shall be governed by, and construed in accordance with, the laws of the State of California.

17. Waiver: The failure by either party to exercise or enforce any terms or conditions under this Agreement shall not be deemed to be a waiver of that party’s right to exercise or enforce any such term or condition in the future. The waiver by either party of any breach, default, or omission in the performance of any of the terms or conditions of this Agreement by the other party shall not be deemed to be a waiver of any other breach, default, or omission.

18. Severability: If any part of this Agreement is invalidated or rendered unenforceable by any court of competent jurisdiction or by any regulation or legislation to which it is subject, the remaining provisions and that provision found invalid or unenforceable as it may apply to other circumstances, shall remain in full force and effect. In such event, the parties shall promptly negotiate in good faith to amend this Agreement by replacing such stricken provision with a valid and enforceable provision that fulfills the original intention of the invalid or unenforceable provision.

19. Entire Agreement: This Agreement constitutes the entire Agreement of the parties with respect to the subject matter hereof and cancels and supersedes all previous agreements or understandings relating thereto, whether written or oral, between the parties.

20. Arbitration: In the event that there shall be a dispute between the parties arising out of or relating to this Agreement or the breach thereof, other than Section 16 hereof, the parties agree that such dispute shall be resolved by final and binding arbitration before a sole

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arbitrator in Monterey, California administered by the American Arbitration Association (“AAA”) in accordance with AAA’s Labor Arbitration Rules then in effect. Depositions may be taken and other discovery may be obtained during such arbitration proceedings to the same extent as authorized in civil judicial proceedings. Any award issued as a result of such arbitration shall be final and binding between the parties thereto, and shall be enforceable by any court having jurisdiction over the party against whom enforcement is sought. The prevailing party in any legal action (including arbitration) shall be entitled to recover any and all reasonable attorneys’ fees and other costs reasonably incurred in connection therewith.

21. Amendment: This Agreement shall only be amended or waived by a writing that explicitly refers to this Agreement and that is signed by both parties.

22. Execution: The parties, having carefully read this Agreement and having consulted or having been given an opportunity to consult legal counsel, hereby acknowledge their agreement to all of the foregoing terms and conditions by executing this Agreement. Each signatory hereto represents and warrants that it is authorized to sign this Agreement on behalf of the respective party. This Agreement may be executed in any number of counterparts, and each such counterpart shall be an original and together they shall constitute one agreement.

EMPLOYER	EMPLOYEE
/s/ Ronald Elliott	/s/ Judith McGuinn
Ronald Elliott Chief Executive Officer Excelligence Learning Corporation	Judith McGuinn
Date: December 13, 2005	Date: December 16, 2005

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