[Execution Copy]
CONSULTING AGREEMENT
--------------------
CONSULTING AGREEMENT, dated as of December 21, 2001, by and between
DirectPlacement, Inc., a Delaware corporation (the "Company"), having an address
at 0000 Xxxxx Xxxxx, Xxxxx 000, Xxx Xxxxx, Xxxxxxxxxx 00000, and XXXXXXX X.
XXXX, III, an individual residing at 000 Xxxxxx Xxxxx Xxxx, Xxxxxxxx Xxxxx, XX
00000 (the "Consultant").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company desires to retain the services of the Consultant
upon the terms and conditions hereinafter set forth; and
WHEREAS, the Consultant desires to be retained by the Company upon the
terms and conditions hereinafter set forth.
NOW, THEREFORE, the parties mutually agree as follows:
Section 1. Retention; Services. The Company hereby retains Consultant
and the Consultant hereby accepts such engagement, as the Consultant to the
Company, subject to the terms and conditions set forth in this Agreement.
Section 2. Duties; Services; Best Efforts. The Consultant shall
advise, consult and perform consulting services for the Company as are
commensurate with the services provided by the Consultant to the Company's
wholly owned subsidiary, PCS Securities, Inc. ("PCS"), prior to the date hereof,
including, without limitation, advising the Company on appropriate efforts on
behalf of existing clients and accounts, on methods of attracting additional
clients and accounts and planning for changes in the Company's marketplace, as
well as such other services for the Company as agreed upon by the parties. The
Consultant shall be allowed to perform the consulting activities at the location
of the Consultant and shall not be required to perform such services at the
Company's principal office. The Consultant agrees to devote his best efforts,
energies and skill to the discharge of the duties and responsibilities
attributable to his engagement as Consultant, and to this end, he will devote a
sufficient amount of his business time that is necessary and appropriate to
perform the projects and tasks consistent with the terms of this Agreement. The
Consultant shall be free to perform services for other parties. So long as the
Consultant does not breach the terms of this Agreement, the Consultant shall
have the right to choose his own working hours and shall be responsible for
scheduling the order of the tasks and responsibilities assigned to him. The
Consultant may donate his time and efforts to charitable causes so long as such
endeavors do not effect his ability to perform his duties under this Agreement.
Section 3. Term of Agreement. Unless extended in writing by both the
Company and the Consultant, the term of the Consultant's engagement shall be for
a period of five (5) years commencing on January 1, 2002 and terminating on
December 31, 2006, subject to earlier termination by the parties pursuant to
Sections 6 and 7 hereof (the "Term").
2
Section 4. Consulting Fees; Escrowed Funds
-------------------------------
4.1 Fees. (a) The Company shall pay to Consultant an annual
base fee of $1,150,000 through December 31, 2002, payable monthly (as set forth
in paragraph (b) below) and subject to increases in accordance with the terms of
the next sentence of this Section 4.1(a) (the "Base Fee"). Commencing on January
1, 2003 and on each anniversary thereafter, the Base Fee shall be increased, as
follows:
Engagement Year Base Fee
--------------- --------
2003 $1,323,000
2004 $1,521,000
2005 $1,749,000
2006 $2,011,000
(b) Commencing on the date hereof, the Company shall direct
and cause the PCS Clearing Agent (as hereinafter defined) to hold back an amount
equal to the Weekly Fee Requirement (as hereinafter defined) from the weekly
payments made by the PCS Clearing Agent to the Company (or PCS, as the case may
be) prior to making any other payments or distributions from such weekly
payments, which amount shall be placed into an escrow account (the "Base Fee
Escrow Account") until such time that the balance in the Base Fee Escrow Account
equals no less than the Monthly Fee Requirement (as hereinafter defined).
(c) In addition, the Company shall deposit (or cause the PCS
Clearing Agent to deposit) in the Base Fee Escrow Account by no later than March
31, 2002 an additional amount equal to the Monthly Fee Requirement (the
"Rollover Amount"). The Rollover Amount shall remain in the Base Fee Escrow
Account until the earlier of (i) the date on which the Company fails to pay the
Base Fee to the Consultant after the same is due and payable, or (ii) the last
3
day of the Term. To the extent that the Company has failed to pay the Base Fee
to the Consultant in accordance with this Agreement, the Consultant shall be
entitled to receive such amount from the Base Fee Escrow Account. In the event
that the Company has not failed to pay the Monthly Fee Requirement to the
Consultant in accordance with this Agreement by the end of the Term, the amount
on deposit in the Base Fee Escrow Account shall be released to the Company. In
the event that all or part of the Rollover Amount is paid to the Consultant,
then the Company shall replenish such amount within 30 days thereafter.
(d) On the last day of each calendar month during the Term, an
amount equal to the Monthly Fee Requirement shall be distributed to the
Consultant from the Base Fee Escrow Account. The Company agrees that, to the
extent that the amount in the Base Fee Escrow Account on the last day of any
calendar month is less than the applicable Monthly Fee Requirement, the Company
shall pay to the Consultant the difference between such Monthly Fee Requirement
and the amount in the Base Fee Escrow Account at the end of such month.
(e) To the extent that amounts in the Base Fee Escrow Account
on the last day of any given calendar month exceeds two times the Monthly Fee
Requirement, such excess amount shall be distributed to the Company. "Monthly
Fee Requirement" shall mean an amount determined by dividing (x) the annual Base
Fee by (y) 12. "Weekly Fee Requirement" shall mean an amount determined by
dividing (x) the annual Base Fee by (y) 52. "PCS Clearing Agent" shall mean the
entities responsible for clearing all commission based business for PCS.
4
4.2 Incentive Bonuses. The Consultant shall be entitled to
receive an incentive bonus based upon the research commission sales booked or
confirmed (which bookings and confirmations shall be reasonable and in
accordance with past practice) and trading revenues generated by the Unit (as
hereinafter defined) in each calendar year during the Term. The "Unit" shall
mean the Company's Capital Markets unit, including the Company's trading
functions, research sales and marketing functions and the operations of PCS.
Within thirty (30) days following the achievement by the Unit of the annual
revenue targets set forth below (the "Unit Revenue Target"), the Company shall
pay to the Consultant a cash bonus (the "Bonus Amount") as follows:
For the Year Ending
-------------------
December 31 Unit Revenue Target Bonus Amount
----------- ------------------- ------------
2002 $15,000,000 $500,000
2003 $16,000,000 $575,000
2004 $17,000,000 $657,000
2005 $18,000,000 $759,000
2006 $19,000,000 $876,000
4.3 Expenses. During the Term, the Company shall promptly
reimburse the Consultant for all reasonable and necessary expenses and other
disbursements (including, but not limited to, travel and entertainment expenses)
incurred by the Consultant on behalf of the Company, in performance of the
Consultant's duties hereunder, up to a maximum of $5,000 per month (the
"Approval Threshold"). Expenses and disbursements incurred by the Consultant
over the Approval Threshold shall require the prior approval of the Company's
President prior to reimbursement of the Consultant by the Company. During the
Term, the Company will also pay for the Consultant's cost of leasing, insuring
5
and maintaining an automobile, up to seven hundred and fifty dollars ($750) per
month (the "Car Expenses"). The Company shall pay the Car Expenses directly to
the applicable leasing agent, insurance company or repair shop, as the case may
be.
5. Taxes; No Withholding, Etc. The relationship between the
Consultant and the Company shall be that of independent parties and not that of
employer and employee and the parties hereto shall act in accordance with such
understanding. Accordingly, it is anticipated that any payments made to
Consultant shall be paid as consulting income and reported to the Internal
Revenue Service as consulting income and no employee withholding regarding FICA
and FUTA shall be deducted from such payments and such payments will be reported
to the Internal Revenue Service as consulting income as required by law. The
Consultant agrees that he shall be responsible for payment of his own taxes with
respect the fees and other payments received hereunder. The Consultant agrees
and understands that he is not entitled to any employee benefits made available
to employees of the Company and hereby waives any claim to such benefits.
6. Disability of the Consultant. The Company may, in its
discretion, terminate the engagement of the Consultant under this Agreement upon
Consultant's Disability, after giving written notice to that effect. For
purposes of this Agreement, "Disability" means a determination by the Company in
accordance with applicable law that Consultant is incapacitated or disabled by
accident, sickness or otherwise so as to render the Consultant mentally or
physically incapable of performing the essential functions of his job with or
6
without reasonable accommodation for a period of 90 consecutive days or 120 days
in any period of 360 consecutive days (a "Disability").
7
7. Termination.
-----------
(a) The Company may terminate the engagement of the Consultant
and all of the Company's obligations under this Agreement at any time for Cause
(as hereinafter defined) by giving the Consultant notice of such termination,
with reasonable specificity of the details thereof. For purposes of this
Agreement, "Cause" shall mean the following: (i) commission by the Consultant of
a criminal act involving moral turpitude, dishonesty, theft or unethical
business conduct, or material misconduct in connection with the performance of
any of his duties which materially impairs or injures the reputation or the
business operations of the Company; (ii) any material breach of this Agreement
by the Consultant or (iii) the Consultant's termination of this Agreement, other
than for Good Reason (as hereinafter defined). A termination pursuant to this
Section 7(a) shall take effect fifteen (15) days after the giving of written
notice to the Consultant unless the Consultant shall, during such fifteen
(15)-day period, remedy to the reasonable satisfaction of the Board of Directors
of the Company the circumstance giving rise to Cause as specified in such
notice; provided, however, that such termination shall take effect immediately
upon the giving of such notice if the Board of Directors of the Company shall,
in its reasonable discretion, have determined that such problem or circumstance
giving rise to Cause is not remediable (which determination shall be stated in
such notice).
(b) The Company may terminate the engagement of the Consultant
and all of the Company's obligations under this Agreement (except as hereinafter
provided) at any time during the Term without Cause by giving the Consultant
written notice of such termination, to be effective fifteen (15) days following
8
the giving of such written notice, subject to the provisions of Section 7(b)
hereof.
(c) The Consultant may terminate this Agreement and all of the
obligations under this Agreement (except as hereinafter provided) at any time
during the Term with Good Reason by giving the Company written notice of such
termination, to be effective fifteen (15) days following the giving of such
written notice. "Good Reason" shall mean the occurrence of any of the following
(i) any removal of the Consultant, without his consent, from the engagement of
Consultant as contemplated hereunder (except in connection with the termination
of Consultant's engagement by the Company for Cause or on account of a
Disability), if not remedied by the Company within thirty (30) days after
receipt of written notice thereof from Consultant; (ii) the Company's reduction
in Base Fee, failure to pay timely any portion of the Base Fee or incentive
bonus, or reduction of any agreed-upon benefit required to be provided under
this Agreement during the Term, if not remedied by the Company within thirty
(30) days after receipt of written notice thereof from Consultant; (iii) a
material adverse change in the Consultant's duties, or responsibilities, without
his prior written consent, if not remedied by the Company within thirty (30)
days after receipt of written notice thereof from Consultant; (iv) any material
breach by the Company of the terms of this Agreement that is not remedied by the
Company within thirty (30) days after receipt of written notice thereof from the
Consultant; or (v) failure by any successor to the Company to expressly assume
all obligations of the Company under this Agreement, which failure is not
remedied by the Corporation within thirty (30) days after receipt of written
notice thereof from the Consultant.
9
For convenience of reference, the date upon which any termination of
the engagement of the Consultant pursuant to Sections 6 or 7 shall be effective
shall be hereinafter referred to as the "Termination Date".
8. Effect of Termination of Engagement.
------------------------------------
(a) Upon the termination of the Consultant's engagement for
Cause, neither the Consultant nor the Consultant's beneficiaries or estate shall
have any further rights to payment of fees under this Agreement or any claims
against the Company arising out of this Agreement, except the right to receive
(i) the unpaid portion of the Base Fee provided for in Section 4.1 through the
Termination Date (the "Unpaid Fee Amount"); (ii) the Unpaid Bonus Amount (as
hereinafter defined), (iii) reimbursement for any expenses for which the
Consultant shall not have theretofore been reimbursed, as provided in Section
4.3 (the "Expense Reimbursement Amount"); and (iv) any amounts or benefits
required by law to be provided. The "Unpaid Bonus Amount" shall mean (i) if the
Termination Date (under Section 7(a)) is after the date on which Unit Revenue
Target was achieved by the Unit, an amount equal to the Bonus Amount for such
calendar year, or (ii) if the Termination Date (under Section 7(a)) is before
the Unit Revenue Target is achieved by the Unit and the Unit Revenue Target is
subsequently achieved by the Unit within the calendar year during which the
Consultant is terminated, an amount equal to the pro rata portion of the Bonus
Amount based upon the number of days during the calendar year through the
Termination Date.
(b) Upon the termination of the Consultant's consulting
services (i) by the Company without Cause or as a result of a Disability, (ii)
by the Consultant for Good Reason, or (iii) as a result of the death of the
10
Consultant, neither the Consultant nor the Consultant's beneficiaries or estate
shall have any further rights to payment of fees under this Agreement or any
claims against the Company arising out of this Agreement, except the right to
receive (i) the Unpaid Fee Amount and unpaid incentive bonus provided for in
Section 4.2 so long as it is earned and unpaid as of the Termination Date; (ii)
the Expense Reimbursement Amount; (iii) the Base Fee and incentive bonus
provided for in Section 4.2 that the Consultant would have received during the
remaining Term as if this Agreement was not terminated, payable on the customary
payment dates and pursuant to Section 4.1(b) hereof; provided however, that in
each calendar year subsequent to the year during which the Consultant was
terminated, the Consultant shall be entitled to receive fifty percent (50%) of
the Bonus Amount; (iv) the Car Expenses for the remaining Term as if this
Agreement was not terminated and (v) any amounts or benefits required by law to
be provided.
9. Miscellaneous.
--------------
9.1 Representations and Warranties of the Company and the
Consultant. Each of the parties hereby represents and warrants to the other
party as follows: (i) each party has the legal capacity and unrestricted right
to execute and deliver this Agreement and to perform all obligations hereunder;
and (ii) the execution and delivery of this Agreement by each of the parties and
the performance of his or its obligations hereunder will not violate or be in
conflict with any fiduciary or other duty, instrument, agreement, document,
arrangement or other understanding to which the Consultant or the Company is a
party or by which he or it is or may be bound or subject.
11
The Consultant is not a party to any instrument, agreement, document,
arrangement or other understanding with any person (other than the Company)
requiring or restricting the use or disclosure of any confidential information
or the provision of any engagement, consulting or other services. Each of the
Consultant and the Company agrees to indemnify the other party for any costs,
liabilities or expenses incurred by such other party as a result of a breach of
this Section 9.1.
9.2 Successors and Assigns;. The provisions of this Agreement
shall be binding upon and inure to the benefit of the Consultant and his heirs
and beneficiaries and the Company and its successors and permitted assigns,
including any successor to ownership of a controlling portion of the capital
stock of the Company or to all or substantially all the assets of the Company;
provided, that no party may assign, delegate or otherwise transfer any of its
rights or obligations under this Agreement without the prior written consent of
the other party hereto which shall not unreasonably be withheld. Any purported
(i) sale of all or substantially all of the assets of the Company without the
assumption of the obligations under this Agreement, or (ii) an assignment in
violation of this Section, shall be void.
9.3 Entire Agreement. This Agreement constitutes and embodies
the full and complete understanding and agreement of the parties with respect to
Consultant's engagement by Company, supersedes all prior understandings and
agreements, whether oral or written, between the Consultant and Company, and
shall not be amended, modified or changed except by an instrument in writing
executed by the party to be charged. The invalidity or partial invalidity of one
or more provisions of this Agreement shall not invalidate any other provision of
12
this Agreement. No waiver by either party of any provision or condition to be
performed shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same time or any prior or subsequent time.
9.4 Headings. The headings contained in this Agreement are for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.5 Notices. All notices, requests, demands and other
communications required or permitted to be given hereunder shall be in writing
and shall be deemed to have been duly given when personally delivered, sent by
registered or certified mail, return receipt requested, postage prepaid, or by
private overnight mail service (e.g. Federal Express) to the party at the
address set forth above or to such other address as either party may hereafter
give notice of in accordance with the provisions hereof. Notices shall be deemed
given on the sooner of the date actually received or the third business day
after sending.
9.6 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without giving
effect to such State's conflicts of laws provisions.
9.7 Disputes and Arbitration. In the event that a dispute
arises, including an alleged breach of this Agreement, and the parties are not
able to resolve such dispute, then they shall submit their dispute to
arbitration in the County and City of New York in accordance with the prevailing
Commercial Rules of the American Arbitration Association. There shall be a panel
of three (3) arbitrators, one (1) of which will be selected by each of the
13
Company and Consultant and the third arbitrator to be agreed upon by each of the
selected arbitrators. The arbitrators shall not have any authority to modify or
change any of the terms of the Agreement. Both parties and the arbitrators will
treat the arbitration process and the activities which occur in the proceedings
as confidential. Any award rendered therein shall specify the findings of fact
of the arbitrators and the reasons of such award, with reference to and reliance
on relevant law. Any such award shall be final and binding on each and all of
the parties thereto and their personal representatives, and judgment may be
entered thereon in any court having jurisdiction thereof. Each party thereto
shall bear his, her or its own costs incurred in any such arbitration; provided,
however, that, upon request of either party, the arbitrators may award costs,
including legal fees and expenses, to such party as the arbitrators shall
determine.
9.8 Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one of the same instrument.
9.9 Separability. If any of the restrictions contained in this
Agreement shall be deemed to be unenforceable by reason of the extent, duration
or geographical scope thereof, or otherwise, then the court making such
determination shall have the right to reduce such extent, duration, geographical
scope, or other provisions hereof, and in its reduced form this Agreement shall
then be enforceable in the manner contemplated hereby.
14
9.10 Post Engagement Obligations. (a) All records, files,
lists, including computer generated lists, drawings, documents, equipment and
similar items relating to the Company's business which the Consultant shall
prepare for the Company or receive from the Company shall remain the Company's
sole and exclusive property. Upon termination of this Agreement, the Consultant
shall promptly return to the Company all property of the Company in his
possession. The Consultant further represents that he will not copy or cause to
be copied, print out or cause to be printed out any software, documents or other
materials originating with or belonging to the Company. The Consultant
additionally represents that, upon termination of his engagement with the
Company, he will not retain in his possession any such software, documents or
other materials.
(b) The Consultant agrees that both during and after his
engagement he shall, at the reasonable request of the Company and at the
Company's sole cost and expense, render all assistance and perform all lawful
acts that the Company considers necessary or advisable in connection with any
litigation involving the Company or any director, officer, employee,
shareholder, agent, representative, consultant, client or vendor of the Company.
15
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth above.
DIRECTPLACEMENT, INC.
By: /s/ XXXXX X. XXXXXXXXXX
---------------------------------
Name: Xxxxx X. Xxxxxxxxxx
Title: President and Chief Executive
Officer
/s/ XXXXXXX X. XXXX, III
------------------------------------
Xxxxxxx X. Xxxx, III
