EMPLOYMENT SEPARATION AGREEMENT
Exhibit
10.1
This
Employment Separation Agreement (“Agreement”) is entered into by and between
ClearOne Communications, Inc. (“ClearOne” or the “Company”) and Xxxxxxx X. Xxxxx
(“Flood”) (ClearOne and Flood shall sometimes be hereinafter referred to
collectively as the “Parties”).
RECITALS
A. Flood
has
been employed by ClearOne in a variety of positions, most recently as the
Company’s Chief Executive Officer, President, and Chairman of the
Board.
X. Xxxxx
has
a written Employment Agreement with the Company, effective as of August 1,
2002 (“Employment Agreement”). The Employment Agreement, which is for a
three-year term expiring July 31, 2005, specifies the compensation and
benefits to which Flood is entitled to receive over the term of the contract.
The Employment Agreement also provides that the Company may terminate Flood’s
employment for cause only if Flood commits “willful misconduct,” with the term
“willful” expressly defined as an act “done, or omitted to be done, by [Flood]
not in good faith and without reasonable belief that [her] action or omission
was in the best interest of the Company.”
C. On
January 15, 2003, the United States Securities and Exchange Commission
filed a civil action against ClearOne, Flood, and Xxxxx X. Xxxxxx, who was
then
serving as the Company’s Chief Financial Officer, alleging various improprieties
and misstatements in connection with the Company’s financial statements (the
“SEC Action”).
D. The
filing of the SEC Action has spawned, and may continue to spawn, multiple
related proceedings, including, but not limited to, multiple shareholder
securities class actions, multiple shareholder derivative actions, a grand
jury
investigation being conducted by the United States Department of Justice, a
dispute and potential litigation between the Company and its directors and
officers liability insurers, and potential litigation between the Company and
its former auditor, Ernst & Young (collectively, “Related
Proceedings”).
E. Soon
after the filing of the SEC Action, the Company placed Flood on a paid
administrative leave of absence, and this paid administrative leave has
continued in effect at all times up to the execution of this
Agreement.
F. Flood
has
employed separate counsel, Xxx X. Xxxxxxx, Xxxxxxx X. Xxx Xxxxxxx, and the
law
firm of Snow Xxxxxxxxxxx & Xxxxxxxxx (collectively, “SC&M”), to defend
her in the SEC Action and the Related Proceedings. SC&M has also represented
Flood in connection with the negotiation and drafting of this
Agreement.
X. Xxxxx
has
made various demands on the Company for indemnification and for advancement
of
the attorneys’ fees and costs she has incurred to date, as well as the
attorneys’ fees and costs she may subsequently incur, in connection with the SEC
Action and the Related Proceedings and has provided the Company with a written
undertaking, dated August 27, 2003, in conformity with the requirements of
Utah Code Xxx. § 16-10a-904.
H. ClearOne
referred Flood’s demand for indemnification to its Special Litigation Committee
(“SLC”) comprised of two independent directors. The SLC reviewed those demands,
as well as similar demands for indemnification made by other present or former
officers and directors of the Company, in conjunction with its investigation
of
the various claims asserted in the multiple shareholder derivative actions
filed
against certain of the Company’s present and former officers and directors,
including Flood. On October 13, 2003, the SLC completed its investigation
concerning the derivative actions and the indemnification demands and issued
its
reports to the Company wherein it concluded, inter alia,
that
pursuing the derivative actions was not in the best interest of the Company
and
that the Company should attempt to negotiate a settlement of Flood’s
indemnification demand in the context of negotiating a global settlement of
all
potential claims and counterclaims between the Company and Flood. In reliance
on
the SLC’s conclusions and recommendations, the Company has moved to dismiss the
derivative actions pursuant to Utah Code Xxx. § 16-10a-740(4)(a) and has
negotiated this Agreement with Flood.
I. Flood
and
ClearOne desire to resolve any and all disputes that may exist between them,
whether known or unknown, including, but not limited to, disputes regarding
Flood’s demand for indemnification, disputes relating to Flood’s employment with
ClearOne, and disputes relating to the dissolution of that employment
relationship.
AGREEMENT
NOW,
THEREFORE, in consideration of the mutual promises, covenants, warranties,
and
agreements set forth herein, the Parties mutually agree as follows:
1. Effective
Date.
This
Agreement is effective on the eighth day following Flood’s signing of this
Agreement, provided that Flood does not revoke her execution of this Agreement
as provided in Paragraph 19 below.
2. Receipt
of this Agreement.
Flood
acknowledges that she received a copy of this Agreement on December 2,
2003, and that she has 21 days from the receipt of this Agreement in which
to
consider and consult with an attorney regarding this Agreement. Flood further
acknowledges that she has had an adequate amount of time in which to consult
with SC&M, her counsel of choice, with respect to the contents of this
Agreement prior to signing.
3. Payment
to Flood.
Upon
the expiration of the revocation period described in Paragraph 19 below and
the unrevoked signing of this Agreement by Flood, ClearOne shall pay Flood
the
sum of $350,000. The Parties acknowledge and agree that this payment is being
made in consideration of, inter alia,
the
Company’s purchase of Flood’s shares of the Company’s common stock, the
Company’s cancellation of Flood’s options to purchase additional shares of the
Company’s common stock, and the release of all claims that Flood may have
against the Company, all as more fully stated in Paragraphs 5, 6, and 9
below. The Parties also acknowledge and agree that the Company is not
responsible for the withholding of any federal or state taxes from said payment
and that Flood is responsible for paying any taxes that may become due and
owing
as a result of her receipt of said payment.
4. Separation
of Employment and Dissolution of Employment Agreement.
Flood
hereby resigns her employment with ClearOne, as well as her membership on the
Company’s board of directors, effective December 5, 2003. Flood’s
Employment Agreement is dissolved and cancelled as of the effective date of
this
Agreement, except that Flood’s post-termination obligations under Sections 8 and
9 of the Employment Agreement shall remain in effect to the full extent provided
in the Employment Agreement.
5. Cancellation
of Stock Options.
As
partial consideration for the payment specified in Paragraph 3 above, upon
the expiration of the revocation period described in Paragraph 19 below and
the unrevoked signing of this Agreement by Flood, all unexercised stock options
acquired by Flood during her employment with the Company, whether vested or
unvested, shall immediately be deemed cancelled. Flood represents and warrants
that, immediately prior to the effective date of this Agreement, she holds
vested and unvested stock options entitling her to purchase up to a total of
706,434 shares of the Company’s common stock and that 461,433 of these options
are vested. Flood further agrees that all of her rights, entitlements, and
benefits under the 1990 Xxxxxxx Stock Option Plan and the 1998 ClearOne Stock
Option Plan, including any agreements entered into in relation to the foregoing
plans, are hereby terminated and cancelled.
6. Transfer
of Stock.
As
partial consideration for the payment specified in Paragraph 3 above, upon
the expiration of the revocation period described in Paragraph 19 below and
the unrevoked signing of this Agreement by Flood, Flood shall transfer, assign,
and sell to the Company 35,000 shares of the Company’s common
stock.
7. Cooperation
in Related Proceedings.
Flood
shall cooperate with the Company and its counsel in the defense and/or
prosecution of the SEC Action and the Related Proceedings. Flood’s cooperation
shall include, but shall not be limited to, voluntarily providing deposition
and
trial testimony, meeting with the Company and its counsel for the purpose of
preparing for depositions or trial proceedings, and providing information and
documents to the Company or its counsel in connection with the defense and/or
prosecution of the SEC Action and the Related Proceedings. With respect to
any
request by the Company and/or its counsel for deposition or trial testimony,
meetings, information, or documents, the Company shall give reasonable notice
to
Flood of its request, including the time and place of the deposition, trial,
or
meeting, and shall reimburse Flood for all reasonable expenses incurred by
her,
including reasonable attorneys’ fees and costs, in providing the requested
cooperation. Despite the foregoing, this Agreement does not require Flood to
forego any constitutional rights.
8. Indemnification.
Subject
to the limitations imposed by Utah Code Xxx. § 16-10a-902 and the Company’s
articles of incorporation and bylaws, and also subject to the undertaking
referred to in Recital G above, ClearOne shall indemnify Flood for any liability
and for all reasonable attorneys’ fees and costs incurred by her in connection
with the SEC Action or any Related Proceedings, whether incurred before or
after
the effective date of this Agreement. The Company’s duty to indemnify Flood is
further conditioned upon Flood’s fulfillment of her duty under Paragraph 7 above
to cooperate with the Company and its counsel in connection with the SEC Action
and Related Proceedings. Subject to the foregoing limitation, ClearOne will
continue to pay for the reasonable defense costs incurred by Flood in defending
matters or future matters, if any, which may arise from or relate to her tenure
as an officer or director of ClearOne.
9. Release
of Claims by Flood.
Flood,
on behalf of herself and her heirs and assigns, hereby completely releases
and
discharges ClearOne and all of ClearOne’s predecessors, successors, parents,
subsidiaries, and affiliates, and all of their respective present and former
directors, officers, employees, attorneys and agents (hereinafter collectively
referred to as “Releasees”) from any and all existing claims and causes of
action of every kind and nature, whether presently known or unknown by the
Parties, including but not limited to any claims or causes of action for breach
of implied or express contract (including the Employment Agreement), libel,
slander, wrongful discharge or termination, discrimination claims under the
Age
Discrimination in Employment Act and/or Older Workers Benefit Protection Act,
Title VII of the Civil Rights Act of 1964, as amended, the Utah
Antidiscrimination Act, local laws prohibiting age, race, religion, sex,
national origin, disability and other forms of discrimination, or any other
federal or state law that may be applicable thereto, claims growing out of
any
legal restrictions on ClearOne’s right to terminate its employees, any tort
claim or other claim arising in any way out of the employment relationship
between Flood and ClearOne or the termination of that relationship. Flood
specifically waives any and all claims for back pay, front pay, or any other
form of compensation for services, except as set forth herein.
Except
as
expressly stated in Paragraph 8 above, Flood hereby waives any right to
recover damages, costs, attorneys’ fees, and any other relief in any proceeding
or action brought against ClearOne by any other party, including without
limitation the Equal Employment Opportunity Commission and the Utah
Antidiscrimination and Labor Division, on Flood’s behalf asserting any claim,
charge, demand, grievance, or cause of action released by Flood as stated
above.
Notwithstanding
the foregoing, Flood does not waive rights, if any, Flood may have to
unemployment insurance benefits or workers’ compensation benefits. Nothing in
this Paragraph 9 prohibits Flood from paying COBRA premiums to maintain
Flood’s participation, if any, in ClearOne’s group health plan to the extent
allowed by law and by the terms, conditions, and limitations of the health
plan.
10. Release
of Claims by ClearOne.
Except
for any claim as to which indemnification is not allowed by Utah Code Xxx.
§ 16-10a-902 and any claim that may accrue under the undertaking referenced
in Recital G above, ClearOne, on behalf of itself and its successors and
assigns, hereby completely releases and discharges Flood from all existing
claims and causes of action of any kind and nature, whether presently known
or
unknown by the Parties, including but not limited to any claims or causes of
action arising out of or relating to Flood’s Employment Agreement or her
employment with ClearOne.
11. No
Assignment of Claims.
Flood
represents and warrants that she has not previously assigned or transferred,
or
attempted to assign or transfer, to any third party, any of the claims waived
and released herein.
12. No
Claim Filed.
Flood
represents that she has not filed any claim, complaint, charge, or lawsuit
against ClearOne or any other Releasee with any governmental agency or any
state
or federal court, and covenants not to file any lawsuit at any time hereafter
for any matter, claim, or incident known or unknown which occurred or arose
out
of occurrences prior to the date hereof.
13. No
Admission of Liability.
This
Agreement does not constitute an admission of any fault, liability, or
wrongdoing by any Releasee, nor an admission that Flood has any claim whatsoever
against ClearOne or any other Releasee. ClearOne and all other Releasees
specifically deny having any liability to Flood or having committed any wrongful
acts against Flood. This Agreement does not constitute an admission of any
fault, liability, or wrongdoing by Flood, nor an admission that ClearOne has
any
claim against Flood. Flood specifically denies having any liability to ClearOne
or having committed any wrongful acts against ClearOne.
14. Additional
Consideration.
Flood
acknowledges and agrees that as of the date she signs this Agreement, ClearOne
has paid to Flood (a) all compensation for wages earned, less normal
payroll deductions, (b) all amounts due for earned vacation pay less normal
payroll deductions, and (c) all other amounts due and owing to Flood by
ClearOne. Notwithstanding the foregoing, ClearOne will pay Flood her normal
paycheck on December 12, 2003, which covers Flood’s compensation through
December 5, 2003, the effective date of her resignation. Flood agrees and
acknowledges that the sums paid pursuant to this Agreement are in addition
to
any sums or payments to which Flood would be entitled but for the signing of
this Agreement.
15. Conditions
Subsequent.
This
Agreement is conditioned upon Flood signing settlement documents in the SEC
Action by December 5, 2003, and upon the final approval of the settlement
of the SEC Action, as it applies to Flood, by January 31, 2004. If for any
reason Flood fails to satisfy either of these conditions, this Agreement will
automatically become null and void, and the Parties shall forthwith return
to
each other any and all consideration received by them pursuant to this
Agreement.
16. Integration
Clause.
This
Agreement contains the entire agreement and understanding of ClearOne and Flood
concerning the subject matter hereof, and except as expressly noted herein,
this
Agreement supersedes and replaces all prior negotiations, proposed agreements,
agreements or representations whether written or oral concerning the subject
matter hereof, including Flood’s Employment Agreement. ClearOne and Flood agree
and acknowledge that neither ClearOne or Flood, nor any agent or attorney of
either, has made any representation, warranty, promise or covenant whatsoever,
express or implied, not contained in this Agreement, to induce the other to
execute this Agreement. No amendment, alteration, or modification of this
Agreement shall be effective unless made in writing and signed by both
Parties.
17. Governing
Law.
This
Agreement shall be governed by and construed in accordance with the laws of
the
State of Utah, without giving effect to Utah’s choice of law rules.
18. Voluntary
and Knowing Signing.
Flood
acknowledges that she has read this Agreement carefully and fully understands
this Agreement and that she has consulted with her counsel, SC&M, prior to
signing this Agreement. Flood acknowledges that she has executed this Agreement
voluntarily and of her own free will and that she is knowingly and voluntarily
releasing and waiving all claims she may have against Releasees, including
ClearOne.
19. Revocation
Period.
Flood
has seven (7) days from the date on which she signs this Agreement to revoke
this Agreement by providing written notice, by mail, hand delivery, or
facsimile, of her revocation to:
Xxxxxxx
X. Xxxxxxxxxx
Xxxxxxx
Xxxxx & Xxxxxxx
Counsel
for ClearOne
000
Xxxxx
Xxxx Xxxxxx
Xxxxx
0000
Xxxx
Xxxx
Xxxx, Xxxx 00000
Facsimile:
(000) 000-0000
Flood’s
revocation, to be effective, must be received by the above-named person by
the
end of the seventh day after Flood signs this Agreement. This Agreement becomes
effective on the eighth day after Flood signs this Agreement, providing that
Flood has not revoked this Agreement as provided above.
IN
WITNESS WHEREOF, the Parties have executed this Agreement on the dates indicated
below.
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Dated:
December 5, 2003
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CLEARONE
COMMUNICATIONS, INC.
/s/
Xxxx Xxxxxx
By:
Xxxx Xxxxxx
Its:
CEO
|
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Dated:
December 5, 2003
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/s/
Xxxxxxx X. Xxxxx
Xxxxxxx
X. Xxxxx
XXXXXXX
X. XXXXX
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