EMPLOYMENT AGREEMENT
EXHIBIT 10.1
THIS EMPLOYMENT AGREEMENT (this “Agreement”) dated and effective as of April 3, 2006 (the
“Effective Date”) is by and between US DATAWORKS, INC., a Nevada corporation (the
“Company”), and Xxxx X. Xxxxxx (“Xxxxxx”). In consideration of the mutual covenants and
promises contained herein, the parties agree as follows.
WHEREAS, the Company deems it essential that it have the advantage of the services of Xxxxxx
and desires to enter into a continuing agreement of employment with him, and to provide Xxxxxx with
compensation, including stock options.
ARTICLE 1 GENERAL PROVISIONS
Section 1.1 Employment. The Company hereby employs Xxxxxx, and Xxxxxx accepts such
employment by the Company upon the terms and conditions hereof.
Section 1.2 Term. Subject to earlier termination as specifically set forth herein,
the initial term of this Agreement shall be commencing on the Effective Date and continuing until
April 3, 2008 (the “Term”). The Term shall be extended automatically without further action by
either party for successive one (1) year terms (each extension expiring on the anniversary of April
3), unless either party shall have served not less than ninety (90) days prior written notice upon
the other party that this Agreement shall terminate.
Section 1.3 Termination. Xxxxxx’x employment and this Agreement shall terminate upon
the earliest to occur of any of the following events (the actual date of such termination being
referred to herein as the “Termination Date”):
(a) Pursuant to Section 1.2.
(b) In the event of Xxxxxx’x death or disability as set forth in Section 3.6.
(c) Termination of Xxxxxx’x employment by the Company for cause without any prior notice
(except as specifically set forth below), upon the occurrence of any of the following events (each
of which shall constitute “Cause”):
(i) any embezzlement or wrongful diversion of funds of the Company or any affiliate of the
Company by Xxxxxx;
(ii) gross malfeasance by Xxxxxx in the conduct of Xxxxxx’x duties;
(iii) breach of this Agreement or any of the Company’s written policies and, if such breach is
capable of being cured, as determined by the Board of Directors of the Company (the “Board of
Directors”), failure of Xxxxxx to cure such breach after notice and reasonable opportunity to cure
such breach;
(iv) gross neglect by Xxxxxx in carrying out Xxxxxx’x duties; or
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(v) willful violation by Xxxxxx of any applicable federal or state securities laws or
regulations.
(d) Termination of Xxxxxx’x employment by the Company at any time without Cause.
(e) Termination by Xxxxxx of his employment at any time.
Section 1.4 Termination Obligations: Return of Company Property. Upon termination of
this Agreement, Xxxxxx shall promptly return all Company property.
ARTICLE 2
POSITION AND DUTIES; OTHER BUSINESS ACTIVITIES
Section 2.1 Position. Xxxxxx shall be employed as Senior Vice President, Business
Development and General Counsel. Xxxxxx shall also serve as Secretary of the Company. Xxxxxx
shall report directly to the Chief Executive Officer of the Company.
Section 2.2 Duties: Full Attention to Business. The primary focus of Xxxxxx’x
employment is to aggrandize Top-line Revenues of the Company through acquisitions and mergers
(“Inorganic Revenue Growth”) and by establishing strategic partnerships. Xxxxxx shall be directly
responsible for the supervision and management of the Company’s Business Development, establishing
and maintaining Strategic Alliances and Relationships, and the Company’s General Counsel. Xxxxxx
shall perform such services for the Company that reasonably serve the purpose of this Agreement
and/or meet the needs of the Company, and that are consistent with the position Xxxxxx holds.
Xxxxxx shall devote his full business time, energies, interest, abilities, and productive efforts
to the business of the Company. Except as may be approved by the Company’s Board of Directors,
Xxxxxx shall not render any kind of employee-type or consulting services to others for compensation
and, in addition, shall not engage in any activity which conflicts or interferes with his
performance of duties hereunder. Notwithstanding the provisions of this Section 2.2, Xxxxxx may,
with the prior written consent of the Board of Directors, engage in civic, charitable, or
educational activities, provided that such service and activities do not, individually or in the
aggregate, interfere with the performance of Xxxxxx’x duties under the Agreement.
Section 2.3 Covenant Not To Compete During Term. During the Term, Xxxxxx shall comply
in all respects with the Company’s written policies with respect to conflicts of interest. Except
as may be approved by the Company’s Board of Directors, Xxxxxx shall not engage in or be
interested, directly or indirectly, in any business or operation competitive with the Company. For
the purpose of this paragraph, Xxxxxx shall be deemed to be interested in a business or operation
which is competitive with the Company if Xxxxxx is a holder of five percent (5%) or more of the
issued and outstanding ownership interests in such business or operation, or serves as a director,
officer, employee, agent, partner, individual proprietor, lender, consultant, or independent
contractor of such business or operation.
Section 2.4 Non-Disclosure of Confidential Information. Xxxxxx acknowledges that in
connection with his employment by the Company or its affiliates, he has and may acquire or
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learn “Confidential Information” of the Company by virtue of a relationship of trust and
confidence between Xxxxxx and the Company. Xxxxxx warrants and agrees that during the Term he
shall not disclose to anyone (other than to officers of the Company or to such other persons as
such officers may designate), or use, except in the course of his employment with the Company or
its affiliates, any Confidential Information acquired by him in the course of or in connection with
his employment. As used herein, the term “Confidential Information” shall include, but not be
limited to: all information of any type or kind, whether or not reduced to a writing and whether or
not conceived, originated, discovered or developed in whole or in part by Xxxxxx, which is directly
related to the Company, its operations, policies, agreements with third parties, its financial
affairs and related matters, including business plans, strategic planning information, product
information, purchase and sales information and terms, supplier negotiation points, styles and
strategies, contents and terms of contracts between the Company and suppliers, advertisers,
vendors, contact persons, terms of supplier and/or vendor contracts or particular transactions,
potential supplies and/or vendors, or other related data; marketing information such as but not
limited to, prior, ongoing or proposed marketing programs, presentations, or agreements by or on
behalf of the Company, pricing information, customer bonus programs, marketing tests and/or results
of marketing efforts, computer files, lists and reports, manuals and memos pertaining to the
business of the Company, lists or compilations of vendor and/or supplier names, addresses, phone
numbers, requirements and descriptions, contract information sheets, compensation requirements or
terms, benefits, policies, and any other financial information whether about the Company, entities
related or affiliated with the Company or other key information pertaining to the business of the
Company, including but not limited to all information which is not generally available to or known
in the information services industry (or is available only as a result of an unauthorized
disclosure) and is treated by the Company as “Confidential Information” during the term of this
Agreement, regardless of whether or not such Information is a “trade secret” as otherwise defined
by applicable law unless such information is in the public domain.
Section 2.5 No Solicitation of Company’s Employees. Xxxxxx specifically agrees that
during the Term and for a period of one (1) year after his termination of employment with the
Company, Xxxxxx shall not, directly or indirectly, either for himself or for any other person,
firm, corporation, or legal entity, solicit any individual, then employed by the Company to leave
the employment of the Company, without first securing permission from the Company to do so.
Section 2.6 Ownership of Work Product and Ideas. Any discoveries, inventions,
patents, materials, licenses and ideas applicable to the industry or relating to Xxxxxx’x services
for the Company or its affiliates, whether or not patentable or copyrightable, created by Xxxxxx
during his employment by the Company or its affiliates (“Work Product”) and all business
opportunities within the industry (“Opportunities”) introduced to Xxxxxx by the Company or its
affiliates will be owned by the Company, and Xxxxxx will have no personal interest in such, except
to the extent that the Company allows Xxxxxx to invest or participate in or have other rights to
such Work Product or Opportunities. Xxxxxx will, in such connection, promptly disclose any such
Work Product and Opportunities to the Company and, upon request of the Company, will assign to the
Company all right in such Work Product and Opportunities.
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ARTICLE 3
COMPENSATION; BENEFITS
Section 3.1 Salary. The Company shall pay Xxxxxx Seven Thousand Two Hundred
Ninety-one Dollars and Sixty-seven cents ($7,291.67) on a semi-monthly basis, for an annualized
base salary (“Base Salary”) of One Hundred Seventy-five Thousand Dollars ($175,000). Beginning
with the first anniversary of the Effective Date and for each subsequent year of employment (or any
portion of any such year), Xxxxxx shall be entitled to a Base Salary review by the Company to
determine if any increase to Base Salary is warranted as a result of performance.
Section 3.2 Inorganic Revenue Growth Bonus.
(a) The primary focus of Xxxxxx’x employment is to increase the Top-line Revenues of the
Company through acquisitions and mergers and by establishing strategic partnerships. As an
incentive to achieving this end, Xxxxxx shall receive a cash bonus, paid quarterly, for any
acquisitions or mergers involving the Company (“Inorganic Revenue Growth Bonus”). The amount of
the Inorganic Revenue Growth Bonus shall be calculated by multiplying the Asset Value of the
entity/assets being acquired or merged with the corresponding Inorganic Revenue Growth percentage,
as set forth in Schedule 1, attached hereto. For purposes of this Agreement, the “Asset Value”
shall be the reported value for the asset(s) being acquired or merged determined in accordance with
generally accepted accounting principles (GAAP) and as reported in the Company’s (or the surviving
acquirer’s) Securities Exchange Commission (“SEC”) public filing. For example, if all of the
assets of the Company are acquired by a third party entity, the Asset Value shall be the value such
third party reports as having paid for the Company’s assets, not the asset value of the acquiring
third party entity. Conversely, if the Company acquires an entity, the Asset Value shall be the
value the Company paid for that entity. In the event a merger or acquisition is effected without a
SEC filing, the Asset Value shall be the purchase price as memorialized in the corresponding
acquisition or merger documentation between the parties. The Inorganic Revenue Growth Bonus shall
be paid to Xxxxxx within thirty (30) days of the Company’s fiscal quarter’s end in which the
acquisition or merger is consummated.
(b) At the end of any fiscal quarter in which an Inorganic Revenue Growth Bonus is to be paid
to Xxxxxx, should the Company determine, in good faith, that the Company’s cash position is such
that it will not have sufficient cash to fund its business operations for the next three successive
fiscal quarters, then, in lieu of an all cash Inorganic Revenue Growth Bonus, the Company shall
give Xxxxxx written notice of its determination and Xxxxxx will, at his option, receive an
Inorganic Revenue Growth Bonus payable as follows: (i) cash in any portion up to but not exceeding
fifty percent (50%) of the Inorganic Revenue Growth Bonus amount, and (ii) the remaining balance of
the Inorganic Revenue Growth Bonus shall be payable in shares of restricted common stock equal to
one hundred ten percent (110%) of the non-cash balance of the Inorganic Revenue Growth Bonus
Section 3.3 Paid Vacation. Xxxxxx shall be entitled to be paid vacation time under
the Company’s policies applicable to other senior executives of the Company’s policies, but in no
event shall Xxxxxx be eligible for less than four (4) weeks of paid time off per calendar year.
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Section 3.4 Stock Options.
(a) Subject to approval of the Compensation Committee of the Board of Directors, which such
grant shall be made as promptly hereafter as practicable, the Company will grant to Xxxxxx an
option to purchase Seven Hundred Thousand (700,000) shares of common stock of the Company under the
Plan, which shall be intended to qualify as an incentive stock option to the maximum extent
permitted under Section 422 of the Internal Revenue Code of 1986, as amended. The option shall be
subject to the terms and conditions of the Plan and an option agreement to be entered into between
the Company and Xxxxxx, in a form approved by the Compensation Committee of the Board of Directors
which option agreement shall provide that such option shall have a ten (10) year term (subject to
earlier termination in connection with termination of employment). All such options will have the
exercise price per share equal to the fair market value of the Company’s common stock as of the
date of grant.
(b) The option shall vest and become exercisable, subject to continued employment as follows:
(i) three hundred thousand (300,000) shares of common stock shall vest on April 3, 2006;
(ii) two hundred thousand (200,000) shares of common stock shall vest on April 3, 2007;
(iii) two hundred thousand (200,000) shares of common stock shall vest on April 3, 2008; and,
(iv) in each case to become fully vested and exercisable upon a Change in Control as defined
in the Plan (a “Change in Control”).
(c) Xxxxxx shall be eligible to receive additional grants of options pursuant to the Plan in
the sole discretion of the Compensation Committee of the Board of Directors.
Section 3.5 Other Benefits. During the Term, Xxxxxx shall be entitled to participate
in present and future employee benefit plans which are available to the Company’s employees,
subject to eligibility requirements thereunder.
Section 3.6 Disability or Death. If the Board of Directors determines, on the basis
of professional medical advice, that Xxxxxx has become unable to substantially perform his duties
under this Agreement due to illness or mental or physical disability with reasonable accommodation,
and that such failure or inability has continued or is reasonably expected to continue for any
consecutive six-month period, the Company shall have the option to terminate this Agreement by
giving written notice to Xxxxxx thereof and the basis therefor at least thirty (30) days prior to
the effective date of termination. This Agreement shall also terminate immediately upon Xxxxxx’x
death. If Xxxxxx’x employment with the Company is terminated pursuant to this Section 3.6, the
Company shall pay Xxxxxx the salary, bonuses, and commissions which are earned but unpaid as of the
date of termination.
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Section 3.7 Severance.
(a) If the Company terminates Xxxxxx’x employment other than for Cause pursuant to Section
1.3(d), other than by reason of death or Disability pursuant to Section 3.6, or if Xxxxxx resigns
within ten (10) days following a material reduction in his duties (as per Section 2.2) or material
reduction of compensation within six (6) months following a Change in Control then subject to
Xxxxxx’x continuing obligations under Section 2.4 and Section 2.5 and in consideration of the
execution, delivery and effectiveness of a general release of claims in a standard form approved by
the Company, the Company shall pay to Xxxxxx a lump sum of two (2) times Xxxxxx’x current Base
Salary in cash within fifteen (15) days after the date of termination (or, if later, upon the
effectiveness of the general release following any applicable revocation period), any Inorganic
Revenue Growth Bonus for acquisitions or mergers consummated within one hundred 180 days after the
date of termination and shall vest one hundred percent (100%) of Xxxxxx’x then remaining unvested
portion of the options granted in accordance with this Agreement, in addition to other amounts
payable from qualified plans, nonqualified retirement plans, and deferred compensation plans, which
amounts shall be paid in accordance with the terms of such plans.
(b) If the Company terminates Xxxxxx’x employment for Cause, or if Xxxxxx resigns, then Xxxxxx
shall only be entitled to be paid his accrued, unpaid Base Salary through the effective date of his
termination of employment, any Inorganic Revenue Growth Bonus for acquisitions or mergers
consummated prior to the fiscal quarter’s end in which the date of termination occurs and his
entitlement to other amounts payable from qualified plans, nonqualified retirement plans, and
deferred compensation plans shall be determined in accordance with the terms of such plans.
(c) No severance benefits shall be provided pursuant to this Section 3.7 if Xxxxxx’x
employment is terminated by reason of expiration or non-renewal of this Agreement in accordance
with Section 1.2. with the exception of any earned Revenue Growth Bonus or any unpaid FY2006 bonus.
Section 3.8 Excess Parachute Payments.
(a) If there is a “Change in Control” of the Company within the meaning of Section 280G of
the Internal Revenue Code of 1986, as amended (the “Code”), a portion of the benefits to which
Xxxxxx is entitled under this Agreement could be characterized as “excess parachute payments”
within the meaning of Section 280G of the Code. The parties hereto acknowledge that the protections
set forth in this Section 3.8 are important, and it is agreed that Xxxxxx should not have to bear
the full burden of the excise tax that might be levied under Section 4999 of the Code or any
similar provision of federal, state of local law, in the event that any portion of the benefits
payable to Xxxxxx pursuant to this Agreement or the other incentive plans of the Company are
treated as an excess parachute payment. The parties, therefore, have agreed as set forth in this
Section 3.8.
(b) Anything in this Agreement to the contrary notwithstanding, if it shall be determined that
any payment or distribution (including income recognized by Xxxxxx upon the early vesting of
restricted property or upon the exercise of options whose exercise date has been
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accelerated) by the Company or any other Person to or for the benefit of Xxxxxx (whether paid
or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise,
but determined without regard to any additional payments required under this Section 3.8, (a
“Payment”) would be subject to the excise tax imposed by Section 4999 of the Code or any similar
provision of any federal, state or local law or any interest or penalties are incurred by Xxxxxx
with respect to such excise tax (such excise tax, together with any such interest and penalties,
are hereinafter collectively referred to as the “Excise Tax”), then the Company shall pay an
additional payment, not to exceed the amount of Xxxxxx’x then current Base Salary in the aggregate
(a “Gross-Up Payment”), in an amount such that after payment by Xxxxxx of all taxes (including any
interest or penalties imposed with respect to such taxes), including, without limitation, any
income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed
on the Gross-Up Payment, Xxxxxx retains an amount of the Gross-Up Payment equal to fifty percent
(50%) of the Excise Tax imposed on the Payments. Xxxxxx will bear the cost of the remaining fifty
percent (50%) until the aggregate Gross-Up Payments from the Company have reached the amount of
Xxxxxx’x then current Base Salary, and will thereafter bear all additional taxes, interest or
penalties.
(c) In the event of any dispute as to the applicability or amount of any Gross-Up Payment, all
determinations required to be made under this Section 3.8, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in
arriving at such determination, shall be made by the independent public accounting firm regularly
employed by the Company (the “Accounting Firm”) which shall provide detailed supporting
calculations both to the Company and to Xxxxxx within fifteen (15) business days after the receipt
of notice from Xxxxxx that there has been a Payment, or such earlier time as is requested by the
Company. All fees and expenses of the Accounting Firm will be borne by the Company. If the
Accounting Firm determines that no Excise Tax is payable by Xxxxxx, it shall furnish Xxxxxx with a
written statement that failure to report the Excise Tax on Xxxxxx’x applicable federal income tax
return would not result in the imposition of a negligence or similar penalty. Any determination by
the Accounting Firm shall be binding on the Company and Xxxxxx unless and until a final
determination is received from the Internal Revenue Service indicating a contrary result. As a
result of uncertainty in the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments may not have
been made by the Company that should have been made (“Underpayment”), consistent with the
calculations required to be made hereunder. If Xxxxxx thereafter is required to make a payment of
any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of
Xxxxxx, consistent with the maximum limitation stated in this Section 3.8. In the event it is
determined by the Accounting Firm that the Gross Payments previously made by the Company exceeded
the limitations stated in this Section 3.8, upon written notice from the Company, accompanied by a
copy of the Accounting Firm’s calculation of same, the amount of such overpayment shall be promptly
paid by Xxxxxx to the Company.
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ARTICLE 4
MISCELLANEOUS PROVISIONS
Section 4.1 Entire Agreement. This Agreement contains the entire Agreement between
the Parties and supersedes all prior oral and written Agreements, understandings, commitments, or
practices between the Parties with respect to the subject matter hereof. Other than as expressly
set forth herein, Xxxxxx and the Company acknowledge and represent that there are no other
promises, terms, conditions or representations (verbal or written) regarding any matter relevant
hereto. No supplement, modification, or amendment of any term, provision or condition of this
Agreement shall be binding or enforceable unless evidenced in writing and executed by the parties.
The provisions of Sections 2.4, 2.5 and 2.6 shall survive termination of this Agreement.
Section 4.2 Applicable Law. This Agreement shall be governed exclusively by and
construed in accordance with the laws of the State of Texas, notwithstanding choice of law
provisions thereof; and the venue of any litigation commenced hereunder shall be Houston, Texas.
Section 4.3 Injunctive Relief. Xxxxxx acknowledges that his services are of a
special, unique, unusual, extraordinary and intellectual character, which gives them a peculiar
value, the loss of which cannot be reasonably or adequately compensated in damages in an action at
law. If he should breach this Agreement, in addition to its rights and remedies under general law,
the Company shall be entitled to seek equitable relief by way of injunction or otherwise.
Section 4.4 Partial Invalidity. If the application of any provision of this
Agreement, or any section, subsection, subdivision, sentence, clause, phrase, word or portion of
this Agreement should be held invalid or unenforceable, the remaining provisions thereof shall not
be affected thereby, but shall continue to be given full force and effect as if the invalid or
unenforceable provision had not been included herein.
Section 4.5 Notices. Notices given under this Agreement shall be given by registered
or certified mail, postage prepaid, return receipt requested, or by personal delivery to the
respective addresses of the parties. Notices to Xxxxxx shall be sent to 0000 Xxxxxxxxx Xxxx, Xxxxx
000, Xxxxxxx, Xxxxx 00000, Attn: Xxxx X. Xxxxxx. Notices to the Company shall be sent to 0000
Xxxxxxxxx Xxxx, Xxxxx 000, Xxxxxxx, Xxxxx 00000, Attn: Chief Executive Officer. A mailed
first-class notice shall be deemed given two (2) business days after deposit with U.S. Postal
Service.
Section 4.6 Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which shall constitute one and the same
instrument.
Section 4.7 Assignment. This Agreement may not be assigned or encumbered in any way
by Xxxxxx. The Company may assign this Agreement to any successor (whether by
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merger, consolidation, or purchase of the Company’s stock) to all or a controlling interest in
the Company’s business, in which case this Agreement shall be binding upon and inure to the benefit
of such successor(s) and assign(s).
Section 4.8 Limitation on Waiver. A waiver of any term, provision, or condition of
this Agreement shall not be deemed to be, or constitute a waiver of any other term, provision or
condition herein, whether or not similar. No waiver shall be binding unless in writing and signed
by the waiving party.
Section 4.9 Attorney’s Fees. In the event that any proceeding is commenced involving
the interpretation or enforcement of the provisions of this Agreement, the Party prevailing in such
proceeding shall be entitled to recover its reasonable costs and attorneys’ fees.
Section 4.10 Taxes. All payments made pursuant to the provisions of this Agreement
shall be subject to the withholding of applicable taxes.
Section 4.11 Not for the Benefit of Creditors or Third Parties. The provisions of
this Agreement are intended only for the regulation of relations among the parties. This Agreement
is not intended for the benefit of creditors of the parties or other third parties and no rights
are granted to creditors of the parties or other third parties under this Agreement.
IN WITNESS WHEREOF, this Agreement is executed as of the Effective Date.
| US DATAWORKS, INC. | ||||||
| By | /s/ Xxxxxxx X. Xxxxx
|
|||||
| Name | Xxxxxxx X. Xxxxx | |||||
| Title: | Chairman & Chief Executive Officer | |||||
| /s/ Xxxx X. Xxxxxx | ||||||
| Xxxx X. Xxxxxx | ||||||
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SCHEDULE 1
| Inorganic Revenue | Blended Inorganic | |||||||||||||||||||
| Revenue Growth | ||||||||||||||||||||
| [enter Asset Value] | Growth Bonus | Bonus Percentage | ||||||||||||||||||
| Asset Value | $ | 6,000,000 | $ | 115,000 | 1.92 | % | ||||||||||||||
| From |
To |
Inorganic Growth Bonus Percentage |
||||||||||||||||||
| $ | - | $ | 5,000,000 | 2.00 | % | |||||||||||||||
| $ | 5,000,001 | $ | 10,000,000 | 1.50 | % | |||||||||||||||
| $ | 10,000,001 | $ | 25,000,000 | 1.00 | % | |||||||||||||||
| $ | 25,000,001 | and over | 0.75 | % | ||||||||||||||||
