Exhibit 10.1
FALCONSTOR SOFTWARE, INC. SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT
Employee: XxxXxxx Xxxx
SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT made this 7th day of
November, 2005 (hereinafter referred to as this "Employment Agreement"), by
FalconStor Software, Inc., a Delaware corporation (hereinafter referred to as
the "Corporation"), and XxxXxxx Xxxx with an address at 0 Xxxxxxxx Xxxxx, Xxx
Xxxxxxxxxx, XX 00000 (hereinafter referred to as the "Employee").
WHEREAS, the Employee desires to continue to be employed by the Corporation
as President and Chief Executive Officer ("CEO"), and the Corporation desires
that the Employee continue to be so employed, upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements hereinafter set forth, the parties intending to be legally bound,
agree as follows:
1. TERM OF EMPLOYMENT. The Board hereby employs the Employee as President
and CEO, and the Employee hereby agrees to serve the Corporation in such
capacity for the period commencing on September 1, 2004 (the "Effective Date")
and ending on December 31, 2007 (hereinafter referred to as the "Employment
Period"), unless sooner terminated as hereinafter provided.
2. SCOPE OF DUTIES. The Employee shall serve as a President and CEO. The
Employee shall report and be solely responsible to the Board of Directors of the
Corporation (the "Board"). The Employee's performance shall be reviewed by the
Board annually.
3. TIME TO BE DEVOTED TO EMPLOYMENT. The Employee shall, except during
vacation periods or absences due to temporary illness, devote substantially all
of his professional and business time, attention and energies to his duties and
responsibilities hereunder, and except for business trips which shall be
necessary or desirable in the Corporation's business, shall render such services
at the principal office of the Corporation. Nothing herein contained or in
Section 10 hereof shall prevent or be construed as preventing the Employee from
holding or purchasing five (5%) percent or less of any class of stock or
securities of a corporation which is listed on a national securities exchange or
regularly traded in the over-the-counter market, or making other investments or
participating in business ventures not in competition with the business of the
Corporation, as long as such investments and business ventures shall not require
any time during normal business hours and do not conflict with his duties or
obligations to the Corporation as provided in this Employment Agreement.
4. DIRECT COMPENSATION. (a) In consideration for services rendered and to
be rendered by the Employee hereunder during the Employment Period, the Employee
shall receive a salary of Two Hundred and Seventy-Five Thousand ($275,000)
Dollars per year, or such greater amount as the Board shall determine from year
to year based on the Employee's performance (the "Base Salary"), which shall be
paid semi-monthly in arrears or at such other intervals as other employees are
paid.
(b) The Employee shall be entitled to receive a cash bonus (i) for the
period from September 1, 2004 through December 31, 2005 (the "First Bonus
Period") in an amount equal to 2.50% of the Corporation's net operating income
for such period as determined by reference to the Corporation's income
statements, but without giving effect to (a) Statement of Financial Accounting
Standard 123R, or (b) such other extraordinary, non-recurring and/or other
unusual items as determined by the Compensation Committee of the Company's Board
of Directors and agreed by a majority of the independent directors of the
Company's Board of Directors (hereinafter referred to as the "Operating Income")
during the First Bonus Period, (ii) for the fiscal year of the Corporation
ending December 31, 2006 (the "Second Bonus Period") in an amount equal to the
product of (A) the Applicable Percentage (as defined below) and (B) the
Operating Income for the Second Bonus Period and (iii) for the fiscal year of
the Corporation ending December 31, 2007 (the "Third Bonus Period") in an amount
equal to the product of (A) the Applicable Percentage and (B) the Operating
Income for the Third Bonus Period. Each bonus payable to the Employee shall be
paid within 75 days after the last day of the applicable Bonus Period. For
purposes hereof, "Applicable Percentage" shall mean (I) 1.50%, if the percentage
obtained by dividing (x) the Operating Income for the Second Bonus Period or the
Third Bonus Period, as the case may be, by (y) the shareholders equity of the
Corporation during the Second Bonus Period or the Third Bonus Period, as the
case may be, as determined by reference to the annual audited balance sheet of
the Corporation for the year ending as of the end of such Bonus Period
(hereinafter referred to as "Shareholders Equity") is less than or equal to 5%,
(II) 2.00%, if the percentage obtained by dividing (x) the Operating Income for
the Second Bonus Period or the Third Bonus Period, as the case may be, by (y)
the Shareholders Equity is more than 5% but less than or equal to 10%, (III)
2.25%, if the percentage obtained by dividing (x) the Operating Income for the
Second Bonus Period or the Third Bonus Period, as the case may be, by (y) the
Shareholders Equity is more than 10% but less than or equal to 15%, (IV) 2.50%,
if the percentage obtained by dividing (x) the Operating Income for the Second
Bonus Period or the Third Bonus Period, as the case may be, by (y) the
Shareholders Equity is more than 15% but less than or equal to 20% and (V)
3.00%, if the percentage obtained by dividing (x) the Operating Income for the
Second Bonus Period or the Third Bonus Period, as the case may be, by (y) the
Shareholders Equity is more than 20%.
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5. FRINGE BENEFITS. (a) The Employee shall be entitled to participate in
any and all fringe benefits and/or plans, generally afforded to other employees
of the Corporation (to the extent the Employee otherwise qualifies under the
specific terms and conditions of each such benefit), including, without
limitation, group disability, life insurance, medical insurance and pension
plans (401K) which are, or which may become available generally to senior
personnel of the Corporation. The Employee shall be entitled to four (4) weeks
of vacation time during each year of the Employment Period.
(b) If the Corporation has a group disability plan in force at the time the
Employee's employment terminates, the Corporation shall offer the Employee the
opportunity to continue disability coverage at the Employee's own expense for
such period as the Employee desires; provided, that the Employee shall be
required to make all insurance premium contributions.
(c) Upon termination of the Employee's employment, the Corporation shall
offer the Employee the opportunity to continue the Employee's health insurance
coverage in effect immediately prior to such termination or health insurance
coverage generally available at such time to executives of the Corporation, at
the Employee's own expense, for such period as the Employee desires; provided,
that the Employee shall be required to make all insurance premium contributions.
6. TERMINATION OF EMPLOYMENT. During the Employment Period, the Employee's
employment may be terminated by the Board on the occurrence of any one or more
of the following events:
(a) The death of the Employee;
(b) For "Cause", which shall mean (i) the willful failure by the Employee
to substantially perform his duties hereunder (including the breach of any
provision of Section 9 and/or 10 hereof), for reasons other than death or
disability; (ii) the willful engaging by the Employee in misconduct materially
injurious to the Corporation; or (iii) the commission by the Employee of an act
constituting (A) common law fraud against the Corporation or (B) a felony; or
(c) If the Employee is unable substantially to perform the Employee's
duties and responsibilities hereunder to the full extent required by the Board
by reason of illness, injury or incapacity for three consecutive months, or for
more than four months in the aggregate during any period of twelve calendar
months (such condition constituting "disability" for the purposes of this
Employment Agreement); provided, however, that the Corporation shall continue to
pay the Employee's then current Base Salary until the Company acts to terminate
the Employee. The Employee agrees, in the event of a dispute under this Section
6(c), to submit to a physical examination by a licensed physician selected by
the Board and consented to by the Employee.
7. DEATH BENEFIT. In addition to all other insurance and similar death
benefits generally made available to employees of the Corporation, if the
Employee's death occurs during the term of the Employment Period, the
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Corporation shall provide a death benefit to the estate of the Employee equal to
the Employee's then current annual Base Salary at the date of death. Such death
benefit shall be payable as may be determined by the Corporation, but not less
often than six (6) equal monthly installments, payable on the last day of each
month, commencing in the month subsequent to the month in which the death
occurs.
8. SEVERANCE PAYMENT. (a) If the Corporation and the Employee do not enter
into a renewal agreement to be effective January 1, 2008, for a period of at
least two years and containing similar terms and conditions to those set forth
herein, then the Corporation will pay the Employee, as additional compensation,
an amount equal to the Employee's then current annual Base Salary, as determined
under Section 4(a), payable semi-monthly in arrears for the twelve months ending
December 31, 2008; such compensation is hereinafter referred to as the
"Severance Payment".
(b) Notwithstanding the provisions of Section 8 (a) above, the Employee
will not receive the Severance Payment if,
(i) the Corporation declines to enter into a renewal agreement with
the Employee because the Employee breached the confidentiality and/or
non-compete provisions of this Employment Agreement or any other material terms
or conditions of his employment;
(ii) the Employee has been terminated for Cause hereunder;
(iii) the Employee declines to enter into a renewal agreement with the
Corporation, and the Corporation has offered a renewal agreement for a period of
not less than two years, containing similar terms and conditions as discussed
herein; or
(iv) the Employee has received a change of control payment from the
Corporation that provides change of control benefits that are at least equal to
the amount that would be received by the Employee pursuant to Section 8(a)
above.
(c) If the Employee's employment is terminated for Cause, the Corporation's
sole obligation hereunder shall be to pay the Employee (i) any accrued and
unpaid Base Salary as of the date of termination, (ii) an amount equal to such
reasonable and necessary business expenses incurred by the Employee in
connection with the Employee's employment on behalf of the Corporation on or
prior to the date of termination, but not previously paid to the Employee, and
(iii) if the basis for such termination arises under clause (i) of the
definition of "Cause," his base Salary (at the rate in effect on the date of
termination) through the twelve-month anniversary of the date of termination in
accordance with the normal payroll practices of the Corporation with respect to
Base Salary.
9. DISCLOSURE OF INFORMATION. All memoranda, notes, records or other
documents made or compiled by the Employee or made available to him during the
term of his employment concerning the business of the Corporation shall be the
Corporation's property and shall be delivered to the Corporation on the
termination of the Employee's employment. The Employee shall not use for himself
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or others, or divulge to others, any proprietary or confidential information of
the Corporation, obtained by him as a result of his employment, unless
authorized by the Corporation. For purposes of this Section 9, the term
"proprietary or confidential information" shall mean all information which is
known only to the Employee or to the Employee and employees, former employees,
consultants or others in a confidential relationship with the Corporation and
relates to specific matters such as trade secrets, customers, potential
customers and vendor lists, pricing and credit techniques, program codes,
software design know-how, research and development activities, private
processes, and books and records, as they may exist from time to time, which the
Employee may have acquired or obtained by virtue of work heretofore or hereafter
performed for or on behalf of the Corporation or which he may acquire or may
have acquired knowledge of during the performance of said work, and which is not
known to others, or readily available to others from sources other than the
Employee or officers or other employees of the Corporation, or is not in the
public domain. In the event of a breach or a threatened breach by the Employee
of the provisions of this Section 9, the Corporation shall be entitled to an
injunction restraining the Employee from disclosing, in whole or in part, the
aforementioned proprietary or confidential information of the Corporation, or
from rendering any services to any person, firm, corporation, association or
other entity to whom such proprietary or confidential information, in whole or
in part, has been disclosed or is threatened to be disclosed. Nothing herein
contained shall be construed as prohibiting the Corporation from pursuing any
other remedies available to the Corporation for such breach or threatened
breach, including the recovery of damages from the Employee.
10. RESTRICTIVE COVENANTS. (a) The Employee hereby acknowledges and
recognizes the highly competitive nature of the Corporation's business and
accordingly agrees that, in consideration of the premises contained herein, he
will not from and after the date hereof and during the Employment Period until
the Designated Date (as hereinafter defined): (i) directly or indirectly engage
in any Competitive Activity (as hereinafter defined), whether such engagement
shall be as an officer, director, employee, consultant, agent, lender,
stockholder, or other participant or (ii) assist others in engaging in
Competitive Activity. As used herein, the term "Competitive Activity" shall mean
and include the development and/or marketing of computer hardware and/or
software for Storage Networking applications and other similar systems.
(b) As used in this Section 10, the "Designated Date" shall mean the
following:
(i) if the Employee terminates his employment with the Corporation
prior to the expiration of the Employment Period (other than as a result of a
breach by the Corporation of a material term or condition of this Employment
Agreement), then the "Designated Date" shall mean the second (2nd) anniversary
of the effective date of such termination;
(ii) if the Corporation terminates the employment of the Employee
under this Employment Agreement for Cause, then the "Designated Date" shall be
the second (2nd) anniversary of the effective date of such termination;
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(iii) if the Corporation, during the Employment Period, terminates the
employment of the Employee without Cause, then the "Designated Date" shall mean
the effective date of such termination; or
(iv) if the Corporation offers the Employee a renewal agreement
pursuant to Section 8(a) hereof and the Employee does not accept such agreement,
then the "Designated Date" shall mean December 1, 2009.
(c) It is the desire and intent of the parties that the provisions of this
Section 10 shall be enforced to the fullest extent permissible under the laws
and public policies applied in each jurisdiction in which enforcement is sought.
Accordingly, if any particular provision of this Section 10 shall be adjudicated
to be invalid or unenforceable, such provision of this Section 10 shall be
deemed amended to delete from the portion thus adjudicated to be invalid or
unenforceable, such deletion to apply only with respect to the operation of such
provisions of this Section 10 in the particular jurisdiction in which such
adjudication is made and, further, only to the extent required in order for this
Section 10 to be enforceable.
(d) With respect to Inventions (including but not limited to software) made
or conceived by the Employee, whether or not during the hours of his employment
or with the use of the Corporation's facilities, materials or personnel, either
solely or jointly with others during the Employee's employment by the
Corporation:
(i) The Employee shall inform the Corporation promptly and fully of
such Inventions by written report, setting forth in detail the procedures
employed and the results achieved. A report shall be submitted by the Employee
upon completion of any studies or research projects undertaken on the
Corporation's behalf whether or not in the Employee's opinion a given project
has resulted in an Invention.
(ii) The Employee shall apply, at the Corporation's request and
expense, for the United States and/or foreign letters patent or other
registrations either in the Employee's name or otherwise, as the Corporation
shall desire.
(iii) The Employee hereby assigns and agrees to assign to the
Corporation all of his right and interest to any and all such Inventions and to
make applications for United States and/or foreign letters patent or other
registrations granted upon such Invention.
(iv) The Employee shall acknowledge and deliver promptly to the
Corporation, without charge to the Corporation, but at its expense, such written
instruments and do such other acts in support of his inventorship, as may be
necessary in the opinion of the Corporation to obtain and maintain United States
and/or foreign letters patent or other registration and to vest the entire right
in such Inventions, patents and patent applications in the Corporation. The
Employee agrees that if the Corporation is unable because of the Employee's
mental or physical incapacity or unavailability or for any other reason to
secure the Employee's signature to apply for or to pursue any application for
any United States or foreign patents or copyright registrations covering
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Inventions assigned to the Corporation as above, the Employee hereby irrevocably
designates and appoints the Corporation and its duly authorized officers and
agents as the Employee's agent and attorney in fact, to act for and in the
Employee's behalf and stead to execute and file any such applications and to do
all other lawfully permitted acts to further the application for, prosecution,
issuance, maintenance or transfer of letters patent or copyright registrations
thereon with the same legal force and effect as if originally executed by the
Employee. The Employee hereby waives and irrevocably quitclaims to the
Corporation any and all claims, of any nature whatsoever, which the Employee now
or hereafter may have for infringement of any and all proprietary rights
assigned to the Corporation.
(v) The Corporation shall also have the royalty-free right to use in
its business, and to make, use, and sell products and/or services derived from
any Inventions, discoveries, concepts and ideas, whether or not patentable,
including, but not limited to applications, methods, formulas and techniques, as
well as improvements or know-how, whether or not within the scope of Inventions,
but which are obtained, created or made by the Employee during the Employment
Period, without payment of any additional compensation to the Employee.
(vi) For the purposes of this Employment Agreement, "Inventions" means
discoveries, concepts and ideas, whether patentable or not, including but not
limited to processes, methods, formulas and techniques as well as improvements
or know-how.
(e) If there is a breach or threatened breach by the Employee of the
provisions of this Section 10, the Corporation shall be entitled to an
injunction restraining him from such breach. Nothing herein contained shall be
construed as prohibiting the Corporation from pursuing any other remedies
available for such breach or threatened breach or any other breach of this
Employment Agreement.
(f) The Employee hereby warrants and represents that he is not prohibited
by any agreement or the order of any court from entering into and carrying out
the terms of this Employment Agreement. In particular, the Employee warrants and
represents that the scope of his activity is not restricted in any way with
respect to the design, development, enhancement, sale, marketing and/or
promotion of computer software and hardware.
11. (a) NOTICES. All notices required or permitted to be given under the
provisions of this Employment Agreement shall be in writing and delivered
personally or by certified or registered mail, return receipt requested, postage
prepaid to the following persons at the following addresses, or to such other
person at such other address as either party may request by notice in writing to
the other party to this Employment Agreement:
If to the Employee:
XxxXxxx Xxxx
0 Xxxxxxxx Xxxxx,
Xxx Xxxxxxxxxx, XX 00000
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If to the Corporation:
FalconStor Software, Inc.
0 Xxxxxxxxxx Xxxxxxxxxx
Xxxxx 0X00
Xxxxxxxx, Xxx Xxxx 00000
(b) CONSTRUCTION. This Employment Agreement shall be construed in
accordance with, and be governed by, the laws of the State of New York for
contracts entered into and to be performed in New York.
(c) SUCCESSOR AND ASSIGNS. This Employment Agreement and the various rights
and obligations arising hereunder shall inure to the benefit of and be binding
upon the Employee and his heirs, executors and administrators and upon the
Corporation and its successors (including, without limitation, by way of merger)
and assigns. This Employment Agreement is personal in nature and may not be
assigned or transferred by the Employee without the prior written consent of the
Corporation.
(d) ENTIRE AGREEMENT; AMENDMENT AND RESTATEMENT. This instrument contains
the entire understanding and agreement between the parties relating to the
subject matter hereof, and neither this Employment Agreement nor any provision
hereof may be waived, modified, amended, changed, discharged or terminated,
except by an agreement in writing signed by the party against whom enforcement
of any waiver, modification, change, amendment, discharge or termination is
sought. This Employment Agreement amends, restates and supersedes the Amended
and Restated Employment Agreement dated September 1, 2004 between the
Corporation and the Employee.
(e) COUNTERPARTS. This Employment Agreement may be executed simultaneously
in counterparts, each of which shall be deemed an original, and both of which
counterparts shall together constitute a single agreement.
(f) ILLEGALITY. Without limitation of Section 10(c) hereof, if any one or
more of the provisions of this Employment Agreement shall be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby.
(g) CAPTIONS. The captions of the sections hereof are for convenience only
and shall not control or affect the meaning or construction of any of the terms
or provisions of this Employment Agreement.
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IN WITNESS WHEREOF, the parties hereto have set their hands and executed
this Employment Agreement the day and year first above written.
FalconStor Software, Inc.
By: /s/ Xxx Xxxxx
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Xxx Xxxxx
Vice President and Chief Financial Officer
By: /s/ Xxxxxxx Xxxx
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XxxXxxx Xxxx
