EXHIBIT 10.22
FARMSTEAD TELEPHONE GROUP, INC.
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EMPLOYMENT AGREEMENT
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This Agreement is made as of the 15th day of January 2005 between Farmstead
Telephone Group, Inc., a Delaware corporation (the "Company"), ▇▇▇▇▇▇ ▇▇▇▇▇
(the "Executive").
RECITALS
The Company is engaged in the sale of new and refurbished business
communications products (the "Business").
The Company desires to employ the Executive and to ensure the continued
availability to the Company of the Executive's services, and the Executive
is willing to accept such employment and render such services, all upon and
subject to the terms and conditions contained in this Agreement.
NOW, THEREFORE, in consideration of the mutual and dependent promises
hereinafter set forth, the parties intending to be legally bound do hereby
agree as follows:
ARTICLE I
Employment
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Section 1.1 Employment. The Company agrees to employ Executive
during the Employment Period (referred to in Section 2.1 (a) below) as an
Executive Vice President of the Company. Executive shall begin his
employment with the Company (the "Commencement Date) on January 15th, 2005.
Section 1.2 The Executive shall serve as an Executive Vice President
of the Company, or in such other equal or superior capacity as may be
designated by the president and Chief Executive Officer of the company.
Executive shall perform such duties and services consistent with such a
position as may be assigned to him from time to time by the President and
CEO. During the Employment Period, Executive shall devote substantially
all of his working time, attention and skill during the normal business
week to the business and affairs of the Company and shall perform
faithfully and diligently his duties as Executive Vice President.
Notwithstanding the above, during the Term, Executive may serve on the
boards of directors of other corporations so long as the business of such
corporations is not competitive with the business of the Company.
Section 1.3 Compensation.
(a) Base Salary. The Company shall pay to Executive during each
calendar year during the Employment Period (as referred to in Section
2.1(a) below) an annual base salary (the "Base Salary"). The initial rate
of Base Salary effective as of March 1, 2005 is $175,000 and Executive
shall continue to be paid at that annual rate unless and until such rate is
increased by the Board in its discretion, provided that the Board shall not
be entitled to decrease Executive's Base Salary except in the case of
"Permissible Base Salary Reduction" that is implemented on or after January
1, 2006. For purposes of this Agreement a "Permissible Base Salary
Reduction" shall occur when the Board in its discretion reduces Executive's
Base Salary in response to unsatisfactory Company performance; provided
that the reduction is accompanied by (i) a reduction of at least equal
proportion to the annual base salary of the Chairman of the Board (if that
position is held by an individual other than the Executive) and (ii) the
authorization of the Board for the Executive to implement reductions to the
annual base salaries of other senior executives of the Company.
(b) Annual Bonus. For each calendar year during the Term of this
Agreement commencing 2005, Executive shall be eligible for an annual bonus
of up to one hundred percent of Executive's Base Salary for that year,
which shall be determined and paid in accordance with subsections (i) (ii)
and (iii) below. (Pro-rated in first year for ten months)
(i) At the outset of each subject year, Executive shall
present for approval by the President/CEO an annual pro-
forma operating plan that includes the target earnings
before interest, taxes, depreciation and amortization
("EBITDA") for the Company for that subject year.
(ii) A bonus for the subject year shall be paid to Executive
in the event the Company attains at least eighty five
percent (85%) of the target EBIDTA that is approved by
the Board of Directors for that year. The bonus pool
will be created at 100% of Executive's base and paid on a
sliding scale with a minimum attainment of 85%. That
percentage shall be determined by and correspond to the
percentage of the target EBITDA that is attained by the
Company.
(iii) If earned, the Company shall pay Executive the annual
bonus for the subject year within fifteen days (15) days
following the closing by the Company of its books for
that year.
Section 1.4 Equity Compensation.
(a) Warrant. Executive simultaneously with the execution of this
agreement has been issued a Warrant entitling Executive to
purchase 250,000 shares at the fair market value of the Stock
The Executive's rights under the Warrant are fully vested and
non-forfeitable. The Warrant is exercisable, in whole or in
part, at any time and from time to time on or before the
Expiration Date set forth in the Warrant. The Warrant shall be
freely transferable in accordance with Article 4 of the
Warrant. The Warrant is not subject to the Plan. Executive
acknowledges that neither the Warrant or the underlying Shares
will be registered under the Federal Securities Act of 1933 and
any applicable state securities laws as of the date o this
Employment Agreement. Warrants will vest as follows:
50,000 exercisable July 15th, 2005
100,000 exercisable January 15th, 2006
100,000 exercisable January 15th 2007
(b) General. Executive is an experienced businessperson very
familiar with the business in which the Company is engaged.
Executive has been provided with all information regarding the
business and financial circumstances of the Company which he
has requested. Further, the Executive has been advised by his
independent professional advisors in connection with this
Agreement.
Section 1.5 Benefits.
(a) Standard Benefits. The Executive shall be entitled during the
Term of this Agreement to participate in any Company benefits
for executive officers, including but not limited to four (4)
weeks paid annual vacation (which shall be administered in
accordance with the Company's standard vacation policy), health
insurance and other benefits generally provided to such
executive officers.
(b) Other Benefits. In addition, Executive also shall be entitled
to the following other benefits during the Term of this
Agreement:
(i) The Company shall pay provide the Executive a company
car. The company shall be responsible for car insurance
and maintenance.
(ii) Executive can reside in Norfolk Virginia, but will be in
East Hartford as required. While traveling, company will
pay for reasonable hotel and expenses.
(c) Upon submission of appropriate invoices and vouchers, the
Company shall pay or reimburse Executive for all reasonable
expenses that he incurs in the performance of his duties.
ARTICLE II
Term and Termination
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Section 2.1 Employment Period. Subject to the terms of Section 2.2
below, the Company agrees to employ the Executive from the Commencement
Date until December 31, 2007 (the "Term").
Section 2.2 Expiration or Termination of Employment. Employment
under this Agreement will be terminated upon the earlier to occur of:
(a) expiration of the Term;
(b) upon Executive's death;
(c) upon Executive's permanent disability; or
(d) upon the date the Employment Period is terminated by the
Company or Executive as provided in Sections 2.3 or 2.4.
Section 2.3 Termination by the Company. The Term of this Agreement
shall end if the Company determines to terminate Executive either "for
cause" or "without cause" at any time during the Term of this Agreement.
Except in the case of termination "for cause," the termination by the
Company will not be effective until thirty (30) days after the Company has
given written notice to the Executive of such termination.
Section 2.4 Termination by Executive. The Term of this Agreement
shall end if, at any time during the Term, the Executive determines to
terminate his employment either "voluntarily" or "with good reason." The
Executive may terminate his employment voluntarily upon ninety (90) days
written notice to the Company, provided that the Company may require
Executive to vacate the Company's premises prior to the expiration of such
ninety (90) day period so long as the Company continues to provide the
applicable then-current compensation and benefits to Executive for the
employment upon written notice to the Company, effective immediately, upon
the occurrence of "good reason" as defined below, provided that such notice
must be given by Executive within thirty (30) days after the event
constituting good reason.
Section 2.5 Defined Terms. The following terms shall have the
meanings prescribed:
(a) "For cause" shall mean (i) a conviction of Executive for the
willful
commission of a felony or the willful perpetration by Executive of a
material dishonest act against the Company, or (ii) the willful failure of
Executive to act in accordance with any reasonable instruction of the Chief
Executive Officer or the Board relating to the performance of Executive's
employment duties in accordance with this Agreement, if such failure is not
corrected within seven business days after Executive's receipt of written
notice of the Chief Executive Officer of such failure; provided however,
that the provisions of this Section 2.5 (a) (ii) shall not constitute "for
cause" if an event constituting "good reason" (as defined below) has
occurred within 60 days prior to such notice.
(b) "Good reason" shall mean a reduction in Base Salary other than
a Permissible Base Salary Reduction, a material adverse change
in the method of determining Executive's bonus, a material
reduction in Executive's responsibilities or benefits, any
other material breach of this Agreement by the Company.
Section 2.6 Severance Pay.
(a) If the Company terminates this Agreement without cause as
referred to in Section 2.3, the Executive shall be entitled to severance
equal to three times the Executive Compensation Amount (as defined below).
For purposes of this Agreement, the "Executive Compensation Amount" at any
time shall mean the total of the Executive's then current Base Salary plus
the average amount of the annual bonuses paid to Executive under Section
1.3 (b) for the three most recent calendar years, including the Assumed
Bonus, as defined below, for the calendar year in which the termination
without cause becomes effective. In the event the termination without
cause is effective on or before December 31, 2005, such severance shall be
paid in equal weekly installments over the twelve (12) months following the
effective date of the termination. In the event the termination without
cause is effective any time from January 1 through December 31, 2006, such
severance shall be paid as follows: one half (1/2) within fifteen (15) days
following the effective date of termination and the balance in equal weekly
installments over the twelve (12) months following the effective date of
the termination. In the event the termination without cause is effective
on or after January 1, 2007, such severance shall be paid in full within
fifteen (15) days following the effective date of termination. The
Executive also shall be entitled to receive all standard health benefits
referred to in section 1.5 (a) and 1.5 (b) (iv) until the earlier of (x)
the date Executive commences receiving benefits from another employer or
(y) twenty four (24) months from the effective date of termination. The
"Assumed Bonus" shall mean the bonus that Executive would have received
under Section 1.3 (b) assuming that the average monthly EBITDA run rate for
the Company during that calendar year through end of the month immediately
prior to the month in which the termination without cause becomes effective
was to remain constant for the balance of that calendar year. It is
understood and agreed that the computation of the bonus component of the
Executive Compensation Amount shall involve the maximum available number of
calendar years if the duration of Executive's employment is less than three
calendar years including the calendar year in which the termination without
cause becomes effective.
(b) If the Executive terminates this Agreement with good reason as
referred to in Sections 2.4 and 2.5 (b), the Executive shall be entitled to
severance pay equal to three times the Executive Compensation Amount to be
paid as provided in Section 2.6 (a). Executive shall also be entitled to
continue to receive all benefits as referred to in Section 2.6 (a) during
the period referred to in Section 2.6 (a).
(c) Executive shall not be entitled to severance pay or other
compensation from the Company if the Term of the Agreement expires as
provided in Section 2.2 (a), is terminated for cause by the Company as
referred to in Sections 2.3 and 2.5 (a), or if the Executive leaves the
Company voluntarily as provided in Section 2.4.
Section 2.7 Obligations Upon Death. If the Executive dies during
the Term of this Agreement, the Company's obligations under this Agreement
shall terminate immediately and the Executive's estate shall be entitled to
all arrearage of salary and expenses but shall not be entitled to further
compensation. In addition, Executive's estate shall be entitled to receive
such benefits under the terms of any plans and programs of the Company
applicable to Executive.
Section 2.8 Termination Upon Permanent Disability. If the Executive
is permanently disabled, as determined by the insurance carrier
underwriting the benefit in Section 1.5 (b) (iv), the Executive's
employment with the Company shall terminate, and the Executive shall be
entitled to benefits under the insurance maintained by the Company as
provided in that section and under any other Company plan or program.
Section 2.9 Survival of Provisions. Notwithstanding anything else
in this Agreement, the provisions of Articles III, IV and V shall survive
the termination of Executive's employment with the Company.
ARTICLE III
Covenants, Representations and Warranties
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Section 3.1 Covenant Not to Disclose. The Executive agrees that, in
performance of his normal duties with the Company and by virtue of the
relationship of trust and confidence between the Executive and the Company,
he possesses and will possess certain knowledge of operations and other
confidential information of the Company which are of a special and unique
nature and value to the Company. The Executive covenants and agrees that
he will not, at any time, whether during the Term of this Agreement, or for
twenty four (24) months after the expiration or termination of this
Agreement, otherwise, reveal divulge or make known to any person or entity
(other than the Company) or use for his own account, any Company
confidential record, data, plan, trade secret, policy, strategy, method or
practice of obtaining or doing business, computer program, know-how or
knowledge relating to customers, sales, suppliers, market developments,
knowledge relating to customers, sales suppliers, market developments,
equipment, processes, products or any other confidential information
whatever (the
"Confidential Information"), whether or not obtained with the knowledge and
permission of the Company and whether or not developed, devised or
otherwise created in whole or part through the efforts of the Executive.
The Executive further covenants and agrees that he shall retain all
Confidential Information which he acquires or develops in trust for the
sole benefit of the Company and its successors and assigns. Confidential
Information shall not include any information which has entered the public
domain other than by reason of a disclosure by the Executive or which is
made available by a third party to Executive right to disclose. The
Executive agrees to deliver to the Company at the termination of his
employment or at any other time the Company may request, all Company
property, including, but not limited to, Confidential Information which he
may then possess or have under control.
Section 3.2 Inventions and Patents. The Executive agrees that all
inventions, innovations or improvements in the Company's methods of
conducting its business (including new contributions, improvements, ideas
and discoveries, whether patentable or not) conceived or made by him during
the Employment Period belong to the Company. The Executive agrees to
promptly disclose such inventions, innovations or improvements to the
Company and take all actions reasonably requested by the Company to
establish and confirm such ownership.
ARTICLE IV
Covenant Not To Compete
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Section 4.1 Restrictive Covenant. The Executive covenants and
agrees with the Company so long as he is employed by the Company, and for
twenty-four (24) months following the effective date of termination of
Executive's employment with the Company for which he receives a severance
benefit pursuant to Sections 2.6 (a) or (b), Executive shall not anywhere
in the Restricted Area, either directly or indirectly, compete with, own,
have an interest in, manage, engage in or be employed by, connected with or
work for, any person, corporation, partnership or other entity that
competes with the Business of the Company or its successors or assigns, or
which is owned by, affiliated with, or the owner of any such competitor of
the Company, without the written consent of the Company.
Section 4.2 Definitions. The following terms shall have the
meanings prescribed:
(a) "Business" shall refer to the Business described in the
Recitals to this Agreement. The Business shall include any of the
foregoing activities as conducted by the Company (i) as of the date of
execution of this Agreement, (ii) during the Term of this Agreement, (iii)
as of the termination or expiration date, or (iv) as reasonable proposed by
the Company as of the termination or expiration date.
(b) "Compete" shall mean engaging, participating, or being involved
in any
respect or in any capacity in the business of furnishing any aid,
assistance or service of any kind to any person or entity in connection
with the trading, leasing, buying, selling, exchanging, lending to,
borrowing from, marketing, merchandising, importing, exporting,
distributing or producing of any product or service similar in either
design or function, or both, to any product or service of the Business.
(c) "Restricted Area" shall mean any geographic area in which the
Company is doing Business at any time during this Agreement.
Section 4.3 Non-Compete Election. In the event that the Executive
leaves the employment of the Company in circumstances that would not
otherwise require the Company to make a severance payment, the Company may,
at its election, decide to make a severance payment to Executive for up to
six (6) months and the non-compete provisions of this Article IV shall
apply during such designated period. Such severance pay shall be equal to
1/12 of the Executive Compensation Amount multiplied by the number of
months designated by the Company (up to six months) as the severance
period. Such severance shall be paid in a lump sum within fifteen (15)
days after the effective date of termination and Executive also shall be
entitled to continue to receive all benefits as provided in Section 1.5 (a)
until the earlier of (x) the date Executive commences receiving benefits
from another employer, or (y) the completion of such designated severance
period.
Section 4.4 "Blue-Pencil" Rule. The Executive and the Company
desire that the provisions of Article IV be enforced to the fullest extent
permissible under the laws and public policies in each jurisdiction in
which enforcement is sought. If a court of competent jurisdiction,
however, determines that any restrictions imposed on the Executive in this
Article IV are unreasonable or unenforceable because of the duration, area
of restriction, or otherwise, the Executive and the Company agree and
intend that the court shall enforce this Article IV to whatever extent the
court deems reasonable The parties intend that the court shall have the
right to strike or change any provision of Article IV and substitute
therefore different provisions to effect the intent of this Section 4.4.
Section 4.5 Legitimate Purpose. The Executive has read carefully
all of the terms and conditions of this Article IV and agrees that the
restraints set forth herein: (a) are reasonable and necessary to support
the legitimate business interests and goodwill of the Company, and (b) will
not preclude the Executive from earning a livelihood during the life of
this Article IV.
ARTICLE V
Change in Control
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Section 5.1 Change in Control Definition. A "change in control" of
the Company shall be deemed to have occurred if (a) any "person" (as such
term is used in
Sections 13 (d) and 14 (d) of the Securities Exchange Act of 1934 (the
"Exchange Act") as amended is or becomes the "beneficial owner" (as defined
in Section 13d-3 under the Exchange Act), directly or indirectly, of
securities representing more than thirty (30%) percent of the combined
voting power of the Company's then outstanding securities, or if (b) over
any twelve (12) month period ("Period") during the Term of this Agreement,
individuals who at the beginning of such Period constitute the Board of the
Company do not constitute at least fifty (50%) percent of the number of
Directors elected during such twelve (12) month Period, or if (c) the Board
adopts a resolution, in its sole discretion, to the effect that a material
change of control has occurred for the purposes of this Agreement, or if
(d) there is a sale by the Company of substantially all of the assets of
the Company to any person (as such term in used in Sections 13 (d) and 14
(d) of the Exchange Act) that is not otherwise owned or controlled directly
or indirectly by the Company. For purposes of clause (b) above, a person
who was not a Director at the beginning of such Period but who has (i)
filled the place of a Director who has died or has retired in the ordinary
course in accordance with any Company policies then in effect, and (ii) has
been approved in advance by Directors who constitute at least two thirds
(2/3rds) of the Directors who were, or are deemed to be, Directors at the
beginning of the Period shall for the purposes of this provision be deemed
to be a Director since the beginning of the Period. Upon the occurrence of
a change of control described above, the Executive shall have the right to
elect to terminate his employment under this Agreement by resignation at
any time during the thirty (30) day period immediately following the
expiration of six (6) calendar months from the event giving rise to said
change in control, and such resignation shall be effective fourteen (14)
days after delivery of such resignation in written form to the Company.
Nothing herein shall prevent Executive from terminating his employment for
good reason, pursuant to section 2.4, at any time.
Section 5.2 Impact of Change in Control. Upon resignation by
Executive after a change in control as provided in Section 5.1 above, the
Company shall pay the termination benefit described in Section 2.6 (a) and
all then unvested Warrants shall immediately become vested.
Section 5.3 Change in Control Payments. Severance payments, any
other payments, and amounts resulting from acceleration of unvested stock
options related to a change of control shall be payable in full, except to
the extent that if such payments and resultant additional parachute tax
penalties result in a reduction of the net amount received by the
Executive, payment above the limits of Section 280 G of the Internal
Revenue Code of 1986 will not be made.
ARTICLE VI
Miscellaneous
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Section 6.1 Notices. All notices required by this Agreement shall
be in writing and shall be sufficiently given if hand delivered, delivered
by overnight delivery service,
or mailed by registered or certified mail. Return receipt requested, to
the following addresses:
If to the Company: ▇▇▇▇-▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
President and Chief Executive Officer
Farmstead Telephone Group, Inc.
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If to the Executive: At the most recent address available to the
Company's employment records.
Any party may change its address by written notice to the other party. All
notices shall be deemed to be given as of the date so delivered or mailed.
Section 6.2 Waiver. The waiver by any party of any breach or
default of any provision of this Agreement shall not operate as a waiver of
any subsequent breach.
Section 6.3 Insurance. The Company may, at its election and for its
benefit, insure the Executive against accidental loss or death, and the
Executive shall submit to a physical examination and supply such
information as may be required in connection therewith.
Section 6.4 Complete Assignment. This Agreement embodies the
complete agreement and understanding between the parties and supersedes and
preempts any prior understandings, agreements or representations by or
between the parties, whether written or oral, which relate to the subject
matter hereof in any way.
Section 6.5 Construction and Interpretation. Whenever possible,
each provision of this Agreement will be interpreted in such manner as to
be effective and valid under applicable law, but if any provision of this
Agreement is held to be invalid, illegal or unenforceable in any respect
under any applicable law or rule in any jurisdiction, such invalidity,
illegality or unenforceability will not affect any other provision or any
other jurisdiction, but his Agreement will be reformed and reconstructed
and enforced to the maximum extent possible, in such jurisdiction as if
such invalid, illegal or unenforceable provision never had been contained
herein.
Section 6.6 Counterparts. This Agreement may be executed in
separate counterparts, each of which is deemed to be an original in all of
which taken together constitute one and the same agreement.
Section 6.7 Amendments. Any provisions of this Agreement may be
amended only with the prior written consent of the Company and the
Executive.
Section 6.8 Governing Law. This Agreement shall be interpreted
under the laws of the State of Connecticut.
Section 6.9 Assignment. This Agreement may not be assigned by any
party hereto, provided that the Company may assign this Agreement in
connection with a merger or consolidation or the sale of substantially all
of its assets, to the surviving corporation or purchaser as the case may
be, so long as such assignee assumes the Company's obligations hereunder.
FARMSTEAD TELEPHONE GROUP, INC.
By: /s/▇▇▇▇-▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
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▇▇▇▇-▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇, March 1, 2005
President/CEO
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By: /s/▇▇▇▇▇▇ ▇▇▇▇▇
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▇▇▇▇▇▇ ▇▇▇▇▇, March 1st, 2005
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