EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement") dated as of February 1, 1999
between Computone Corporation, a Delaware corporation having its principal place
of business at Suite 100, 0000 Xxxxxxxx Xxxxx Xxxxxxx, Xxxxxxxxxx, Xxxxxxx 00000
(the "Employer") and Xxxxx X. Xxxxxx, an individual residing at 000 Xxxxxxx
Xxxx, Xxxxxxxxxx, Xxxxxxx 00000 ( the "Employee").
WITNESSETH:
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WHEREAS, the Employer desires to employ the Employee, and the Employee
desires to be employed by the Employer, all in accordance with the terms and
subject to the conditions set forth herein; and
WHEREAS, the parties are entering into this agreement to set forth and
confirm their respective rights and obligations with respect to the Employee's
employment by the Employer;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto, intending to be legally bound hereby,
mutually agree as follows:
1. Employment and Term
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(a) Effective on the date hereof, the Employer shall employ the
Employee and the Employee shall be employed by the Employer, as the Chief
Financial Officer of the Employer (the "Position"), in accordance with the terms
and subject to the conditions set forth herein for a term (the "Initial Term")
which shall commence on the date hereof and, subject to paragraphs 1(b) and 1(c)
hereof, shall terminate, on January 31, 2001.
(b) Unless written notice in accordance with this paragraph 1
terminating the Employee's employment hereunder if given by either the Employer
or the Employee not less than 180 days in advance of the termination date of
this Agreement, this Agreement shall be automatically extended for successive
terms of one year (each, a "Renewal Term"). The initial Term and each Renewal
Term are collectively referred to herein as the Term," and unless otherwise
provided herein or agreed by the parties hereto, all of the terms and conditions
of the Agreement shall continue in full force and effect throughout the Term
and, with respect to those terms and conditions that apply after the Term.
(c) Notwithstanding paragraph 1(b) hereof, the Employer, by action of
its Board of Directors (the "Board") and effective as specified in a written
notice thereof the Employee in accordance with the terms hereof, shall have the
right to terminate the
Employee's employment hereunder at any time during the Term hereof, but only for
Cause (as defined herein) or on account of the Employee's death or Permanent
Disability (as defined herein) as of the date of such death or Permanent
Disability.
(i) "Cause" shall mean (A) the Employee's willful and continued
failure substantially to perform his material duties with the Employer, or the
commission by the Employee of any activities constituting a violation or breach
under any material federal, state or local law or regulation applicable to the
activities of the Employer after notice thereof from the Employer to the
Employee and a reasonable opportunity for the Employee to cease such failure
breach or violation in all material respects, (B) fraud, breach of corporate
opportunity, dishonesty, misappropriation or other intentional material damage
to the property or business of the Employer by the Employee, (C) The Employee's
habitual intoxication or drug addiction or repeated absences other than physical
or mental impairment or illness, (D) the Employee's admission or conviction of,
or plea of nolo contendere to, any felony that in the reasonable judgement of
the Board, adversely affects the Employer's reputation or the Employee's ability
to carry out his obligations under this Agreement or (E) the Employee's
non-compliance with the provisions of paragraphs 2(b) or 6(b) hereof after
notice thereof from the Employer to the Employee and a reasonable opportunity
for the Employee to cure such non-compliance.
(ii) "Permanent Disability" shall mean a physical or mental disability
such that the Employee is substantially unable to perform those duties that he
would otherwise be expected to continue to perform and the nonperformance of
such duties has continued for a period longer than 90 consecutive days,
provided, however, that in order to terminate the Employee's employment
hereunder on account of Permanent Disability, the Employer must provide the
Employee with written notice of the Board's good faith determination to
terminate the Employee's employment hereunder for reason of Permanent Disability
not less than 30 days prior to such termination which notice shall specify the
date of termination. Until the specified effective date of termination by reason
of Permanent Disability, the Employee shall continue to receive compensation at
the rates set forth in paragraph 3 hereof less any payments received by the
Employee pursuant to the Employer's short-term disability insurance coverage. No
termination of this Agreement because of the Employee shall impair any rights of
the Employee under any disability insurance policy maintained by the Employer at
the commencement of the aforesaid 90-day period.
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(d) (i) If the Employer terminates the Employee's employment
hereunder for any reason other than for Cause or on account of the Employee's
death or Permanent Disability and such termination occurs as of a date that is
within 180 days preceding or within 180 days after the consummation of a Change
in Control (as defined herein) (such 180-day periods being hereinafter
collectively referred to as a "Change in Control Period"), the Employer shall
pay to the Employee within 30 days after the event giving rise to such payment
occurs an amount equal to the sum of (x) (1) the Employee's Base Salary (as
defined herein) accrued through the date of termination of the Employee's
employment hereunder and (2) any Bonus ( as defined herein) required to be paid
to the Employee pursuant to paragraph 3(b) hereof, with such payment described
in clauses (x)(1) and (x)(2) hereof being collectively referred to herein as the
"Accrued Obligation" and (y) a severance payment equal to one-half the
Employee's annual Base Salary as of the effective date of termination of the
Employee's employment hereunder.
(ii) If: (A) the Employer terminates the Employee's employment
hereunder for Cause, (b) this Agreement is terminated as a result of the death
or Permanent Disability of the Employee or (C) the Employer gives notice of
non-renewal of this Agreement effective as of a date that is not within a Change
in Control Period, the sole obligation of the Employer shall be to pay the
Accrued Obligation to the Employee.
(iii) "Change of Control" shall mean (A) the acquisition of
shares of the Employer by any "person" or "group" (as such terms are used in
rule 13d-3 under the Securities Exchange Act of 1934 as now or hereafter
amended) in a transaction or series of transactions that result in such person
or group directly or indirectly first owning beneficially more than 35% of the
Employer's Common Stock after the date of this Agreement, (B) the consummation
of a merger or other business combination after which the holders of voting
capital stock of the Employer do not collectively own 50% or more of the voting
capital stock of the entity surviving such merger or other business combination
or the sale, lease, exchange or other transfer in a transaction or series of
transactions of all or substantially all of the assets of the Employer or (C) as
the result of or in connection with any cash tender offer or exchange offer ,
merger or other business combination, sale of assets or contested election of
directors or any combination of the foregoing transactions ( a "Transaction"),
the persons who constituted a majority of the members of the Board on the date
hereof and persons whose election as members of the Board was approved by such
members then still in office or whose election was previously so approved after
the date hereof, but before the event that constitutes a Change of Control, no
longer constitute such a majority of the members of the Board then in office. A
transaction constituting a Change in Control shall only be deemed to have
occurred upon the closing of the Transaction
(e) Any notice of termination of this Agreement by the Employer to the
Employee or by the Employee to the Employer shall be given in accordance with
provisions of paragraph 10 hereof.
2. Duties of the Employee.
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(a) Subject to the ultimate control and discretion of the Board, the
Employee shall serve in the Position and perform all duties and services
commensurate with the Position. Throughout the Term, the Employee shall perform
all duties reasonably assigned or delegated to him under the By-laws of the
Employer or from time to time by the Board consistent with the Position. Except
for travel normally incidental and reasonably necessary to the business of the
Employer and the duties of the Employee hereunder, the duties of the Employee
shall be performed in the greater Atlanta, Georgia metropolitan area.
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(b) The Employee shall devote substantially all of the Employee's
business time and attention to the performance of the Employee's duties
hereunder and, during the term of his employment hereunder, the Employee shall
not engage in any other business enterprise which requires any significant
amount of the Employee's personal time or attention, unless granted the prior
permission of the Board. The foregoing provision shall not prevent the
Employee's purchase, ownership or sale of any interest in, or the Employee's
engaging (but not to exceed and an average of five hours per week) in, any
business which does not compete with the business of the Employer, the
Employee's taking actions permitted by paragraph 6(b) hereof or the Employee's
involvement in charitable or community activities, provided, that the time and
attention which the Employee devotes to such business and charitable or
community activities does bot materially interfere with the performance of his
duties hereunder.
(c) The Employee shall be entitled to 15 business days of leave during
each calendar year with full compensation for vacation to be taken at such time
or times, as the Employee and the Employer shall mutually determine. Unused days
of vacation may not be carried over from year to year or received in cash.
3. Compensation:
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For all services to be rendered by the Employer hereunder:
(a) Base Salary. The Employer shall pay the employee (i) a base salary
(the "Base Salary") at an annual rate of One Hundred Ten Thousand Dollars
($110,000) during the Initial Term and each renewal Term and (ii) such other
compensation as may, from time-to time, be determined by the Employer in its
sole discretion. Such salary and other compensation shall be payable in
accordance with the Employer's normal payroll practices as in effect from time
to time. If, during the Term, the Employee's duties and responsibilities
hereunder are materially increased as a result of his financial reporting duties
with respect to a new subsidiary of the Company acquired in a merger or other
acquisition, the Employee's annual Base Salary shall be increased to One Hundred
Twenty Six Thousand Five Hundred Dollars ($126,500).
(b) Bonus. The Employer shall pay the Employee (i) a quarterly bonus
of $5,000 for each quarter ending during the Term if the Employer's EBIT (as
defined herein) for such quarter exceeds $100,000 and (ii) an annual bonus of
$10,000 for each fiscal year ending during the Term if the Employer's EBIT for
such calendar year exceeds $1,000,000 (collectively, the "Bonus"). "EBIT" shall
mean, for any period, an amount equal to the Employer's Net Income (as defined
herein) for such period, plus (without duplication to the extent deducted in
determining Net Income) the sum of ( i )interest expense for such period, plus
(ii) income tax expense deducted in determining Net Income for such period, all
of which shall be determined in accordance with generally accepted accounting
principles. "Net Income" shall mean, for any period, the aggregate amount of net
income, after taxes, for such period. Notwithstanding the foregoing, EBIT shall
be determined without deducting any bonuses paid or accrued by the Company based
on EBIT.
(c) Stock Options. Effective on the date hereof, the Employer shall
grant the Employee options, which shall be non-qualified stock options, to
purchase an aggregate of 75,000 shares of the Employer's Common Stock with the
exercise price per share to be equal to the closing bid price of one share of
the Employer's Common Stock as reported on the OTC Bulletin Board on the date of
such grant. Such options shall have the following principal terms:
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(i) Such options shall become vested and become exercisable for a
period of ten years from the date hereof in installments as follows:
(A) 25,000 shares shall become vested and become exercisable on
and after the date of commencement of Employee's employment by
the Employer;
(B) 25,000 shares shall become vested and become exercisable on
and after the first anniversary of the date hereof; and
(C) an additional 25,000 shares shall become vested and become
exercisable on and after the second anniversary of the date
hereof;
(ii) Such options shall become fully vested and immediately
exercisable following a Change in Control and shall remain exercisable for a
period of five years from the date hereof;
(iii) Such options to the extent not then vested shall terminate
immediately in the event of (A) a termination of this Agreement by the Employer
for Cause or (B) the resignation of the Employee;
(iv) After such options become vested and become exercisable they
shall remain exercisable until the earlier of (A) the expiration of their term
or (B) one year after the termination of this Agreement by the Employer because
of the Employee's death or Permanent Disability; and
(v) The Employer shall prepare and file a Form S-8 registration
statement with the Securities and Exchange Commission as promptly as practicable
after the date hereof for the purpose of registering the Common Stock of the
Employer issuable upon exercise of such options.
(d) Other Benefits. From and after the date hereof and throughout the
Term, the compensation provided for in this paragraph 3 shall be in addition to
such rights as the Employee may have, during the Employee's employment hereunder
or thereafter, to participate in and receive benefits from or under the
Employer's medical, term life and disability insurance pans and such other
benefit plans the Employer may in its discretion establish for its employees or
executives.
4. Expenses.
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The Employer shall promptly reimburse the Employee for all reasonable
expenses paid or incurred by the Employee in connection with the performance of
the Employee's duties and responsibilities hereunder upon presentation of
expense vouchers or other appropriate documentation.
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5. Indemnification.
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The Employer shall indemnify the Employee, to the fullest extend
permitted by law, for any and all liabilities to which the Employee or his
Estate may be subject as a result of, in connection with or arising out of his
service as an employee, an officer or a director of the Employer hereunder or
his service as an employee, officer or director of another enterprise at the
request of the Employer, as well as the costs and expenses (including attorneys'
fees) of any legal action brought or threatened to be brought against him or the
Employer as a result of, in connection with or arising out of such employment.
The Employer will advance professional fees and disbursements to the Employee in
connection with any such legal action, provided the Employee delivers to the
Employer his undertaking to repay any expenses so advanced in the event it is
ultimately determined that the Employee is not entitled to indemnification
against such expenses. Expenses reasonably incurred by the Employee in
successfully establishing the right to indemnification or advancement of
expenses, in whole or in part, pursuant to this paragraph 5, shall also be
indemnified by the Employer. The Employee shall be entitled to the full
protection of any insurance policies which the Employer may elect to maintain
generally for the benefit of their respective directors and officers. The rights
granted under this paragraph 5 shall survive the termination of this Agreement.
6. Confidential Information
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(a) The Employee understands that in the course of his employment by
the Employer, the Employee will receive confidential information concerning the
business of the Employer, and which the Employer desires to protect. The
Employee agrees that he will not at any time during or after the period of his
employment by the Employer reveal to anyone outside the Employer, or use for his
own benefit, any such information that has been designated as confidential by
the Employer or understood by the Employee to be confidential, without specific
written authorization by the Employer. Upon termination of this Agreement, upon
the request of the Employer, the Employee shall promptly deliver to the Employer
any and all written materials, records and documents, including all copies
thereof, made by the Employee or coming into his possession during the Term and
retained by the Employee containing or concerning confidential information of
the Employer and all other written materials furnished to and retained by the
Employee by the Employer for his use during the Term, including all copies
thereof, whether of a confidential nature or otherwise.
(b) During the Employee's employment with the Employer, the Employee
shall not be engaged as an officer, director or employee of, or in any way be
associated in a management or ownership capacity with, any corporation or other
entity that conducts a business in competition with the business of the Employer
during the Term, provided, however, that the Employee may own not more than
4.99% of the outstanding securities, or equivalent equity interests, of any
class of any corporation or other entity which is in competition with the
business of the Employer, which securities are listed on a national securities
exchange or traded in the over-the-counter market
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7. Representation and Warranty of the Employee.
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The Employee represents and warrants that he is not under any
obligation, contractual or otherwise, to any other firm or corporation, which
would prevent his entry into the employ of the Employer or his performance of
the terms of this Agreement.
8. Entire Agreement; Amendment.
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This Agreement contains the entire agreement between the Employer and
the Employee with respect to the subject matter hereof, and supersedes all prior
contemporaneous agreements and understandings, inducements or conditions,
express or implied, oral or written, including without limitation, the
Consulting Agreement between the Employer and the Employee dated October 29,
1998 (the "Prior Consulting Agreement"), except as herein contained. The
Employee and the Employer understand and agree that the Prior Consulting
Agreement is terminated effective as of the date hereof, subject to the terms of
this Agreement. The Employee acknowledges and agrees that all obligations of the
Employer under the Prior Consulting Agreement, including without limitation, the
payment of any money, have been satisfied. This Agreement may not be amended,
waived, changed, modified or discharged except by an instrument in writing
executed by the parties hereto.
9. Assignability.
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This Agreement shall be binding upon, and inure to the benefit of, the
Employer and its successors and assigns hereunder. This Agreement shall not be
assignable by the Employee, but shall inure to the benefit of the Employee's
heirs, executors, administrators and legal representatives.
10. Notice.
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Any notice which may be given hereunder shall be in writing and be
deemed given when had delivered and acknowledged or, if mailed, one day after
mailing by registered or certified mail, return receipt requested, to either
party hereto at their respective addresses stated above, or at such other
address as either party may by similar notice designate, provided that photocopy
of such notice is dispatched at the same time as the notice is mailed. Copies of
such notices also shall be sent to the Employer's counsel attention: Xxxxxxxx X.
Xxxxxx, Esq., Duane, Morris & Heckscher LLP, 0000 Xxx Xxxxxxx Xxxxx,
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000 (telecopier no: 215-979-1213) and to Xxxxxxx X.
Xxxxxx, Chairman of the board, c/o Pennsylvania Merchant Group, Xxxx Xxxxx
Xxxxxxxxx Xxxxxx, Xxxx Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000 (telecopier no:
000-000-0000.
11. Specific Performance.
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The parties agree that irreparable damage would occur in the event
that any of the provisions of paragraph 6 hereof were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of paragraph 6 hereof and to enforce
specifically the terms and provisions of paragraph 6 hereof, this being in
addition to any other remedy to which any party is entitled at law or in equity.
12. No Third Party Beneficiaries.
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Nothing in this Agreement, express or implied, is intended to confer
upon any person or entity other than the parties (and the Employee's heirs,
executors, administrators and legal representatives) any rights or remedies of
any nature under or by reason of this Agreement.
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13. Successor Liability.
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The Employer shall require any subsequent successor, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all of the business and/or assets of the Employer to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Employer would be required to perform it if such succession had
taken place.
14. Arbitration.
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Any dispute which may arise between the parties hereto shall be
submitted to binding arbitration in Atlanta, Georgia in accordance with the
Rules of the American Arbitration Association; provided that any such dispute
shall first be submitted to the Board in an effort to resolve such dispute
without resort to arbitration, and provided, further, that the Board shall have
a period of 60 days within which to respond to Employee's submitted dispute and
if the Board fails to respond within said time, or the Employee's dispute is not
resolved, the matter may then be submitted for arbitration.
15. Waiver of Breach.
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The failure at any time to enforce or exercise any right under any of
the provisions of the Agreement or to require at any time performance by the
other parties of the provisions hereof shall in no way be construed to be a
waiver of such provisions or to affect either the validity of this Agreement or
any part hereof, or the right of any party hereafter to enforce or exercise its
rights under each and every provision in accordance with the terms of this
Agreement.
16. Severability.
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The invalidity or unenforceability of any term, phrase, clause,
paragraph, restriction, covenant, agreement or other provision hereof shall in
no way affect the validity or enforceability of any other provision, or any part
thereof, but this Agreement shall be construed as if such invalid or
unenforceable term, phrase, clause, paragraph, restriction, covenant, agreement
or other provision had never been contained herein unless the deletion of such
term, phrase, clause, paragraph, restriction, covenant, agreement or other
provision would result in such a material change as to cause the covenants and
agreements contained herein to be unreasonable or would materially and adversely
frustrate the objectives of the parties as expressed in this Agreement.
17. Survival of Benefits.
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Any provision of this Agreement which provides a benefit to the
Employee and which by the express terms hereof does not terminate upon the
expiration of the Term shall survive the expiration of the Term and shall remain
binding upon the Employer until such time as such benefits are paid in full to
the Employee or his Estate.
18. Construction.
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This Agreement shall be governed by and construed in accordance with
the internal laws of the State of Georgia, without giving effect to principles
of conflict of laws. All headings in this Agreement have been inserted solely
for convenience of reference only, are not to be considered a part of this
Agreement and shall not affect the interpretation of any of the provisions of
this Agreement.
IN WHITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first written above.
COMPUTONE CORPORATION
By: /s/ Xxxxx X. Xxxxxxxxx
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Xxxxx X. Xxxxxxxxx, President
and Chief Executive Officer
/s/ Xxxxx X. Xxxxxx
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Xxxxx X. Xxxxxx
