EMPLOYMENT AGREEMENT
Exhibit 10.3
THIS
EMPLOYMENT AGREEMENT (this “Agreement”)
is entered into as of this 22nd day of June 2010 (the “Effective
Date”) by and between Xxxxx X. Xxxxxxx (“Executive”)
and Verecloud, Inc., a Nevada corporation (the “Company”).
R E C I T A L
S
WHEREAS, each
of Executive and the Company desires that Executive be employed in the capacity
set forth below, under the terms and conditions set forth herein;
NOW,
THEREFORE, in consideration of the foregoing and the following
representations, warranties, covenants and agreements, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Executive and the Company, intending to be legally bound hereby,
agree as follows:
Section
1. Position and
Duties.
Executive
shall be employed as the Chief Financial Officer of the Company and, subject to
the general control of the President, Chief Executive Officer and/or Board of
Directors, shall perform such responsibilities as are reasonably required of
Executive by the President, Chief Executive Officer and/or Board of Directors
together with those generally commensurate with the responsibilities performed
by the Chief Financial Officer in similarly situated
companies. Executive shall perform Executive’s duties in good faith
and shall devote Executive’s full business time and effort to the performance of
Executive’s duties hereunder. The foregoing shall not preclude
Executive from engaging in civic, charitable or religious activities or from
devoting a reasonable amount of time to private investments or, with the consent
of the Chief Executive Officer, from serving on the boards of directors of other
entities, as long as such activities and service do not materially interfere or
conflict with Executive’s responsibilities to the Company.
Section
2. At-Will
Employment.
The
parties agree that Executive’s employment with the Company shall be “at-will”
employment and may be terminated at any time with or without Cause at the option
of either the Company or Executive. No provision of this Agreement
shall be construed as conferring upon Executive a right to continue as an
employee of the Company.
1
Section
3. Compensation.
(a) Base
Compensation. For all services to be rendered pursuant to this
Agreement by Executive, and subject to the other terms and conditions of this
Agreement, Executive shall receive base salary at a rate of $180,000.00 per
annum, or such higher rate as the Company’s Board of Directors may determine
from time to time (the “Base
Salary”), payable in accordance with the Company’s normal payroll
practices.
(b) Incentive
Compensation. The Company shall award the Executive annual
incentive compensation (“Incentive
Compensation”) as the Board may from time to time approve including
without limitation awards based upon the attainment of one or more financial
and/or other performance targets; provided that any Incentive Compensation shall
be paid so as not to constitute a “deferral of compensation” within the meaning
of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and
the Department of Treasury Regulations and other interpretive guidance
promulgated thereunder (collectively, “Section
409A”), or shall otherwise comply with the payment requirements of
Section 409A. Any compensation paid to the Executive as Incentive
Compensation shall be in addition to the Base Salary. The Company’s
Compensation Committee shall review the Executive’s Incentive Compensation
annually to ensure that the target(s) remains competitive with other similarly
situated companies. Executive shall be paid pursuant to the
pre-approved Incentive Compensation Plan as approved by the Board of
Directors.
(c) Stock
Options. Executive shall be granted an incentive stock option
(the “Stock
Option”) to purchase a total of 1,900,000 shares of the Company’s common
stock pursuant to the terms and conditions of the Verecloud, Inc. 2009 Equity
Incentive Plan (the “Equity
Plan”) and a written Incentive Stock Option Agreement to be
entered into by and between the Company and the Executive as of the Effective
Date in substantially the form attached hereto as Exhibit A (the “Stock Option
Agreement”), which documents are incorporated herein by
reference. The Stock Option shall have an exercise price, vesting
schedule, and other terms as stated in the employee’s ISO
agreement.
Section
4. Other
Benefits.
Executive
shall be eligible to participate in all employee and executive benefit plans and
executive compensation programs to the extent established and maintained by the
Company for its senior executives and in accordance with such plans and
programs, including (if so put into place and maintained) savings or
profit-sharing plans, life, disability, health, accident and other insurance
programs, and similar plans or programs. Executive shall accrue three
weeks paid vacation per year and be entitled to paid holidays in accordance with
the Company’s vacation policy.
2
Section
5. Business Expense and
Travel.
Executive
is authorized to incur and shall be reimbursed for all necessary and reasonable
travel, entertainment and other business expenses incurred in the course of the
performance of his duties and responsibilities pursuant to this
Agreement. “Reasonable” expenses shall be consistent with the
Company’s policy for its executive management. Such reimbursement is
subject to the submission to the Company by the Executive of invoices and
receipts or other appropriate documentation and/or vouchers for all such
expenses as soon as reasonably practicable following their
incurrence.
Section
6. Termination of Employment Without Cause or for Good
Reason.
Except as
otherwise provided by Section 7 with respect to certain terminations of
employment in connection with a Change of Control, if the Executive’s employment
terminates in a Qualifying Termination, then, subject to his execution and
nonrevocation of a release of all claims arising out of Executive’s employment
or the termination thereof (“Release”) on or prior to the 30th day following the
Qualifying Termination, commencing with the first standard payroll date
occurring on or after the 30th day following the date of the Qualifying
Termination, the Company shall pay to Executive an amount equal in total to six
(6) times the monthly amount of Executive’s Base Salary in effect on the date of
the Qualifying Termination in six monthly installments.
Section
7. Termination in Connection
with a Change of Control.
If
Executive’s employment terminates as a result of a Qualifying Termination at any
time during the period commencing three (3) months prior to a Change of Control
and ending twelve (12) months following a Change of Control, then, subject to
his execution and nonrevocation of the Release on or prior to the 30th day
following the Qualifying Termination, on the first standard payroll date
occurring on or after the 30th day following the date of the
Qualifying Termination, the Company shall pay to Executive a lump sum cash
amount equal in total to the sum of (a) the amount of Executive’s bonus
earned with respect to the calendar year immediately prior to the calendar year
in which the Qualifying Termination occurs, plus (b) 1.0 times (x)
Executive’s then current annual Base Salary (without taking into account any
reduction in Base Salary that could trigger a termination for Good Reason) or,
if greater, (y) Employee’s initial Base Salary under this Agreement, in each
case less applicable withholding taxes or other withholding obligations of the
Company, plus (c) 12.0 times the monthly premium amount for the
Executive's medical, hospitalization and dental coverage under the Company’s
group medical, hospitalization and dental benefit plans determined on the
date of the Qualifying Termination.
3
Section
8. Definitions.
(a) “Cause”
means:
(i) the
failure by Executive to follow the lawful directives of the Chief Executive
Officer or Board of Directors of the Company (within the scope of Executive’s
duties hereunder) within fifteen (15) days after receiving written notice from
the Company specifying the nature of the failure (which notice shall only be
required in connection with the first instance of repeated failures of a similar
nature);
(ii) the
Executive's willful commission of an act which constitutes fraud,
misappropriation, embezzlement, or intentional misconduct against the Company or
its respective shareholders, customers or creditors;
(iii) a willful
violation by Executive of a federal, state or local law or regulation applicable
to the business of the Company that is materially and demonstrably injurious to
the Company (as the case may be);
(iv) the
conviction of a felony or crime involving moral turpitude;
(v) the
commission of any felony that causes a material adverse effect upon the
Executive's ability to perform his duties, or that would have a material adverse
effect on the Company or its ability to conduct business; or
(vi) alcoholism,
drug addiction or dependency which causes a material adverse effect upon the
Executive's ability to perform his duties for a period in excess of thirty (30)
consecutive days (including time spent in rehabilitation);
No act, or
failure to act, by Executive shall be considered “willful” unless committed
intentionally and without good faith and without a reasonable belief that the
act or omission was in the Company’s best interest.
(b) “Change of
Control” means the occurrence in a single transaction or in a series of related
transactions, any of the following events, to the extent such event or events
constitute a “change in control event,” as defined in Treasury Regulation
Section 1.409A-3(i)(5):
(i) the
Company sells, leases, or exchanges, or agrees to sell, lease, or exchange, all
or substantially all of its assets to any other person or entity;
(ii) any person
or entity, including a “group” as contemplated by Section 13(d)(3) of the
Exchange Act, acquires or gains ownership or control (including, without
limitation, power to vote) of more than 50% of the outstanding shares of the
Company's voting stock (based upon voting power), or
(iii) a majority
of the individuals serving on the Company's board of directors (each a “Director”)
are replaced during any twelve-month period by individuals whose appointment or
election is not endorsed by a majority of the Directors before the date of such
appointment or election.
4
(c) “Disability”
means that Executive has been unable to perform his duties hereunder as the
result of his incapacity due to physical or mental illness or injury, and such
inability, at least twenty-six (26) consecutive weeks after its commencement, is
determined to be total and permanent by a physician selected by Executive or
Executive’s legal representative and acceptable to the Company or its insurers
(such agreement as to acceptability not to be unreasonably
withheld). Termination resulting from Disability may only be effected
after at least thirty (30) day’s written notice by the Company of its intention
to terminate Executive’s employment.
(d) “Good
Reason” means the occurrence of any of the following without Executive’s prior
written consent:
(i) the
failure by the Company to perform any of its material obligations to Executive
under this Agreement (other than the performance of monetary obligations during
any period that the Company is unable to make any general payroll distribution
to the employees of the Company) within fifteen (15) days after receiving
written notice from Executive specifying the nature of the failure (which notice
shall only be required in connection with the first instance of repeated
failures of a similar nature);
(ii) a willful
act by the Company that constitutes fraud, or misconduct against
Executive and that (without fault of Executive) is demonstrably injurious (by
more than a de minimis amount) to Executive (provided, that no act, or failure
to act, by the Company shall be considered “willful” unless committed
intentionally and without good faith);
(iii) the
material reduction of Executive’s duties, authority, responsibilities, or
reporting relationships relative to Executive’s duties, authority,
responsibilities, job title, or reporting relationships as in effect immediately
prior to such reduction, or the assignment to Executive of such reduced duties,
authority, responsibilities, job title, or reporting relationships (other than
such reduction following the occurrence of an event described under Item 401(f)
of Regulation S-K with respect to Executive);
(iv) a material
reduction (unless such reduction is made, pursuant to a valid business purpose,
proportionately to reductions affecting each other member of the Company’s
executive management) by the Company in the base salary of Executive below the
amount in place as in effect immediately prior to such reduction;
or
(v) a material
breach by the Company of the terms of this Agreement, including the failure of
the Company to obtain the assumption of this Agreement by any successors under
the terms set forth in Section 10(a) hereof.;
provided that the Executive notifies the Company in writing of the existence of any condition or event constituting Good Reason on or prior to the 60th day following the initial existence of such condition or event and the Company does not cure or remedy the condition or event on or prior to the 90th day following its receipt of such notice.
5
(e) A
“Qualifying Termination” occurs upon:
(i) the
termination of the Executive’s employment hereunder by the Company for any
reason other than Cause, death or Disability; or
(ii) the
termination of the Executive’s employment hereunder by the Executive due to Good
Reason not resulting from a Change of Control within six (6) months following
the initial existence of one or more of the events constituting Good
Reason.
Section
9. No
Mitigation.
Executive
shall not be required to mitigate the amount of any payment or benefit
contemplated by Section 6 or Section 7, nor shall any such payment or benefit be
reduced by any earnings or benefits that Executive may receive from any other
source.
Section
10. Attorneys Fees, Costs and
Expenses.
The Company
shall promptly reimburse Executive, on a monthly basis, for the reasonable
attorney fees, costs and expenses incurred by Executive in connection with any
action brought by Executive to enforce his rights hereunder. In the
event Executive is not the prevailing party, Executive shall repay such
reimbursements. The prevailing party shall be determined based upon
the applicable court’s determination of which party prevailed on the major
contested issues, with reference to the amount awarded or agreed to and without
regard to whether or not the action resulted in a final judgment or was
settled.
Section
11. Parachute
Payments.
(a) Notwithstanding
anything in this Agreement to the contrary, if it is determined by the Company's
independent accounting firm (the “Accountants”)
that the aggregate amount of the payments and benefits made or provided to the
Executive under this Agreement or otherwise (the “Payments”)
would constitute a “parachute payment” as defined in Code Section 280G(b)(2),
the Executive shall receive the Payments unless the (a) after-tax amount that
would be retained by the Executive (after taking into account all federal, state
and local income taxes payable by the Executive and the amount of any excise
taxes payable by the Executive under Code Section 4999 that would be payable by
the Executive (the “Parachute
Tax”) if the Executive were to receive the Payments has a lesser
aggregate value than (b) the after-tax amount that would be retained by the
Executive (after taking into account all federal, state and local income taxes
payable by the Executive) if the Executive were to receive the Payments reduced
to the largest amount as would result in no portion of the total payments being
subject to Excise Taxes (the “Reduced
Payments”), in which case the Executive shall be entitled only to the
Reduced Payments.
6
(b) For
purposes of making the calculations required by this Agreement, the Accountants
may make reasonable assumptions and approximations concerning applicable taxes
and may rely on reasonable, good faith interpretations concerning the
application of Code Sections 280G and 4999, provided that the Accountant’s
determinations must be made with substantial authority (within the meaning of
Code Section 6662). Unless the Company and Executive otherwise agree
in writing, any determination required under this Section 11 shall be made in
writing by the Accountants. The Accountants shall provide detailed
supporting calculations both to the Company and the Executive within fifteen
(15) business days of the receipt of notice from the Executive that there has
been a Payment, or such earlier time as is requested by the
Company. The Company and Executive shall furnish to the Accountants
such information and documents as the Accountants may reasonably request in
order to make a determination under this Section 11. All fees and
expenses of the Accounting Firm shall be borne solely by the
Company.
(c) If the
Executive is to receive Reduced Payments, the Payments payable will be reduced
or eliminated in the following order: (1) cash payments, (2) taxable
benefits, (3) nontaxable benefits and (4) accelerated vesting of equity
awards.
(d) The
federal tax returns filed by the Executive (and any filing made by a
consolidated tax group which includes the Company) shall be prepared and filed
on a basis consistent with the determination of the Accountants with respect to
the Parachute Tax payable by the Executive. The Executive shall make
proper payment of the amount of any Parachute Tax, and at the request of the
Company, provide to the Company true and correct copies (with any amendments) of
his federal income tax return as filed with the Internal Revenue Service, and
such other documents reasonably requested by the Company, evidencing such
payment.
Section
12. Other
Agreements.
Executive and
the Company shall, effective as of the Effective Date, enter into the agreements
set forth below (collectively, the “Other
Agreements”):
(a) the
Indemnity Agreement attached hereto as Exhibit B; and
(b) the
Non-Disclosure, Proprietary Information and Inventions Agreement attached hereto
as Exhibit C.
(c) the
Verecloud, Inc. 2009 Equity Incentive Plan Incentive Stock Option Agreement
attached hereto as Exhibit D.
7
Section
13. Notices.
All
notices or other communications required or permitted hereunder shall be in
writing and shall be deemed duly given upon (a) transmitter’s confirmation of a
receipt of a facsimile transmission, (b) confirmed delivery by a standard
overnight carrier or when delivered in person to below named recipients, or (c)
the expiration of three (3) business days after the day when mailed by certified
or registered mail, postage prepaid, addressed to the parties at the following
addresses (or at such other address as the parties hereto shall specify by like
notice):
If to the
Company:
0000 Xxxxx
Xxxxxxxxx Xxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxxxx,
Xxxxxxxx 00000
Attention: Xxxx
XxXxxxxx
Facsimile: (000)
000-0000
If to
Executive:
0000 X
Xxxxxxxx Xxx
Xxxxxxxxxx
XX 00000
Attention: Xxxxx
X. Xxxxxxx
Section
14. General
Provisions.
(a) Successors and
Assigns. The
benefits and obligations under this Agreement shall be binding upon and shall
inure to and may be enforced by Company and its successors and by Executive and
Executive’s personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. The Company
shall require any successor (whether direct or indirect and whether by purchase,
lease, merger, consolidation, liquidation or otherwise), by a written agreement
in substance and form satisfactory to Executive, to assume this Agreement and to
agree expressly to perform this Agreement in the same manner and to the same
extent as the Company would be required to perform it in the absence of a
succession. The Company’s failure to obtain such agreement prior to
the effectiveness of a succession shall be a material breach of this Agreement
and shall entitle Executive to all of the compensation and benefits to which
Executive would have been entitled hereunder if Executive’s employment had been
terminated through a Qualifying Termination, on the date when such succession
becomes effective.
8
(b) Governing Law;
Venue. THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF COLORADO, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAW
THEREOF. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN
CONNECTION WITH THIS AGREEMENT AND THE OTHER AGREEMENTS SHALL BE TRIED AND
LITIGATED ONLY IN THE STATE, AND TO THE EXTENT PERMITTED BY APPLICABLE LAW,
FEDERAL COURTS LOCATED IN THE COUNTY OF XXXXXXX, COLORADO. EACH OF
THE PARTIES HERETO WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY
RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT
TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION
14(b). EACH OF THE PARTIES
HERETO REPRESENTS THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. IN THE EVENT OF LITIGATION, TO THE EXTENT PERMITTED BY LAW,
A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE
COURT.
(c) Entire
Agreement/Modification. This Agreement and the Other
Agreements represent the entire agreement of the parties with respect to the
subject matter hereof and shall supersede any and all previous contracts,
arrangements, discussions or understandings between the parties hereto with
respect to the subject matter hereof. This Agreement may not be
modified or amended except by an instrument in writing signed by each of the
parties hereto.
(d) Withholding. The
Company shall be entitled to withhold from any amounts payable under this
Agreement any federal, state, local or foreign withholding or other taxes or
charges which the Company is required to withhold. The Company shall
be entitled to rely on an opinion of counsel if any questions as to the amount
or requirement of withholding shall arise.
(e) Section
409A.
(i) General. The
parties acknowledge and agree that, to the extent applicable, this Agreement
shall be interpreted in accordance with, and the parties agree to use their best
efforts to achieve timely compliance with, Section 409A, including without
limitation any such regulations or other guidance that may be issued after the
Effective Date. Executive shall have no right to designate the year
of payment of any amount under this Agreement. Notwithstanding any
provision of the Agreement to the contrary, in the event that the Company
determines that any compensation or benefits payable or provided under the
Agreement may be subject to Section 409A, the Company may adopt (without any
obligation to do so or to indemnify the Executive for failure to do so) such
limited amendments to the Agreement and appropriate policies and procedures,
including amendments and policies with retroactive effect, that the Company
reasonably determines are necessary or appropriate to (i) exempt the
compensation and benefits payable under the Agreement from Section 409A and/or
preserve the intended tax treatment of the compensation and benefits provided
with respect to the Agreement or (ii) comply with the requirements of Section
409A.
9
(ii) Separation from
Service. Notwithstanding any provision to the contrary in this
Agreement:
(A) no amount
shall be payable pursuant to Section 6 or Section 7 unless the termination of
the Executive’s employment constitutes a “separation from service” within the
meaning of Section 1.409A-1(h) of the Department of Treasury
Regulations;
(B) if the
Executive is deemed at the time of his separation from service to be a
“specified employee” for purposes of Code Section 409A(a)(2)(B)(i), to the
extent delayed commencement of any portion of the termination benefits to which
the Executive is entitled under this Agreement is required in order to avoid a
prohibited distribution under Code Section 409A(a)(2)(B)(i) (any such delayed
commencement, a “Payment Delay”), such portion of the Executive’s termination
benefits shall not be provided to the Executive prior to the earlier of (1) the
expiration of the six-month period measured from the date of the Executive’s
“separation from service” with the Company (as such term is defined in the
Department of Treasury Regulations issued under Section 409A) or (2) the date of
the Executive’s death. Upon the earlier of such dates, all payments
deferred pursuant to this section shall be paid in a lump sum to the Executive,
and any remaining payments due under the Agreement shall be paid as otherwise
provided herein. The determination of whether the Executive is a
“specified employee” for purposes of Code Section 409A(a)(2)(B)(i) as of the
time of his separation from service shall be made by the Company in accordance
with the terms of Section 409A (including without limitation Section 1.409A-1(i)
of the Department of Treasury Regulations and any successor provision thereto);
and
(C) for
purposes of Section 409A, the Executive’s right to receive installment payments
pursuant to Section 6 shall be treated as a right to receive a series of
separate and distinct payments.
(iii) Reimbursements. The
reimbursement of any expense under Section 5 shall be made no later than
December 31 of the year following the year in which the expense was
incurred. The amount of expenses reimbursed in one year shall not
affect the amount eligible for reimbursement in any subsequent
year.
Signature
page follows.
10
IN WITNESS WHEREOF, the
parties hereto have duly executed this Agreement on the day and year first above
written.
| By: | /s/ Xxxx XxXxxxxx | |
|
Xxxx
XxXxxxxx
Chief
Executive Officer
|
|
EXECUTIVE
|
|
|
/s/ Xxxxx
X. Xxxxxxx
|
|
| Xxxxx X. Xxxxxxx |
11
