EXECUTIVE EMPLOYMENT AGREEMENT
EXHIBIT 99.1
THIS EXECUTIVE EMPLOYMENT AGREEMENT
(the “Agreement”) is executed October 16
2008 and is retroactively effective on October 16, 2008 (the “Effective Date”), by and
between ARKADOS GROUP, INC. a Delaware corporation, having a principal place of
business at (the “Company”), and XXXXX X. XXXXXXXX,
residing at 0 Xxxxxxxxx, Xxxxxxxx Xxxxx, XX 00000 (the
“Executive”).
Background
The
Company desires to obtain the services of the Executive as Executive Vice
President and Chief Financial Officer, and the Executive is willing to render
such services, in accordance with the terms hereinafter set forth.
The
Company, by appropriate action, has authorized the employment of the Executive
as provided for in this Agreement.
NOW
THEREFORE, in consideration of the respective agreements of the parties
contained herein, it is agreed as follows:
1. Term. The initial
term (the “Initial
Term”) of this Agreement shall commence October 1, 2008 and shall
terminate on September 30, 2011. Unless terminated as hereinafter provided, this
Agreement shall continue from month to month (each such period, a “Renewal Term”) on the same terms and
conditions as in the Initial Term, subject to adjustments as herein provided
(the “Employment
Term”).
2. Employment.
(a)
The Executive will be employed as Senior Vice President and Chief Financial
Officer of the Company and will perform the duties, undertake the
responsibilities and exercise the authority customarily performed, undertaken
and exercised by persons situated in a similar executive capacity, as are
assigned to the Executive from time to time by the board of directors (the
“Board”) and chief
executive officer. The Executive agrees to serve as (i) a member of
the Board (if nominated and elected by the Company’s stockholders or appointed
by the Board to do so) and on any of the board of directors of any subsidiary or
affiliate of the Company, and (ii) as an officer of any subsidiary or affiliate
of the Company, without any additional compensation while he is employed by the
Company. Upon termination of the Executive’s employment by the Company for any
reason, the Executive shall immediately resign from the Board and any other
position as a member of the board of directors or as an officer of any such
subsidiary or affiliate of the Company.
(b)
Excluding periods of a vacation and sick leave to which the Executive is
entitled, the Executive agrees during the Employment Term to devote
substantially all of his business time to the business and affairs of the
Company and to the duties and responsibilities assigned to the Executive
hereunder by the Company. The Executive may (i) serve on civic or charitable
boards or committees; and (ii) manage personal investments and non-competing
businesses; so long as any such activities do not create a conflict of interest
with the Company or materially interfere with the performance of his duties and
responsibilities hereunder. Executive shall use his best efforts to
discharge the responsibilities of his office and position as set forth
herein.
3. Compensation.
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(a)
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The
Company agrees to pay or cause to be paid to the Executive during the
Employment Term a base salary at the initial rate of Sixteen Thousand Six
Hundred Sixty Six and 67/100 ($16,666.67) per month (i.e., $200,000.00 per
annum) (hereinafter referred to as the “Base Salary”). Such Base Salary
shall be payable in accordance with the Company’s standard payroll
schedule and subject to such deductions and withholding as is required by
law or any benefit plans in which the Executive
participates.
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(b)
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It
is understood that the current cash flow and cash balance of the Company
will not allow it to pay Base Salary or any other cash compensation
hereunder until the Company raised substantial additional working
capital. The Executive therefore agrees, subject to the grant
of the Deferral Options (defined below) to defer payment of Base Salary
will be deferred until the earlier of the receipt of $5,000,000 of gross
proceeds from financing activities following the Effective Date or January
15, 2009. This date may be amended by agreement of both parties in
writing. The Executive agrees not to bring action against the
Company or any officer or director as a result of any deferral that is
voluntary on the part of the Executive and for which Compensation Options
may vest, provided the deferred amount paid when
due.
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The
Compensation Committee of the Board which has the authority to grant options
under the Company’s various equity incentive plans, the “Compensation Committee”)
granted 1,200,000 non-qualified stock options (the “Deferral Options”),
exercisable at $0.25 per share for a period of seven years from the date of
grant to the Executive. Such options will be subject to
the terms of the Company’s 2004 Stock Option and Restricted Stock Plan, as
amended (the “Plan:) and
will vest at the rate of 33,333 per month, commencing October 31,
2008, on the last day of each month in which Base Salary is
deferred. Upon payment of all but $16,667.68 of the Base Salary that
has been deferred at the time of such payment, vesting will cease for a period
of one month and will only begin again at the end of a month in which more than
$16,667.67 of Base Salary remains deferred. Any options
which remain unvested at the end of Employment Term shall be forfeit unless
otherwise vested pursuant to the terms of the Plan, this or any other written
agreement.
(b)
The Compensation Committee has granted to the Executive 600,000 non-qualified
stock options (the “Compensation Options”),
exercisable at $0.22 for a period of seven years from the date of grant. The
Compensation Options will be subject to the terms of the Plan and will vest in
36 equal monthly installments commencing October 30, 2008 and continuing on the
last day of the immediately following 36 months; provided, however, that
the vesting of the Compensation Options to Executive hereunder is conditioned
upon the continuous employment of Executive by the Company through the date on
which an installment of Compensation Options vests. Upon termination
of Executive’s employment other than for Cause (as defined in Section 8 below),
Executive may exercise Options vested as of the date of such Termination during
the 90 day period following termination of employment and all unexercised
Options will be terminated after such 90 day period. All unexercised Options
will immediately terminate upon the termination of Executive’s employment for
Cause.
(c)
Notwithstanding the provisions of Section 3(b) above, the vesting schedule of
the Compensation Options will be accelerated and all unvested Compensation
Options will vest immediately upon termination for any reason than
death, disability or Cause following a Change of Control. For the purposes of
this Agreement, the term “Change of Control” will
mean:
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(i)
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The
acquisition by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended, the “Exchange
Act”) (each referred to as a “Person”) of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange
Act) of 50% or more of either (a) the then outstanding shares of common
stock of the Company (the “Outstanding Company Common
Stock”) or (b) the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the
election of directors (the “Outstanding Company Voting
Securities”).
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(ii)
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(ii)
Individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease
for any reason to constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent to the date
hereof whose appointment, election, or nomination for election by the
Company’s shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption
of office occurs as a result of an actual or threatened election contest
with respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a person
other than the Board; or
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(ii)
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Consummation
of a reorganization, merger or consolidation or sale or other disposition
of all or substantially all of the assets of the Company or the
acquisition of assets of another corporation (a “Business Combination”),
in each case, unless, following such Business Combination, (a) all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 50% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the
corporation resulting from such Business Combination (including, without
limitation, a corporation which as a result of such transaction owns the
Company or all or substantially all of the Company’s assets either
directly or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be, (b) no person (excluding
any corporation resulting from such Business Combination or any employee
benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 50% or more of, respectively, the then outstanding shares of
common stock of the corporation resulting from such Business Combination
or the combined voting power of the then outstanding voting securities of
such corporation except to the extent that such ownership existed prior to
the Business Combination and (c) at least a majority of the members of the
board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board, for
such Business Combination; or
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(iii)
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Approval
by the shareholders of the Company of a complete liquidation or
dissolution of the Company.
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4.
Employee
Benefits. The Executive shall be entitled to participate in all employee
benefit plans, practices and programs maintained by the Company and made
available to employees generally including, without limitation, all pension,
retirement, profit sharing, savings, medical, hospitalization, disability,
dental, life or travel accident insurance benefit plans. The Executive’s
participation in such plans, practices and programs shall be on the same basis
and terms as are applicable to employees of the Company generally. Executive
will be entitled to three weeks vacation per year, no more than two of which may
be taken consecutively without the consent of the Company’s Chief Executive
Officer.
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5.
Executive
Benefits. The Executive shall be entitled to participate in all executive
benefit or incentive compensation plans now maintained or hereafter established
by the Company for the purpose of providing compensation and/or benefits to
executives of the Company and any supplemental retirement, salary continuation,
stock option, deferred compensation, supplemental medical or life insurance or
other bonus or incentive compensation plans. Unless otherwise provided herein,
the Executive’s participation in such plans shall be on the same basis and terms
as other similarly situated executives of the Company. No additional
compensation provided under any of such plans shall be deemed to modify or
otherwise affect the terms of this Agreement or any of the Executive’s
entitlements hereunder.
Performance Bonus
Plan. The company agrees that Executive will within the first 60 days of
employment prepare and present a Performance Bonus Plan to
the CEO and Compensation Committee of the Board for review. Such plan will
contain a 40% bonus target on base salary and such plan will be made available
to all Executives and Key employees as the Compensation Committee, CEO, CFO and
Board agree.
6.
Reimbursement of
Expenses. The Executive is authorized to incur expenses reasonably
necessary (consistent with a policy to be established by the Company) to carry
out his duties under this Agreement including, without limitation, the cost of
professional accredation and dues and continuing professional education courses.
Company acknowledges that Executive will require five days per annum to fulfill
the ongoing Continuing Education Requirement to maintain Executive’s active CPA
status. The Company will reimburse the Executive for all such expenses upon
receipt of an itemized account of such expenditures, which shall be in
accordance with the usual practices of the Company and in accordance with the
annual budget prepared from time to time by the Company.
7. Termination of Employment by
the Company as a Result of Death or Disability. In the event of
termination of the Executive’s employment by the Company as a result of the
death of the Executive or if the Executive is permanently disabled or
incapacitated and as a result thereof is and continues to be for a period of
ninety (90) days unable to perform his duties hereunder as determined by mutual
agreement of the Executive and the Company but if no such agreement is reached,
as determined: (a) by a mutually selected Person who is an expert in the type of
disability claimed whose determination shall be final and binding; or (b) if no
such Person is selected, by an arbitrator selected pursuant to the commercial
arbitration rules of the American Arbitration Association the Executive or, in
the event of the Executive’s death, the Executive’s estate, shall be entitled to
receive the following amounts earned or accrued hereunder through the date of
termination (the “Termination
Date”), but not paid as of the Termination Date (collectively, “Accrued
Compensation”):
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(i)
(a) Base Salary (reduced by the amount of payments received by
Executive pursuant to the Company’s disability insurance program, if any),
and (b) an additional amount equal to Base Salary: for six
months following the Termination Date if such termination is due to
disability or death,
reimbursement for any and all monies advanced or expenses incurred
in connection with the Executive’s employment for reasonable and necessary
expenses incurred by the Executive on behalf of the Company for the period
ending on the Termination Date;
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(iii)
accrued and unpaid vacation
pay;
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(iv)
any bonuses or incentive compensation earned through the
Termination Date, or to which Executive is entitled in connection with his
employment through the Termination
Date;
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(v)
any previous compensation which the Executive has previously
deferred (including any interest earned or credited thereon, and any bonus
or incentive payments earned under the terms of Sections 4 and 5 of this
Agreement which amounts will be payable upon the payment to other
participants in the bonus or incentive
plan).
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7A.
Termination of
Employment for Reasons Other than Death or Disability.
In the
event the Executive’s employment is terminated for any reason other than Death
or Disability shall be entitled to receive the following amounts earned or
Accrued Compensation not yet paid hereunder through the date of Termination
Date, but not paid as of the Termination Date (collectively, “Accrued
Compensation”):
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(i)
(a) Base Salary through the Termination Date), and, provided
such Termination by the Company is not for Cause (b) an additional
amount equal to Base Salary: (A), for six months following the
Termination Date, or (B) if such Termination occurs following a
Change in Control which occurs after November 30, 2008 and on or before
April 30, 2010, for a period of twelve months following the Termination
Date, or (C) if such Termination occurs following a Change in Control
which occurs after April 30, 2010, for a period of twenty four months
following the Termination Date,
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(ii)
reimbursement for any and all monies advanced or expenses incurred
in connection with the Executive’s employment for reasonable and necessary
expenses incurred by the Executive on behalf of the Company for the period
ending on the Termination Date;
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(iii)
accrued and unpaid vacation
pay;
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(iv)
any bonuses or incentive compensation earned through the
Termination Date, or to which Executive is entitled in connection with his
employment through the Termination
Date;
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(v)
any previous compensation which the Executive has previously
deferred (including any interest earned or credited thereon, and any bonus
or incentive payments earned under the terms of Sections 4 and 5 of this
Agreement which amounts will be payable upon the payment to other
participants in the bonus or incentive
plan).
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8.
Termination for Cause
or Voluntary Termination.
(a)
If Executive’s employment is terminated by the Company for Cause (as herein
defined), the Executive shall be entitled to receive Accrued Compensation, other
than the amounts described in Sections 7A(i)(A)-(C) and 7A(iii), and all other
obligations of the Company under this Agreement shall cease.
(b)
If Executive voluntarily terminates his employment with the Company in the
absence of a Change in Control, the Executive shall be entitled to receive
Accrued Compensation, other than the amounts described in Sections 7A(i)
(A)-(C), and all other obligations of the Company under this Agreement shall
cease.
(c)
For purposes of this Agreement, the term “Cause” shall mean that the
Executive shall have: (i) committed any act of fraud, embezzlement or theft in
connection with his duties hereunder, (ii) committed any intentional act that
has a material adverse impact on the Company or its affiliates, (iii) engaged in
any gross misconduct, or (iv) breached in any material respect the material
provisions of paragraph 9 or 10 of this Agreement.
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9. Non-Competition;
Confidentiality.
(a)
In the event Executive is terminated for Cause or Executive voluntarily
terminates this Agreement, for a period expiring two (2) years after the
termination of this Agreement, Executive shall not engage in any of the
following activities:
(i)
Engage in
Competitive Activities.
Own, manage, operate, engage in, serve as an advisor or consultant for, control,
or otherwise participate in any business that is or shall be
competitive with any of those business activities that have constituted part of
the Company’s business at any time during the past 12 months from the date
hereof, nor shall Executive assist any Person that shall be engaged in any such
business activities, including making available any information or funding to
any such Person, or be involved as a stockholder, partner, member, guarantor, or
other holder of an interest in any Person engaging in any such
activities;
(ii)
Solicit
Employees. Solicit to employ any employee of the Company or any affiliate
thereof while such Person is employed by any of them;
(iii)
Interfere with
Contracts. Either on its own account or for any other Person, solicit,
induce, attempt to induce with, or endeavor to cause any Person (including
without limitation any broker, customer, governmental authority, subcontractor,
or supplier) to modify, amend, terminate, or otherwise alter any contract or
arrangement that such Person has with the Company or any affiliate thereof with
respect to the business of the Company; and
(iv)
Assist
Competitors. Make any statement or perform any act intended to advance an
interest of any existing or prospective competitor of the Company, any affiliate
thereof with respect to the business of the Company, or encourage any other
Person to make any such statement or to perform any such act.
(v) Nondisparagement. Make
any disparaging statements concerning the Company or any affiliate or their
officers, directors or Executives, to the public or any vendor, supplier,
customer, distributor, Executive, consultant or other business associate of the
Company or affiliate of the Company.
(b)
For a period expiring two (2) years after the termination of this Agreement for
any reason, Executive agrees to keep confidential any and all confidential and
non-public Company documents, trade secrets and other information including, but
not limited to, patent work, engineering drawings, product designs, research and
development results, client lists, pricing strategy, product cost data,
proprietary technical information, corporate policies and procedures, and
corporate marketing and financial plans and strategies. In the event of the
termination of Executive’s employment for any reason, all documents in
Executive’s possession related to any of the items described in this paragraph
shall be returned to the Company.
(c)
If a court of competent jurisdiction determines that the provisions of this
Section 9 are partially or wholly inoperative, invalid or unenforceable in a
particular case because of their duration, geographical scope, restricted
activity, or other parameter, such court may reform such duration, geographical
scope, restricted activity or other parameter with respect to such case to
permit enforcement of such reformed provision to the greatest extent
allowable.
10. Company
Property. Executive agrees
that any and all development techniques or other products or processes relating
to the Company’s business which the Executive may create, make, discover,
introduce or invent while retained by the Company hereunder, shall belong to and
be the sole property of the Company. Executive agrees promptly and fully to disclose the same
to the Company and to assign all rights thereto to the Company
immediately.
11.
Injunctive
Relief. The Executive agrees that the remedy at law for any breach of the
provisions of Sections 9 and 10 hereof will be inadequate and that the Company
shall be entitled to injunctive relief in addition to any other remedy it may
have.
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12.
Survival. The
parties hereby agree that the provisions of Sections 6, 7, 8, 9, 10 and 11
hereof and of this Section 12 shall survive the termination of this Agreement.
Any compensation, bonuses and benefits that have been earned prior to the
termination date of this Agreement in accordance with the provision of this
Agreement or any compensation or benefit plan shall be payable or provided
thereafter in accordance with the original terms for payment of such
compensation or bonus or provision of such benefits in accordance with the
provision of this Agreement or any such compensation or benefit
plan.
13.
Successors and
Assigns.
(a)
This Agreement shall be binding upon and shall inure to the benefit of the
Company, its successors and assigns and the Company shall require any successor
or assign to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession or assignment had taken place. The term “Company” as used herein shall
include such successors and assigns. The term “successors and assigns” as
used herein shall mean a corporation or other entity acquiring all or
substantially all the assets and business of the Company (including this
Agreement) whether by operation of law or otherwise.
(b)
Neither this Agreement nor any right or interest hereunder shall be assignable
or transferable by the Executive, his beneficiaries or legal representatives,
except by will or by the laws of descent and distribution. This Agreement shall
inure to the benefit of and be enforceable by the Executive’s legal personal
representative.
14. Notice. For the
purposes of this Agreement, notices and all other communications provided for in
the Agreement shall be in writing and shall be deemed to have been duly given
when personally delivered or sent by certified mail, return receipt requested,
postage prepaid, addressed to the respective addresses last given by each party
to the other, provided that all notices to the Company shall be directed to the
attention of the Board with a copy to the Secretary of the Company, All notices
and communications shall be deemed to have been received on the date of delivery
thereof or on the third business day after the mailing thereof, except that
notice of change of address shall be effective only upon receipt.
15. Non-exclusivity
of Rights. Nothing in this
Agreement shall prevent or limit the Executive’s continuing or future
participation in any benefit, bonus, incentive or other plan or program provided by the
Company or any of its subsidiaries and for which the Executive may qualify, nor
shall anything herein limit or reduce such rights as the Executive may have
under any other agreements with the Company or any of its subsidiaries. Amounts
which are vested benefits or which the Executive is otherwise entitled to
receive under any plan or program of the Company or any of its subsidiaries
shall be payable in accordance with such plan or
program, except as explicitly modified by this Agreement.
16. Miscellaneous. No
provision of this Agreement may be modified, waived or discharged unless such
wavier, modification or discharge is agreed to in writing and signed by the
Executive and the Company after authorization of the Board. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreement or
representation, oral or otherwise, express or implied, with respect to the
subject matter hereof has been made by either party which is not expressly set
forth in this Agreement.
17. Person. For purposes
of this Agreement, “Person” shall mean any
individual, partnership, limited liability company, corporation, joint venture,
trust, business trust, cooperative or association or any foreign trust or
foreign business organization, and the heirs, executors, administrators, legal
representatives, successors, and assigns of such Person where the context so
permits or requires.
18. Opportunity To Consult
Counsel. THE EXECUTIVE ACKNOWLEDGES THAT HE HAS
CAREFULLY READ THIS AGREEMENT AND HAS BEEN GIVEN ADEQUATE OPPORTUNITY, AND HAS
BEEN ENCOURAGED BY THE COMPANY, TO CONSULT WITH LEGAL COUNSEL OF HIS CHOICE
CONCERNING THE TERMS HEREOF BEFORE EXECUTING THIS AGREEMENT.
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19.
Governing Law.
This Agreement shall be governed by and construed and enforced in accordance
with the law of the State of New Jersey without giving effect to the conflict of
law principles thereof.
20.
Severability.
The provisions of this Agreement shall be deemed severable and the invalidity or
unenforceability of any provision shall not affect the validity or
enforceability of the other provisions hereof.
21.
Entire
Agreement. This Agreement constitutes the entire agreement between the
parties hereto and supersedes all prior agreements, if any, understandings and
arrangements, oral or written, between the parties hereto with respect to the
subject matter hereof.
[SIGNATURE
PAGE FOLLOWS]
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IN
WITNESS WHEREOF, the Company has caused this Agreement to be executed by its
duly authorized officer and the Executive has executed this Agreement as of the
day and year first above written.
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/s/
Xxxxx Xxxxxxxx
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Xxxxx
Xxxxxxxx
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By:
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/s/
Xxxx Xxxxxxxx
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Name:
Xxxx Xxxxxxxx
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Title: President
and CEO
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