EMPLOYMENT AGREEMENT
THIS AGREEMENT is effective as of August 18, 1997 between LIFERATE
SYSTEMS, INC., a Minnesota corporation ("the Company"), and Xxxxx X. Xxxxxxx
(the "Employee")i.
WHEREAS, the parties wish to provide for the employment of the Employee
by the Company and the terms and conditions upon which he will be employed;
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the Company and the Employee, each intending to be legally bound, agree
as follows:
1) Employment. Subject to all of the terms and conditions of this
Agreement, the Company agrees to employ the Employee as the Chief Executive
Officer and President of the Company, and the Employee accepts this employment.
2) Duties.
(a) The Employee will diligently and conscientiously perform the duties
of Chief Executive Officer and President of the Company, all within the
general guidelines to be determined by the Board of Directors. In his
position and capacity as President and CEO, the Employee will report to
the Board. The Employee will make the best use of his energy, knowledge
and training in advancing the Company's interests and will not actively
be engaged in other employment with any other entity or concern.
(b) During the term of this Agreement, the Employee will also serve as
a director of the Company and will perform all duties incident to such
service subject to election by the Board.
3) Term. the term of this Agreement and Employee's employment will
commence on August 26, 1997 and will be for a period of one year subject to
earlier termination pursuant to Section 4. The Employee shall receive a
performance review at the end of the first year of employment and annually
thereafter. Subject to such review(s), this Agreement will be extended for a
one-year period. If the review does not take place, or does not take place
before the end of this term, this Agreement will be automatically renewed for
one (1) year subject to the provisions of Section 4 herein.
4) Termination. Subject to the respective continuing obligations of the
Company and the Employee under Sections 8, 9, 10 and 11 hereof:
(a) This Agreement may be terminated by the Company on 10 days' written
notice to the Employee "for cause," with the basis for termination
specified in such notice. For purposes of this Agreement, "for cause"
will mean (i) any unlawful or criminal activity of a serious nature; or
(ii) if not corrected within 60 days after written notice thereof, any
willful breach of duty, habitual neglect of duty or inadequate job
performance as
determined solely by the Board of Directors at LifeRate; or (iii) a
material breach of any provision of this Agreement.
(b) This Agreement may be terminated upon the Employee's death or Total
Disability. For purposes of this Agreement, "Total Disability" will be
as defined in the long-term disability plan of the Company then in
effect or, if no such plan exists, will mean such disability that
prevents the Employee from performing his duties under Section 2 of
this Agreement for a continuous period of 90 days.
(c) This Agreement may be terminated for Good Reason (as defined below)
by the Employee following a Chance in Control (as defined below) upon
30 days written notice.
(d) This Agreement may be terminated by mutual agreement of the
parties.
(e) This Agreement may be terminated by Employee upon 30 days written
notice to the Company.
(f) This Agreement may be terminated by the Company upon 30 days
written notice to Employee subject to the post-termination obligations
set forth in Section 7(b) herein.
5) Compensation.
(a) Base Salary. In consideration of the Employee's services under this
Agreement, the Company agrees to pay the Employee an annual base salary
(the "Base Salary"). The Base Salary will be set at $225,000. The Base
Salary will be payable in accordance with the standard payroll
practices of the Company.
(b) Stock Options. Upon the execution of this Agreement and
commencement of employment, the Employee will receive a stock option
(the "Option") to purchase 200,000 shares of the Company's common
stock, no par value (the "Common Stock"). The Option will have an
exercise price equal to the closing bid price of the Common Stock on
the date hereof (the "Exercise Price") representing the fair market
value of the Common Stock on the date of acceptance of employment. In
addition to the Option referred to above, if Employee is still employed
after one (1) year, and subject to reasonable performance criteria
regarding Company performance to be set by the Company and the Employee
being met, the Employee will be eligible for additional stock options
of 100,000 shares. The exercise price for all of these options shall be
the fair market value of the Common Stock on the date of acceptance of
employment. All of the above-referenced stock options will vest over
three years at the rate of one-third per year, with the vesting period
to begin upon the commencement of employment. The options shall be
exercisable for a period of five (5) years from the date each are
vested after which time the options shall expire. If Employee's
employment terminates for any reason, Employee forfeits all rights to
unvested options as of the date of termination. If Employee's
employment is terminated for any reason, Employee's vested options
shall
remain exercisable by Employee for a period of 30 days after
termination after which time such vested options will expire.
It is anticipated that the Company will undergo a round of financing
within the Employee's first year of employment which may result in more
shares of the Company's Common Stock to be issued and sold. It is the
intent of the parties to this Agreement that the Employee shall be able
to maintain the percentage the Employee's options represents of the
common shares outstanding at the time of grant and before the financing
occurred. As to the first 200,000 stock options, the parties agree that
the percentage would be 5.23%. If that percentage is reduced by the
issuance of shares during the next round of financing, the Employee
shall be awarded an additional number of options to maintain that
percentage, subject to the same price, vesting, exercise and forfeiture
provisions as set forth herein for the original options.
If the Employee is awarded the additional 100,000 stock options
referenced herein, the parties agree that Employee's percentage would
be 7.84% If that percentage has been reduced by the issuance of shares
during the round of financing in the first year, the Employee will be
awarded an additional number of options to maintain that percentage,
subject to the same price, vesting, exercise and forfeiture provisions
as set forth herein for the original options.
(c) Bonus. The Employee shall be eligible for a performance bonus of up
to $100,000 annually if certain performance criteria, to be established
by the Company, are met. The Company guarantees that Employee will be
paid a first year bonus of $100,000, under the following conditions:
(1) Employee remains an employee of the Company for the
full year;
(2) Employee terminates his employment during the first
year pursuant to Section 4(c) herein; and
3) Employee is disabled or dies within the first year
pursuant to Section 4(b) herein, subject to being
prorated as set forth in Section 7(c) herein.
Employee will not receive the first year bonus if he terminates his
employment pursuant to Section 4(e) or if his employment is terminated
by the Company pursuant to Section 4(a) herein.
(d) Bonus Buyout. The Employer agrees to pay to Employee, on or before
February 15, 1998, the gross amount of $108,000 (representing the
amount of bonus Employee would otherwise have received through his
previous employment) under the following conditions:
(1) The Company receives the financing it currently
contemplates receiving by that time. If financing is
secured by not received by February 15, 1998, payment
will be made to Employee as soon as funds are
received; and
(2) Employee is still employed by Employer and actively
working on February 15, 1998 or when funds are
received, whichever is later.
(e) Benefits. The Employee shall be eligible to participate in the
Company's standard benefit program, subject to change by the Company
for all personnel, including the following: life insurance, medical
insurance, 160 hours of personal time off, holidays, 401(k) plan, and
an employee stock purchase plan.
(f) Expenses. The Company will pay or reimburse the Employee for all
reasonable expenses (including, without limitation, expenses for
entertainment, travel, personal business education, meals, hotel
accommodations)( that the Employee incurs while performing his duties
under this Agreement, provided that the Employee accounts properly for
such expenses to the Company in accordance with Company policies. The
Company will pay temporary living expenses of $1,000 per month for a
period of 24 months or until the Employee moves his residence to the
Twin Cities area, if the move occurs before the end of the 24 month
period. The Company will pay reasonable commuting costs between the
Twin Cities and Detroit for a period of two years.
6) Change in Control.
(a) For purposes of this Agreement, a "Change in Control" of the
Company will mean the following:
(1) the sale, lease, exchange or other transfer, directly
or indirectly, of substantially all of the assets of
the Company ( in one transaction or in a series of
related transactions) to a period or entity that is
not controlled by the Company;
(2) the approval by the shareholders of the Company of
any plan or proposal for the liquidation or
dissolution of the Company;
(3) a merger or consolidation to which the Company is a
party if the shareholders of the Company immediately
prior to effective date of such merger or
consolidation have "beneficial ownership" (as defined
in Rule 13d-3 under the Securities Exchange Act of
1934, as amended (the "Exchange Act")), immediately
following the effective date of such merger or
consideration, of securities of the surviving
corporation representing (A) more than 50%, but not
more than 80%, of the combined voting power of the
surviving corporation's then outstanding securities
ordinarily having the right to vote at elections of
directors, unless such merger or consolidation has
been approved in advance by the Incumbent
Directors, or (B) 50% or less of the combined voting
power of the surviving corporation's then outstanding
securities ordinarily having the right to vote at
elections of directors (regardless of any approval by
the Incumbent Directors);
(4) any person becomes after the effective date of this
Agreement the "beneficial owner" (as defined in Rule
13d-3 of the Exchange Act), directly or indirectly,
of (A) 20% or more, but not 50% or more, of the
combined voting power of the Company's outstanding
securities ordinarily having the right to vote at
elections of directors, unless the transaction
resulting in such ownership has been approved in
advance by the Incumbent Directors, or (B) 50% or
more of the combined voting power of the Company's
outstanding securities ordinarily having the right to
vote at elections of directors (regardless of any
approval by the Incumbent Directors);
(5) the Incumbent Directors cease for any reason to
constitute at least a majority of the Board; or
(6) a change in control of the Company of a nature that
would be required to be reported pursuant to Section
13 or 15(d) of the Exchange Act, whether or not the
Company is then subject to such reporting
requirements.
(b) For purposes of this Section 6, the Incumbent Directors will mean
any individual who is a member of the Board on the effective date of
this Agreement and any individual who subsequently becomes a member of
the Board whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the
directors comprising the Board on the effective date of this Agreement
(either by specific vote or by approval of the proxy statement of the
Company in which such individual is named as a nominee for director
without objection to such nomination).
(c) Subject to the limitations of Section 7(e) hereof, if a Change in
Control occurs, the Option will become immediately exercisable in full
and will remain exercisable for the remainder of its term, regardless
of whether the Employee remains in the employ or service of the
Company.
7) Payments Upon Termination.
(a) If this Agreement is terminated by the Company pursuant to Section
4(a) of this Agreement for cause, the Employee will be paid his Base
Salary through the date of termination, and any unpaid expense
reimbursement.
(b) If this Agreement is terminated by the Company pursuant to Section
4(f) of this Agreement, then the Employee will be paid, in addition to
any unpaid expense reimbursement, one year of his Base Salary as
severance. Also, normal company
provided benefits will be continued for the one year period. Such
severance payments are expressly conditioned upon the Employee meeting
his post-termination obligations as set forth herein in Section 8, 9,
10 and 12 of this Agreement. Payments will be made twice monthly over
the year, but shall cease if the Employee breaches his obligations
under Sections 8, 9 or 10 of this Agreement.
(c) If this Agreement is terminated pursuant to Section 4(b)
of this Agreement, the Employee will be paid (i) his Base
Salary through the end of the month following his death or
termination as a result of Total Disability, (ii) any bonus,
determined in accordance with Section 5(c) of this Agreement,
to which the Employee would have been entitled for the fiscal
year in which his death or termination for Total Disability
occurred, pro rated to the end of the month following his
death or termination for Total Disability, and (iii) any
unpaid expense reimbursement.
(d) If this Agreement is terminated by the Employee, following a Change
in Control, pursuant to Section 4(c) of this Agreement for Good Reason,
the Employee (i) will continue to be paid his then current Base Salary,
at the same times and in the same manner as prior to his termination,
for the remainder of the then current term of this Agreement, provided
that such payments will continue only so long as the Employee continues
to comply with all of the terms and conditions of Section 8, 9 and 10
of this Agreement; (ii) will be paid any bonus, determined in
accordance with Section 5(c) of this Agreement, to which the Employee
would have been entitled for the entire fiscal year in which he was
terminated had his employment with the Company not been terminated; and
(iii) will be paid any unpaid expense reimbursement.
(e) For purposes of this Agreement, "Good Reason" will mean the good
faith determination by the Employee, in his sole judgment, that any one
or more of the following events has occurred, without the Employee's
written consent, following a Change in Control:
(1) an adverse change in the Employee's status or
position as an executive of the Company as in effect
immediately prior to the Change in Control,
including, without limitation, any adverse change in
the Employee's status or position as a result of a
material diminution in his or her duties or
responsibilities (other than, if applicable, any such
change directly attributable to the fact that the
Company is no longer publicly owned) or the
assignment to the Employee of any duties or
responsibilities that, in the Employee's reasonable
responsibilities that, in the Employee's reasonable
judgment, are inconsistent with such status or
position, or any removal of the Employee from or any
failure to reappoint or reelect the Employee to such
position (except in connection with the termination
of his employment "for cause" or as a result of his
death or Total Disability or by the Employee other
than for Good Reason); provided, however, that Good
Reason will not include an adverse change in the
Employee's status
or position caused by an insubstantial and
inadvertent action that is remedied by the Company
promptly after receipt of written notice of such
change from the Employee;
(2) a reduction by the Company in the Employee's annual
Base Salary, or an adverse change in the form or
timing of the payment thereof, as in effect
immediately prior to the Change in Control or as
thereafter increased;
(3) the failure by the Company to continue in effect any
benefit plan in which the Employee (including, for
purposes of this paragraph, his family or dependents)
is participating at any time during the 90-day period
immediately preceding the Change in Control (or
benefit plans providing the Employee with at least
substantially similar benefits) other than as a
result of the normal expiration of any such benefit
plan in accordance with its terms as in effect
immediately prior to the 90-day period immediately
preceding the Change in Control, or the taking of any
action, or the failure to act, by the Company that
would adversely affect an Employee's continue
participation in any of such benefit plans on at
least as favorable a basis to such Employee as is the
case immediately prior to the Change in Control or
that would materially reduce the Employee's benefits
in the future under any such benefit plans or deprive
an Employee of any material benefit enjoyed by such
Employee immediately prior to the Change in Control;
(4) the Company's requiring the Employee to be based more
than 30 miles from where his or her office is located
immediately prior to the Change in Control, except
for required travel pursuant to the Company's
business travel obligations that the Employee
undertook on behalf of the Company during the 90-day
period immediately preceding the Change in Control;
(5) the failure of the Company to obtain an assumption of
the obligations of the Company to perform this
Agreement by any successor to the Company; or
(6) any material breach of this Agreement by the Company.
8) Inventions.
(a) "Inventions," as used in this Section 8, means any discoveries,
improvements, formulae, proprietary rights or data, trade secrets, shop
rights, (whether or not they are in writing or reduced to practice) or
works of authorship (whether or not they can be patented or
copyrighted) that the Employee makes, authors, or conceives (either
alone or with others) and that:
(1) concern directly the Company's business or the
Company's present or possible future research or
development;
(2) result from any work the Employee performs for the
Company;
(3) use the Company's equipment, supplies, facilities, or
trade secret information; or
(4) the Employee develops during any such time that
Section 2 above obligates him to perform his
employment duties.
(b) The Employee agrees that all Inventions he makes during or within
six months after the term of this Agreement will be the Company's sole
and exclusive property; and that all works of authorship that may be
the subject of copyright protection shall be "works made for hire." The
Employee will, with respect to any such Invention:
(1) keep current, accurate, and complete records, which will
belong to the Company and be kept and stored on the Company's
premises while the Employee is employed by the Company;
(2) promptly and fully disclose the existence and describe the
nature of the Invention to the Company in writing (and without
request);
(3) assign (and the Employee does hereby assign) to the
Company all of his rights to the Invention, any applications
he makes for patents or copyrights in any country, and any
patents or copyrights granted to him in any country; and
(4) acknowledge and deliver promptly to the Company any
written instruments, and perform any other acts necessary in
the Company's opinion to preserve property rights in the
Invention against forfeiture, abandonment, or loss and to
obtain and maintain letters patents and/or copyrights on the
Invention and to vest the entire right and title to the
Invention in the Company.
The requirements of this subsection 8(b) do not apply to an Invention
for which no equipment, supplies, facility or trade secret information
of the Company was used and which was developed entirely on the
Employee's own time, and (x) which does not relate directly to the
Company's business or to the Company's actual or demonstrably
anticipated research or development, or (y) which does not result from
any work the Employee performed for the Company. Except as previously
disclosed to the Company in writing, the Employee does not have, and
will not assert, any claims to or rights under any Inventions as having
been made, conceived, authored or acquired by the Employee prior to his
employment by the Company.
9) Confidential Information and Trade Secrets. Employee recognizes and
acknowledges that he may have access to confidential information and trade
secrets concerning
Company which are of a special and unique value which may include, without
limitation, books and records relating to operation, finances, cash, bank
accounts, accounting; sales personnel and management; actual and potential
business or promotional opportunities, marketing plans and strategies; policies
and matters relating particularly to operations such as customer names,
addresses, telephone numbers and price lists; customer service requirements;
costs of providing service and equipment; routing information; operations and
maintenance costs; pricing matters; market place analyses; computer software;
database programs; and internal procedures, standards and productivity tools.
The protection of this confidential information and trade secrets against
authorized disclosure and use is of critical important to Company, and Employee
agrees that he will not, directly or indirectly, at any time while employed by
company and within two (2) years after termination with Company, with or without
cause, make any independent use of, or disclosure to any person other than an
employee of Company, or any organization except as authorized by Company, any
confidential information or trade secrets of Company. This provision shall not
be applicable to information disclosed by the Employee during testimony under
subpoena in any court or before any administrative agency or during any
governmental inquiry or investigation.
10) Competitive Activities. The Employee agrees that during his
employment with the Company and for a period of two years after his employment
with the Company ends:
(a) He will not alone, or in any capacity with another firm or
person:
(1) directly or indirectly engage in any commercial
activity that competes with the Company's business,
as the Company has conducted it during the five years
before the Employee's employment with the Company
ends, (A) within any state in the United States, or
(B) within any country in which the Company directly
or indirectly markets or services products or
provides services or reasonably intends during such
period to market or service products or provide
services;
(2) in any way interfere or attempt to interfere with the
Company's relationships with any of its current or
potential customers; or
(3) employ or attempt to employ any of the Company's then
employees on behalf of any other entity competing
with the Company.
(b) He will, prior to accepting employment with any new employer,
inform that employer of this Agreement and provide that
employer with a copy of this Agreement.
(c) Nonsolicitation. The Employee further agrees that during his
employment and for a period of two years after his employment
with the Company ends, that he will not directly or
indirectly:
(1) Induce any customers of Company to patronize any
similar business which competes with Company;
(2) canvas, solicit, or accept any similar business from
any customer of Company;
(3) request or advise any customers of Company to
withdraw, reduce, or cancel such customer's business
with Company;
(4) disclose to any other person, firm, partnership, or
corporation the names, addresses or telephone
numbers, or other protected information of any of the
customers of Company; or,
(5) induce, canvas, solicit, request or advise any
employees of Company, to accept employment with any
person, firm or business which competes with any
business of Company.
11) Conflicting Business. The Employee agrees that he will not transact
business with the Company personally, or as agent, owner, partner or shareholder
of any other entity; provided, however, that the Employee may enter into any
business transaction that is, in the opinion of the Board, reasonable, prudent
or necessary to the Company, so long as any such business transaction is at
arm's length as though between independent and prudent individuals.
12) No Adequate Remedy. The Employee understands that if he fails to
fulfill his obligations under this Agreement, the damages to the Company would
be very difficult to determine. Therefore, in addition to any other rights or
remedies available to the Company at law, in equity or by statute, the Employee
hereby consents to the specific enforcement by the Company of Sections 8, 9 and
10 of this Agreement through an injunction or restraining order issued by an
appropriate court. The Employee will also be reasonable for the Company's costs
and attorneys' fees incurred by the Company in enforcing any of the provisions
of this Agreement.
13) Indemnification. The Company shall indemnify the Employee for all
acts as an officer and director of the Company to the fullest extent permitted
by the Articles of Incorporation, the Bylaws of the Company and Minnesota law.
The Employee shall also be covered by the Company's directors' and officers'
insurance policy.
14) Miscellaneous.
(a) Successors and Assigns. Except as provided in the next
sentence, this Agreement may not be assigned without the
Employee's consent, which consent will not be unreasonably
withheld. In any event, the Company may assign this Agreement
without the consent of the Employee in connection with a
merger, consolidation, assignment, sale, or other disposition
of substantially all of its assets or business.
(b) Modification. This Agreement may be modified or amended only
by a writing signed by each of the parties hereto.
(c) Governing Law. The laws of the State of Minnesota will govern
the validity, construction, and performance of this Agreement,
without regard to the conflict of laws provisions of any other
jurisdictions. Any legal proceeding related to this Agreement
will be brought in an appropriate Minnesota court, and each of
the parties hereto hereby consents to the exclusive
jurisdiction of that court for this purpose.
(d) Construction. Wherever possible, each provision of this
Agreement will be interpreted so that it is valid under
applicable law. If any provision of this Agreement is to any
extent invalid under applicable law in any jurisdiction, that
provision will still be effective to the extent it remains
valid. The remainder of this Agreement also will continue to
be valid, and the entire Agreement will continue to be valid
in other jurisdictions.
(e) Non-Waiver. No failure or delay by either the Company or the
Employee in exercising any right or remedy under this
Agreement will waive any provision of the Agreement. Nor will
any single or partial exercise by either the company or the
Employee of any right of remedy under this Agreement preclude
either of them from otherwise or further exercising these
rights or remedies, or any other rights or remedies granted by
any law or any related document.
(f) Counterparts. This Agreement may be executed in two or more
counterparts, each of which will constitute one and the same
instrument.
(g) Entire Agreement. This Agreement supersedes all previous and
contemporaneous oral negotiations, commitments, writings, and
understandings among the parties hereto concerning the matters
in this Agreement, including, without limitation, any policy
or personnel manuals of the Company or any of its subsidiaries
or affiliates.
(h) Notices. All notices and other communications required or
permitted under this Agreement will be in writing and hand
delivered or sent by registered first-class mail, postage
prepaid, and will be effective upon receipt if hand delivered,
and five (5) business days after mailing if sent by mail, to
the following addresses or such other addresses as either
party will have notified the other party:
If to the Company: LifeRate Systems, Inc.
0000 Xxxxx Xxxxxxxxx
Xxxxx, Xxxxxxxxx 00000
ATTN: Chairman of Board
If to the Employee: Xxxxx X. Xxxxxxx
00000 Xxxxxx Xxxx Xxxxxx
Xxxxxxxxxx Xxxxx, XX 00000
IN WITNESS WHEREOF, the Company and the Employee have executed this
Agreement as of the date first above written.
LIFERATE SYSTEMS, INC.
By: /s/Xxxxxxx X. Xxxxxxx
---------------------------
Its: Chairman
/s/ Xxxxx X. Xxxxxxx
-------------------------------
Xxxxx X. Xxxxxxx
