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Date: 5/22/2006
Industry: Apparel/Accessories     Sector: Consumer Cyclical

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                                                                    EXHIBIT 10.3

March 16, 2006

Lonnie David Schnell
1721 Cannes Drive
Thousand Oaks, CA 91362

Dear Lonnie:

Tag-it   Pacific   Inc.,   (the   "Company")   is   pleased   to   offer   you   continued
employment on the following terms:

POSITION:                   You   will   serve   in a   full-time   capacity   as Chief
                           Financial Officer of the Company.   You will report to
                           the CEO and shall perform   duties   customary for such
                           position   and   such   other   related    duties   as   are
                           assigned   by   the   CEO.   You   shall   (i)   faithfully,
                           diligently   and to the best of your   ability   perform
                           such duties,   (ii) devote your full business time and
                           attention to the affairs of the Company and (iii) use
                           your best efforts to further the   Company's   business
                            interests.   By signing this agreement,   you represent
                           and   warrant   to the   Company   that you are   under no
                           contractual    commitments    inconsistent    with   your
                            obligations to the Company.

BASE SALARY:                Your   annual   salary   will be   $185,000,   payable   in
                           accordance   with   the   Company's    standard    payroll

BONUS:                       You will have the   opportunity to earn an annual cash
                           bonus   in   accordance   with the   Company's   executive
                           bonus pool which is based on a   calculation   of EBIT,
                           as determined by the Company in its discretion.

COMPENSATION:               In January   2006,   the   Company   granted   you a stock
                           option   for   400,000   shares of common   stock with an
                           exercise   price of $0.57   per   share.   The   Company's
                           standard stock option   agreement   terms will apply to
                           this grant, with the vesting over four years: (a) 25%
                           will vest on your first   anniversary   of   employment;
                           and (b) the unvested   balance   shall vest 1/48 of the
                           original grant each month thereafter.

BENEFITS PLAN:              You will be eligible   for the   Company's   benefits in
                           accordance with the Company's existing benefits plan.

AT WILL:                    The Company's   employees   serve on an at-will   basis.
                           Your   employment   is voluntary and for no set period.
                            If you accept   employment with the Company,   you will
                           be   free   to   resign   at   any   time,   without   cause.
                           Likewise, the


                            Company will be free to terminate your   employment at
                           any time, with or without cause.   Although employment
                           policies and   practices may change from time to time,
                            the at-will   nature of your   employment   relationship
                           may not be changed   unless it is changed in a written
                           document   signed   by you and the   Company.   You   will
                           receive 3 weeks paid vacation per year,   with no more
                           than 3 weeks accrual.

CAUSE:                      Subject to the provisions below, if terminated by the
                           Company   without   cause   or   due   to   your   death   or
                           permanent and total disability, conditioned upon your
                           (or your estate's)   execution and non-revocation of a
                           full release and waiver of claims agreement in a form
                           prescribed by the Company,   you (or your estate) will
                           receive   (i)   6   months   of   your   then-current   base
                           salary,   payable   in   6   equal   monthly   installments
                           commencing   on the   first day of the   calendar   month
                           immediately following such termination and thereafter
                           on the first day of each   subsequent   calendar month;
                            (ii)   6   months   of   continued    coverage   under   the
                           company's   group   health plan at the same cost to you
                           (and/or your dependents) as immediately prior to your
                            termination,     subject    to    your     (and/or    your
                           dependents')   making a valid "COBRA"   election and to
                           any   cost   increases    affecting   plan    participants
                           generally; and (iii) accelerated stock option vesting
                           deemed to occur immediately prior to your termination
                           with    respect   to   that    portion   of   any   and   all
                           outstanding   options then held by you that would have
                           vested during the 6 months immediately following your
                           termination      absent     such     termination     (the
                           "Severance").    Notwithstanding   the   foregoing,   the
                           payments   and   benefits   described in clauses (i) and
                           (ii) of the preceding   sentence   shall, to the extent
                           not already paid or provided,   cease   immediately   if
                           you become employed prior to their expiration.

TERMINATION WITH CAUSE:     For   purposes of this   Agreement,   "cause" is defined
                           as:   any   action   by   you   that    includes    (i)   the
                            commission     of    any     fraud,     misappropriation,
                           embezzlement or other actions   involving   dishonesty,
                           material   disloyalty,   or moral turpitude;   (ii) your
                            conviction   for   commission   of a   felony;   (iii) the
                           issuance of an order, judgment or decree of any court
                           permanently    enjoining    you   from    violating    any
                           provision of federal or state   securities   laws; (iv)
                           the willful engaging by you in gross misconduct which
                           materially and demonstrably   injures the Company; (v)
                           a final   judgment of a court   holding you liable in a
                           civil   action   based upon   conduct   showing   that you
                           breached   a   fiduciary   duty   to the   Company   or its
                           shareholders;   (vi) material breach of this agreement
                           or Employee Non-Disclosure and Invention Agreement as
                           determined   by the CEO; or (vii) a failure or refusal
                           in a material respect by you to follow t

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