|
EMPLOYMENT
AGREEMENT
EMPLOYMENT
AGREEMENT (this " Agreement "), dated as of this 30
th day of December 2004 (" Effective Date "), by
and among Pacific Magtron International Corp., a Nevada corporation
(" PMIC "), Encompass Group Affiliates, Inc., a Delaware
corporation (" Encompass "), Advanced Communication
Technologies, Inc., a Florida corporation (" ACT "), and
Theodore S. Li, an individual whose address is
________________________________ (" Executive "). For
purposes hereof, the terms PMIC, Encompass and ACT shall include
each of their respective subsidiaries and PMIC, Encompass and ACT
shall be referred to collectively herein as the " Company
."
WITNESSETH
WHEREAS , Executive
presently serves as a Director and as President, Chief Executive
Officer, Chief Financial Officer and Treasurer of PMIC;
WHEREAS , ACT,
Executive and certain other shareholders of PMIC have entered into
a Stock Purchase Agreement, pursuant to which ACT will purchase all
of the shares of common stock of PMIC owned by Executive and each
such other shareholder (the " Stock Purchase ");
and
WHEREAS , it is a
condition to the Stock Purchase that Executive enter into this
Agreement with the Company effective as of the Effective
Date.
NOW, THEREFORE , in
consideration of the mutual covenants and promises herein
contained, and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:
1. Employment .
PMIC hereby employs Executive, and Executive hereby accepts
employment with PMIC, as Chief Financial Officer and Chief
Operating Officer, or such other senior executive position as may
be determined by the Board of Directors of PMIC (the " Board
") from time to time during the Employment Period (as defined
below). For purposes of this Agreement, “senior executive
position” shall mean a position of Vice President or a more
senior position. In addition to his duties set forth in this
Section 1 and Section 3 below, Executive shall at the request of
the PMIC CEO (as defined below) or the Board serve as an officer or
director of PMIC or any subsidiary of PMIC, without additional
compensation and subject to any policy of the Compensation
Committee of the Board (the " PMIC Compensation Committee ")
with regard to directors' fees.
2. Term;
Renewal . The term of this Agreement shall commence on the
Effective Date and expire on the third anniversary thereof (the "
Employment Period "), unless earlier terminated in
accordance with its terms; provided , however, that
the Employment Period may, by written agreement between the parties
hereto, be extended for an additional one-year period.
1
3.
Employment and Duties .
3.1 Duties and
Responsibilities .
(a) Executive’s area of
responsibility during the Employment Period shall be that of Chief
Financial Officer and Chief Operating Officer of PMIC. Executive
shall directly report to the Chief Executive Officer of PMIC (the "
PMIC CEO "), or such other senior executive officer of
Encompass or ACT, as determined from time to time by the Company.
The services to be rendered by Executive pursuant to this Agreement
shall consist of such services as defined and directed by the Board
or the PMIC CEO.
(b) During the Employment
Period, Executive shall serve the Company faithfully and to the
best of his ability; shall devote his entire working time,
attention, energy and skill to his employment and the benefit and
business of the Company; and shall use his best efforts, skills and
ability to promote the Company's interests and to perform such
duties as from time to time may be reasonably assigned to him and
are consistent with his titles and positions with the
Company.
(c) During the Employment
Period, in addition to any other duties or responsibilities the
Company may give to Executive consistent with Section 1, Executive
shall, subject to Section 3.2 herein, be required to sign, and
shall sign, all certifications and such other documents or
instruments requested by the Board, the Chief Executive Officer of
ACT, or the PMIC CEO in connection with PMIC's and/or ACT's
obligations under or to (i) the Securities and Exchange Commission,
(ii) any exchange or association on which the Company's shares of
capital stock are listed, (iii) any federal, state or local
authority, and/or (iv) any other governmental, quasi-governmental
or non-governmental entity or organization (foreign or domestic)
that regulates or has authority over PMIC and/or ACT. In addition,
in the event Executive, in his current position or in any position
Executive accepts in the future, becomes obligated to sign
certifications and such other documents or instruments as may be
required by the rules and regulations promulgated by any of (i)
through (iv) above, Executive shall, subject to Section 3.2 herein,
sign all such certifications and other documents or instruments as
required thereby.
3.2 Observance of Rules
and Regulations . Executive agrees to observe and comply with
all applicable laws and regulations, as well as the rules and
regulations of the Company with respect to the performance of his
duties.
4.
Compensation; Benefits and Expenses .
4.1 Base Salary . As
compensation for the services to be rendered hereunder, during the
Employment Period, the Company shall pay to Executive a minimum
annual base salary (the " Base Salary ") of $120,000.00. The
Base Salary shall be payable in accordance with usual payroll
practices of the Company. Executive’s Base Salary shall be
reviewed annually by the PMIC Compensation Committee during the
Employment Period and may be increased, but not decreased, from
time to time by the PMIC Compensation Committee in its sole
discretion.
2
(a) Within thirty (30) days
after the Effective Date, Executive shall receive a signing bonus
in the amount of $225,000.
(b) Immediately following
each fiscal year, the Company shall set aside for the payment of
PMIC executive bonuses, an amount equal to ten percent (10%) of net
income of PMIC during such fiscal year (the " PMIC Bonus
Pool "). For each fiscal year or portion thereof after the
Effective Date and during the Employment Period, the Company shall
pay to Executive an annual performance bonus, in cash, equal to a
portion of the PMIC Bonus Pool, as determined by the PMIC
Compensation Committee, in its sole discretion (the " PMIC
Performance Bonus ").
For purposes hereof, " net
income " shall mean, with respect to PMIC, for any fiscal year,
the net income (loss) of PMIC for such fiscal year, determined in
accordance with generally accepted accounting principles,
consistently applied; provided , however , that there
shall be excluded from net income (a) the net income (loss) of any
person in which PMIC has a joint interest with a third party,
except to the extent such net income is actually paid to PMIC by
dividend or other distribution during such fiscal year, (b) the net
income (or loss) of any person accrued prior to the date it becomes
a subsidiary of PMIC or is merged into or becomes consolidated with
PMIC or its assets are purchased by PMIC, and (c) the net income
(if positive) of any subsidiary of PMIC to the extent that the
declaration or payment of dividends or similar distributions of
such net income by such subsidiary (i) is not at that time
permitted by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order statute, rule or
governmental regulation or (ii) would be subject to any taxes
payable on such dividends or distributions.
(c) In addition to the PMIC
Performance Bonus, Executive may receive, and ACT may grant to
Executive, restricted shares of common stock of ACT, with a vesting
schedule and other terms established by the Compensation Committee
of the Board of Directors of ACT (the " ACT Compensation
Committee "), in its sole discretion (the " Incentive
Bonus ").
(d) Executive acknowledges
that the amount of the PMIC Performance Bonus and the amount of the
Incentive Bonus shall at all times be determined by the PMIC
Compensation Committee and the ACT Compensation Committee,
respectively, in their respective sole discretion. The Company
shall pay each of the Performance Bonus and the Incentive Bonus to
Executive within thirty (30) days after the Company's audited
results for the applicable fiscal year are delivered to the
Company.
(a) Earn-Out Shares .
In the event Pacific Magtron, Inc. (" PMI "), Pacific
Magtron (GA), Inc. ("PMI-GA"), and LiveWarehouse, Inc. ("LW")
achieve the Milestones (as defined in Section 4.3(b) below) for any
year during the three (3) year period commencing January 1, 2005
and expiring December 31, 2007, Executive shall have the right to
receive on March 31 of the immediately following calendar year, the
applicable ratable portion
3
of 66,666,666 shares of
restricted common stock of ACT (priced at $.01 per share, or
$666,666 in the aggregate), to be earned at the end of each such
year at the rate of 25% for each of the first and second years and
50% for the third year (the " Shares "); provided ,
that in the event the Milestones are not achieved in any year,
except as provided below, such ratable portion of Shares shall be
forfeited entirely, without any ability to re-earn such Shares in a
future year; provided further , that in the event
Executive's employment with the Company is terminated for "cause"
by the Company (as contemplated by Section 6.1 of this Agreement)
prior to the expiration of the initial Employment Period, all of
the Shares earned or to be earned by Executive shall be forfeited.
In the event that Executive's employment with the Company is
terminated prior to the expiration of the initial Employment Period
for any reason other than "cause," Executive shall be permitted to
receive the Shares earned by him prior to such termination, but
shall in no event be entitled to receive Shares to be earned after
the Termination Date (as defined in Section 6.1 below).
Notwithstanding the foregoing, the number of Shares and the price
per Share shall be adjusted accordingly for stock splits, reverse
stock splits and other recapitalizations effected by ACT, so that
Executive retains the right, after accounting for such adjustment,
to receive the same percentage of ACT's outstanding shares of
Common Stock as Executive would have had the right to receive had
such adjustment not been so effected.
Upon earning the Shares at
the end of each year, if applicable, the Shares will be placed in
escrow with a mutually agreeable escrow agent to be held and
released in accordance with the terms of an escrow agreement in
substantially the form of Exhibit "A" hereto;
provided , however, that in the event that the
employment of Executive is terminated by the Company prior to the
expiration of the initial Employment Period without cause (as
contemplated by Section 6.2 of this Agreement), Executive
terminates this Agreement for Good Reason (as contemplated by
Section 6.3 of this Agreement), or this Agreement is terminated due
to Executive's death or Disability (as defined below), Executive
shall receive any Shares earned by him no later than the later of
(a) the immediately following March 31 or (b) thirty (30) days
after the Termination Date. Upon release from escrow, the Shares
will include piggyback registration rights, subject to customary
underwriters' cutbacks.
Upon receipt of the Shares,
Executive will acquire the Shares for his own account and not with
a view to their distribution within the meaning of Section 2(11) of
the Securities Act of 1933, as amended. Executive is an "accredited
investor," as such term is defined in Rule 501(a) promulgated
pursuant to the Securities Act of 1933, as amended. Executive
acknowledges that Executive has had the opportunity to ask
questions of and receive answers from, or obtain additional
information from, the executive officers of the Company concerning
the financial and other affairs of the Company, and to the extent
deemed necessary in light of such personal knowledge of the
Company's affairs, Executive has asked such questions and received
answers to the full satisfaction of Executive. Executive
understands that no United States federal or state agency or any
other government or governmental agency has passed on or made any
recommendation or endorsement of the Shares or the fairness of
suitability of the investment in the Shares nor have such
authorities passed upon or endorsed the merits of the offering of
the Shares.
Notwithstanding the
foregoing, in the event that the Milestones are not achieved in a
given year, the Board of Directors of ACT shall have the right, in
its sole and absolute discretion, to grant to
4
Executive all or a portion of
the Shares that could have been earned by Executive during such
year.
(b) Milestones .
Revenue and EBITDA (earnings before interest, taxes, depreciation
and amortization) herein shall be defined according to generally
accepted accounting principles and no allocation from PMIC, ACT or
Encompass overhead shall be included in the calculation of EBITDA.
The Milestones for the combined Revenues and EBITDA of PMI, PMI-GA
and LW are:
| |
Calendar Year End |
Revenues |
|
EBITDA |
|
| |
December 31, 2005 |
$ |
70,000,000 |
|
$ |
490,000 |
|
| |
December 31, 2006 |
$ |
82,000,000 |
|
$ |
738,000 |
|
| |
December 31, 2007 |
$ |
95,000,000 |
|
$ |
950,000 |
|
Notwithstanding anything
contained herein to the contrary, the determination of the
Milestones shall be based on unaudited pro forma financial
statements of PMI, PMI-GA and LW, prepared by the management of
PMIC and approved by Executive, the Chief Executive Officer of ACT
and the ACT Compensation Committee.
4.4 Other Benefits .
Executive shall also be eligible to participate in any life and
health insurance programs and any incentive, savings and retirement
plans that the Company makes available to all of its executives of
similar seniority. Executive shall also be eligible to receive
discretionary performance based bonuses as approved and authorized
by the ACT Compensation Committee, including any incentive stock
programs approved by ACT’s shareholders.
4.5 Business Expenses
. Executive will be reimbursed, in accordance with the
Company’s expense reimbursement policy, for business expenses
that have been pre-approved by the Board or the PMIC CEO upon
presentation of vouchers or other documents reasonably necessary to
verify the expenditures and sufficient, in form and substance, to
satisfy Internal Revenue Service requirements for such
expenses.
4.6 Vacation .
Executive shall be entitled to take up to four (4) weeks of
vacation per calendar year, which shall be taken in accordance with
the Company’s vacation policy in effect from time to time for
executives of comparable seniority.
5. No
Competitive Activities; Confidentiality;
Invention
5.1 General
Restriction . During the Employment Period and for a period of
two (2) years thereafter (the " Restricted Period "),
Executive covenants and agrees that, except on behalf of the
Company, he will not, directly or indirectly:
(a) Competing Business
. Own, manage, operate, control, participate in the ownership,
management, operation or control of, be employed by, or provide
services as a consultant to, any individual or business that is
involved in business activities that are the same as, similar to or
in competition with, directly or indirectly, any business
activities conducted, or actively being planned, by Encompass
and/or PMIC during the Restricted Period and anywhere
5
in the United States and
Canada (it being acknowledged that Encompass' and/or PMIC's
businesses are international in scope). The ownership of less than
one percent (1%) of the outstanding stock of any public corporation
shall not be deemed a violation of this provision.
(b) Soliciting
Customers . Attempt in any manner to contact or solicit any
individual, firm, corporation or other entity (i) that is or has
been, a customer of Encompass and/or PMIC at any time during the
Restricted Period, (ii) to which a proposal has been made by
Encompass and/or PMIC during the Restricted Period or (iii)
appearing Encompass’ and/or PMIC’s new business target
list on the date of Executive's termination (as such list has been
prepared and maintained in accordance with Encompass’ and/or
PMIC’s past practice), for the purpose of providing services
or products similar to the services and products provided by
Encompass and/or PMIC, or engaging in any activity which could be,
directly or indirectly, competitive with the business of Encompass
and/or PMIC.
(c) Interfering with Other
Relations . Persuade or attempt to persuade any supplier,
vendor, licensor or other entity or individual doing business with
Encompass and/or PMIC to discontinue or reduce its business with
Encompass and/or PMIC or otherwise interfere in any way with the
business relationships and activities of Encompass and/or
PMIC.
(d) Employees .
Attempt in any manner to solicit any individual, who is at the time
of such attempted solicitation, or was at any time during the one
(1) year period preceding the termination of Executive's
employment, an employee or consultant of Encompass and/or PMIC, to
terminate his or her employment or relationship with Encompass
and/or PMIC, or engage such individual, as an employee or
consultant. Cooperate with any other person in persuading, enticing
or aiding, or attempting to persuade, entice or aid, any employee
of or consultant to Encompass and/or PMIC to terminate his or her
employment or business relationship with Encompass and/or PMIC, or
to become employed as an employee or retained as a consultant by
any person other than Encompass and/or PMIC.
In the event of a voluntary
or involuntary filing under Chapter 7 of the United States
Bankruptcy Code by PMIC and Encompass that is not dismissed within
ninety (90) days, Executive shall no longer be bound by the
restrictions contained in this Section 5.1.
5.2 Confidentiality
Agreement . Executive shall not, either during the Employment
Period or at any time thereafter, use or disclose to any third
person any Confidential Information (as defined below) of the
Company, other than at the direction of the Company, or pursuant to
a court order or subpoena, provided that Executive will give notice
of such court order or subpoena to the Company prior to such
disclosure. Upon the termination of Executive’s employment
with the Company for any reason, Executive shall return any notes,
records, charts, formulae or other materials (whether in hard copy
or computer readable form) containing Confidential Information (as
defined below), and will not make or retain a
|
