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.
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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
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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
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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 any
