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Separation Agreement - Tier Technologies Inc. and George K. Ross

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                             SEPARATION AGREEMENT

This Separation Agreement ("Agreement") is made and entered into by and between
George K. Ross ("Ross") and Tier Technologies, Inc. (the "Company"), as of the
eighth day after this Agreement is signed by Ross (the "Effective Date").  The
parties reached agreement on the terms contained herein on December 31, 1999.
Accordingly, Ross and the Company hereby agree as follows:

1.   Separation Date.  Effective January 12, 2000 (the "Separation Date"), Ross'
employment with the Company will be terminated by the Company for reasons other
than cause (as defined in Section 4(iii) of the First Amended and Restated
Employment Agreement between Ross and the Company dated February 16, 1998 (the
"Employment Agreement"), attached hereto as Exhibit A).  As of the Separation
Date, Ross will no longer hold any positions with the Company as an employee,
director or any and all other positions Ross may have held with the Company
and/or its affiliates.  The Employment Agreement will be terminated as of the
Separation Date and will no longer have any force or effect, except as
specifically referenced in this Agreement.

2.   Accrued Salary And Vacation.  The Company agrees that it will pay Ross all
accrued salary, and all accrued and unused vacation benefits earned through the
Separation Date, if any, subject to standard payroll deductions, withholding
taxes and other obligations. Ross understands that he is entitled to this
payment regardless of whether or not Ross signs this Agreement.

3.   Expense Reimbursement.  Ross agrees that he has submitted his final
documented expense reimbursement statement reflecting all business expenses he
incurred prior to and including the Separation Date, and acknowledges receipt of
the full amount of reimbursement therefor.  Ross also acknowledges that he has
paid in full all outstanding balances on his Corporate American Express Card.

4.   Severance. In exchange for the promises and covenants set forth herein, and
in consideration thereof, the Company agrees to make severance payments to Ross
in the total amount of $189,000, subject to standard deductions and
withholdings, which approximates nine (9) months of Ross' base salary.  Except
as provided in Section 7 herein, the severance payments will be made on the
Company's ordinary payroll dates in eighteen consecutive equal installments,
minus standard deductions and withholdings, until the eighteenth payment has
been made.  The period of time during which the Company is paying Ross severance
payments will be called the "Severance Period."

5.   Insurance Benefits. In the event that Ross elects continued coverage under
COBRA, the Company, as part of this Agreement and in consideration thereof, will
pay for the same portion of Ross' COBRA health insurance premium that it paid
during Ross' employment with the Company.   Ross will be responsible for the
same portion of the COBRA health insurance premium that Ross paid during his
employment with the Company, as well as any excess payment resulting from any
difference in the costs of COBRA health insurance premiums and the Company-
sponsored plan.  As of the Separation Date, the Company will cancel all company-
<PAGE>

sponsored life insurance policies, unless Ross elects to continue such policies
at his own expense.

6.   Loan Forgiveness.  In exchange for the promises and covenants set forth
herein, and in consideration thereof, the Company agrees to forgive any and all
outstanding indebtedness Ross has to the Company arising from the loan Ross
received from the Company on February 2, 1998 in the initial principal amount of
eighty-five thousand dollars ($85,000) ("the Housing Loan").  The remaining
indebtedness including accrued interest on the Housing Loan is $94,369.99.  As
of the Effective Date of this Agreement, the Housing Loan is forgiven and the
Deed of Trust Ross pledged as security for the Housing Loan on January 8, 1999,
attached hereto as Exhibit B, is terminated and no longer of any force or
effect.  The Company will execute and deliver to Ross such customary documents
as Ross may reasonably in a good faith request to evidence the termination of
such Deed of Trust.  In addition, as of the Effective Date of this Agreement,
and pursuant to Sections 2.7 and 4(iv)(C) of the Employment Agreement, the
Company will forgive all remaining indebtedness Ross has incurred as a result of
the relocation loan (the "Relocation Loan") provided to Ross by the Company on
February 3, 1997 in the initial principal amount of twenty-thousand dollars
($20,000).  The remaining indebtedness on the Relocation Loan is six hundred
twenty-six dollars ($626.00).

Ross understands and agrees that the Company will make appropriate deductions
and withholdings from the severance payments Ross will receive pursuant to
Section 4 herein, to cover Ross' tax liability as a result of the Company's
forgiveness of the Housing Loan and the Relocation Loan.  In the event the
severance payments Ross will receive pursuant to Section 4 herein, isn't
sufficient to cover his tax liabilities, he will remit the amount necessary to
cover his tax withholdings to the Company.  Ross agrees to hereby indemnify and
defend the Company against any and all taxes and/or liability arising from the
Company's forgiveness of the Housing Loan and the Relocation Loans, including
penalties and interest.

7.   Stock Options.  Pursuant to Sections 2.3 and 4.2(iv)(B) of the Employment
Agreement, the vesting of all the stock options granted to Ross to purchase
shares of the Company's Common Stock (the "Options") shall be accelerated upon
the termination effected hereby, such that as of the Separation Date, all the
shares subject to the Options will be vested and immediately exercisable on the
terms provided in the Stock Option Agreement pursuant to which the Options were
granted. In the event that Ross elects to exercise his vested but unexercised
Options prior to the last severance payment (as provided in Section 4 herein) in
order to avoid forfeiture of the Options, the Company agrees to make a lump sum
payment of the balance of severance payments due to Ross under Section 4, minus
standard deductions and withholdings, within five (5) days before the final date
of the expiration date of the exercise period for the Options.

Ross agrees that he will be solely responsible for all tax returns and payments
associated with the exercise of the Options and understands and agrees that the
Company will make appropriate deductions and withholdings from the severance
payments Ross will receive pursuant to Section 4 herein, to cover Ross' tax
liability as a result of his exercise of any portion or all of the Options.  In
the event the severance payments Ross receives pursuant to Section 4 herein
isn't sufficient to cover his tax liabilities, he will remit the amount
necessary to cover his tax
<PAGE>

withholdings to the Company. Ross agrees to indemnify and defend the Company
against any and all taxes and/or liability arising from Ross' exercise of the
Options.

8.   Other Compensation and Benefits.  Except as expressly provided herein, Ross
acknowledges and agrees that Ross is not entitled to and will not receive any
additional compensation, severance, stock options, stock or benefits from the
Company.  Ross agrees and understands that except as provided in Section 7
herein, all vesting under any stock compensation award (e.g., incentive stock
option, nonqualified stock option, stock purchase agreement, or restricted stock
bonus agreement) from the Company shall cease upon the Separation Date, except
as expressly provided by this Agreement, any and all rights that Ross may have
in any Employee Stock Purchase Plan or Stock Option Plan are determined in
accordance with the provisions of the applicable plan and any agreements signed
by Ross.

9.   Computer, E-mail and Voicemail Access.  The Company agrees to provide Ross
with the use of the Company owned computer currently in Ross' possession and
with Company owned printers, fax machines, telephone lines and related equipment
for a period of sixty (60) days from the Separation Date.  After such sixty (60)
day period, Ross will return all Company owned property, unless he opts to
purchase the computer from the Company at the lower of its net book value, as
determined by the Company in its sole discretion.  In addition, the Company will
provide Ross with e-mail and voicemail access for such sixty day period.

10.  Non-compete and Non-solicitation During Severance Period.  In exchange for
the promises and covenants herein, Ross agrees that during the Severance Period,

     (a)  Ross will not, either directly or through others, solicit or accept
any business from any customer of the Company for products or services
competitive with those of the Company, or request, induce or advise customers of
the Company to withdraw, curtail or cancel their business with the Company; and

     (b)  Ross will not, either directly or through others, solicit or attempt
to solicit any employee, consultant, or independent contractor of the Company to
terminate his or her relationship with the Company in order to become an
employee, consultant or independent contractor to or for any other person or
entity.

11.  Termination of Company's Obligations. Notwithstanding any provisions in
this Agreement to the contrary, the Company's obligations, and Ross' rights,
pursuant to Section 4 herein, regarding the payment of severance, shall cease
and be rendered a nullity immediately should Ross fail to comply with any of the
provisions of Sections 10 and 14 herein.

12.  No Further Employment with the Company.  Ross understands and agrees that,
as a condition of this Agreement, Ross shall not be entitled to any employment
with the Company, its parents or subsidiaries, and Ross hereby waives any right,
or alleged right, of employment or re-employment with the Company and any of its
parents or subsidiaries.  Ross further agrees that Ross will only be eligible to
apply for employment with the Company, its parents or subsidiaries, if Ross
obtains prior written consent from the Company, which consent may be withheld
for any reason or no reason.
<PAGE>

13.  Company Property.  Upon the Separation Date, Ross agrees to return to the
Company all Company documents (and all copies thereof) and other Company
property in Ross' possession or Ross' control, including, but not limited to,
Company-sponsored credit cards (such as Ross' Company American Express card),
Company files, business plans, notes, samples, sales notebooks, drawings,
specifications, calculations, sequences, data, computer-recorded information,
tangible property, including, but not limited to, cellular phones, computers,
credit cards, entry cards, keys, and any other materials of any nature
pertaining to Ross' work with the Company, and any documents or data of any
description (or any reproduction of any documents or data) containing or
pertaining to any proprietary or confidential material of the Company within
fifteen (15) days after the Separation Date, except as otherwise provided in
Section 9 herein.

14.  Continuing Obligation to Protect Company's Confidential Information. Ross
hereby acknowledges and confirms his continuing obligation to protect the
Company's Confidential Information pursuant to Section 6.2 of the Employment
Agreement.

15.  Non-Disparagement.  Ross and the Company agree that neither party will at
any time disparage the other party, and the other party's officers, directors,
employees, shareholders and agents, in any manner likely to be harmful to them
or their business, business reputation or personal reputation; provided that
each party shall respond accurately and fully to any questions, inquiry or
request for information when required by legal process.

16.  Confidentiality and Publicity.  The provisions of this Agreement shall be
held in strictest confidence by Ross and the Company and shall not be publicized
or disclosed in any manner whatsoever; provided, however, that: (a) Ross may
disclose this Agreement, in confidence, to Ross' immediate family; (b) the
parties may disclose this Agreement in confidence to their respective attorneys,
accountants, auditors, tax preparers, and financial advisors; (c) the Company
may disclose this Agreement as necessary to fulfill standard or legally required
corporate reporting or disclosure requirements; and (d) the parties may disclose
this Agreement insofar as such disclosure may be necessary to enforce its terms
or as otherwise required by law.

17.  Release of Claims.  In exchange for the promises and covenants set forth
herein, Ross hereby releases, acquits, and forever discharges the Company, its
parents and subsidiaries, and their officers, directors, agents, servants,
employees, attorneys, shareholders, partners, successors, assigns, affiliates,
customers, and clients of and from any and all claims liabilities, demands,
causes of action, costs, expenses, attorneys' fees, damages, indemnities and
obligations of every kind and nature, in law, equity, or otherwise, known and
unknown, suspected and unsuspected, disclosed and undisclosed, arising out of or
in any way related to agreements, acts or conduct at any time prior to the
Separation Date, including, but not limited to: all such claims and demands
directly or indirectly arising  out of or in any way connected with the
Company's employment of Ross, the termination of that employment, and the
Company's performance of its obligations as Ross' former employer; claims or
demands related to salary, bonuses, commissions, stock, stock options, or any
other ownership interests in the Company, vacation pay, fringe benefits, expense
reimbursements, severance pay, or any form of compensation; claims pursuant to
any federal, state or local law or cause of action including, but not limited
to, the California Fair Employment and Housing Act, the federal Civil Rights Act
of 1964, as
<PAGE>

amended; the federal Age Discrimination in Employment Act of 1967, as amended;
the federal Americans With Disabilities Act; tort law; contract law; wrongful
discharge; discrimination; harassment; fraud; defamation; emotional distress;
and breach of the implied covenant of good faith and fair dealing.

18.  ADEA Waiver.  Ross further acknowledge that Ross is knowingly and
voluntarily waiving and releasing any rights Ross may have under the Age
Discrimination in Employment Act of 1967 ("ADEA").  Ross also acknowledges that
the consideration given for the waiver and release in the preceding paragraphs
hereof is in addition to anything of value to which Ross was already entitled.
Ross hereby provides the further acknowledgment that Ross is advised by this
writing, as required by the Older Workers Benefit Protection Act, that: (a)
Ross' waiver and release do not apply to any rights or claims that may arise
after the Effective Date of this release; (b) Ross has the right to consult with
an attorney prior to executing this release (although Ross may voluntarily
choose not to do so); (c) Ross may have at least twenty-one (21) days to
consider this Agreement (although Ross may by Ross' own choice execute this
release earlier); (d) Ross has seven (7) days following the execution of this
release to revoke this release; and (e) this Agreement shall not be effective
until the date upon which the revocation period has expired, therefore making
the effective date the eighth day after this release is signed by Ross (the
"Effective Date") as indicated below by his signature at the end of this
Agreement.

19.  Release of Claims by the Company.  The Company hereby releases, acquits and
forever discharges Ross and his agents, successors, assigns and affiliates from
any and all claims, liabilities, demands, causes of action, costs, expenses,
attorneys' fees, damages, indemnities and obligations of every kind in nature,
in law, equity or otherwise arising out of or in any way related to agreements,
events, acts or conduct at any time prior to and including the date the Company
executes this Agreement, relating to any act or omission by Ross within the
authorized course and scope of his employment with the Company, with the
exception of any claim arising out of his obligations under this Agreement,
including the Proprietary Information and Invention Agreement or any other
obligations relating to the proprietary information of the Company.  The
Company, after reasonable inquiry of its officers, directors and managerial
employees, acknowledges that as of the Effective Date they have no knowledge,
information or belief that Ross has performed any act or omission outside the
authorized course and scope of his employment.  The Company acknowledges and
agrees to indemnify Ross for acts relating to any act or omission by Ross within
the authorized course and scope of his employment with the Company to the extent
required by California law and permitted by the Company's by-laws.

20.  Section 1542 Waiver.  The Company and Ross both acknowledge that each has
read and understands Section 1542 of the Civil Code of the State of California,
which reads as follows:

     A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the release,
which if known by him must have materially affected his settlement with the
debtor.

The Company and Ross hereby expressly waive and relinquish all rights and
benefits under Section 1542 to the extent it relates to the subject matter of
the releases granted by the parties
<PAGE>

herein and any law or legal principle of similar effect in any jurisdiction with
respect to the releases granted by the parties herein.

21.  No Admissions.  The parties hereto hereby acknowledge that this is a
compromise settlement of various matters, and that the promised payments in
consideration of this Agreement shall not be construed to be an admission of any
liability or obligation by either party to the other party or to any other
person whomsoever.

22.  Entire Agreement.  This Agreement, including Exhibits A and B hereto,
constitutes the complete, final and exclusive embodiment of the entire Agreement
between Ross and the Company with regard to the subject matter hereof.  It is
entered into without reliance on any promise or representation, written or oral,
other than those expressly contained herein.  It may not be modified except in a
writing signed by Ross and a duly authorized officer of the Company.  Each party
has carefully read this Agreement, has been afforded the opportunity to be
advised of its meaning and consequences by his or its respective attorneys, and
signed the same of his or its free will.

23.  Successors and Assigns.  This Agreement shall bind the heirs, personal
representatives, successors, assigns, executors, and administrators of each
party, and inure to the benefit of each party, its agents, directors, officers,
employees, servants, heirs, successors and assigns.

24.  Applicable Law.  This Agreement shall be deemed to have been entered into
and shall be construed and enforced in accordance with the laws of the State of
California as applied to contracts made and to be performed entirely within
California.

25.  Arbitration.  To ensure rapid and economical resolution of any disputes
which may arise under this Agreement, Ross and the Company agree that any and
all disputes or controversies of any nature whatsoever, arising from or
regarding the interpretation, performance, enforcement or breach of this
Agreement shall be resolved by confidential, final and binding arbitration
(rather than trial by jury or court or resolution in some other forum) to the
fullest extent permitted by law.  Any arbitration proceeding pursuant to this
Agreement shall be conducted by the American Arbitration Association ("AAA")
under the then-existing AAA employment-related arbitration rules in Walnut
Creek, California. If for any reason all or part of this arbitration provision
is held to be invalid, illegal or unenforceable in any respect under any
applicable law or rule in any jurisdiction, such invalidity, illegality or
unenforceability will not affect any other portion of this arbitration provision
or any other jurisdiction, but this provision will be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or unenforceable part
or parts of this provision had never been contained herein, consistent with the
general intent of the parties insofar as possible. The prevailing party in such
arbitration proceeding shall be entitled to recover from the other party
reasonable attorneys' fees, arbitration expenses and other recoverable costs
incurred in connection with such arbitration proceeding.

26.  Severability.  If a court of competent jurisdiction determines that any
term or provision of this Agreement is invalid or unenforceable, in whole or in
part, then the remaining terms and provisions hereof shall be unimpaired.  Such
court will have the authority to modify or replace the invalid or unenforceable
term or provision with a valid and enforceable term or
<PAGE>

provision that most accurately represents the parties' intention with respect to
the invalid or unenforceable term or provision.

27.  Indemnification.  Each party will indemnify and save harmless each other
party hereto from any loss incurred directly or indirectly by reason of the
falsity or inaccuracy of any representation made herein.

28.  Authorization.  Each party warrants and represents that there are no liens
or claims of lien or assignments in law or equity or otherwise of or against any
of the claims or causes of action released herein.

29.  Counterparts.  This Agreement may be executed in two counterparts, each of
which shall be deemed an original, all of which together shall constitute one
and the same instrument.

30.  Section Headings.  The section and paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.

George Ross,
an individual.


/s/ George Ross
----------------------------
George Ross

Dated: January 21, 2000
       ---------------------

[Tier Technologies, Inc. Signatory],
C.E.O.

/s/ James L. Bildner
----------------------------
[Company Signatory]

Dated:______________________