Employment Agreement - Choice Information Systems Inc. and Jerry L. Short
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made as of January 22, 1999
by Choice Information Systems, Inc., a Virginia corporation (the "Employer"),
and Jerry L. Short, an individual resident in Colorado (the "Employee").
The parties, intending to be legally bound, agree as follows:
SECTION 1. DEFINITIONS
For the purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1.
"Agreement" means this Employment Agreement, including all exhibits hereto,
as amended from time to time.
"Asset Purchase Agreement" means that certain Asset Purchase Agreement,
dated January 22, 1999, between Employer, Quindeca Corporation and Employee,
pursuant to which Employer purchased substantially all of the assets (including
all goodwill) and assumed certain liabilities of Quindeca Corporation.
"Benefits" is defined in Section 3.1.
"Board of Directors" means the board of directors of the Employer.
"Confidential Information" means any and all:
(a) trade secrets concerning the business and affairs of the
Employer, product specifications, data, know-how, formulae, compositions,
processes, designs, sketches, photographs, graphs, drawings, samples,
inventions and ideas, past, current, and planned research and development,
current and planned manufacturing or distribution methods and processes,
customer lists, current and anticipated customer requirements, price lists,
market studies, business plans, computer software and programs (including
object code and source code), computer software and database technologies,
systems, structures, and architectures (and related formulae, compositions,
processes, improvements, devices, know-how, inventions, discoveries,
concepts, ideas, designs, methods and information) of Employer, and any
other information of Employer, however documented, that is a trade secret
within the meaning of applicable state trade secret law; and
(b) information of Employer concerning the business and affairs of
the Employer (which includes historical financial statements, financial
projections and budgets, historical and projected sales, capital spending
budgets and plans, the names and backgrounds of key personnel, personnel
training and techniques and materials), however documented; and
(c) notes, analysis, compilations, studies, summaries, and other
material prepared by or for the Employer containing or based, in whole or
in part, on any information included in the foregoing.
Notwithstanding the foregoing, the term "Confidential Information" does not
include information that the Employee demonstrates (i) was or is generally
available to the public other than as a result of a disclosure by the Employee
or (ii) becomes available after the date of this Agreement to the Employee on a
non-confidential basis, but only in the case of (ii) if (A) the source of
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such information is not bound by any confidentiality agreement with, or
confidentiality obligation to, the Employer, or is not otherwise prohibited from
transmitting the information to the Employee by a contractual, legal, fiduciary
or other legal obligation, and (B) if the Employee receives the information from
the source prior to its disclosure to the Employee by the Employer, the Employee
notifies the Employer of Employee's prior knowledge promptly after disclosure by
the Employer of the information.
"Daily Journal" means the Daily Journal Corporation, a South Carolina
corporation, together with its subsidiaries and affiliates (other than
Employer).
"Declining Salary" is defined in Section 4.4.
"Disability" is defined in Section 4.2.
"Employee Invention" means any idea, invention, technique, modification,
process, or improvement (whether patentable or not), any industrial design
(whether registerable or not), any mask work, however fixed or encoded, that is
suitable to be fixed, embedded or programmed in a semiconductor product (whether
recordable or not), and any work of authorship (whether or not copyright
protection may be obtained for it) created, conceived, or developed by the
Employee, either solely or in conjunction with others, during the Employment
Period, or a period that includes a portion of the Employment Period, that
relates in any way to the business then being conducted or proposed to be
conducted by the Employer during the Employment Period or (if disclosed to
Employee during the Employment Period) after the Employment Period, and any such
item created by the Employee, either solely or in conjunction with others,
following the Termination Date, that is based upon or uses Confidential
Information. The term "Employee Invention" includes the inventions, techniques,
and specially commissioned works described in Exhibit A. Notwithstanding the
foregoing, "Employee Inventions" shall not include software and related
consulting services that Employee can demonstrate (a) are not based upon and do
not use any Confidential Information, (b) have been developed solely on
Employee's own time consistent with his obligations under Section 2.3 of this
Agreement, (c) in the case of software, do not perform substantially the same
function as any software product developed or marketed by Employer in its
business (whether owned or licensed) whether prior to or during the Employment
Period, and (d) cannot reasonably be expected to be used in any industry served
or, if disclosed to Employee, proposed to be served by Employer during the
Employment Period.
"Employment Period" means the period of time the Employee is employed by
the Employer.
"Fiscal Year" means the Employer's fiscal year, as it exists on the date of
this Agreement or as changed from time to time.
"for Cause" is defined in Section 4.3.
"Payment Period" means the Employment Period and any additional period of
time during which Employee receives payments from the Employer pursuant to
Section 4 of this Agreement following termination of the Employment Period.
"person" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, or governmental body.
"Proprietary Items" is defined in Section 5.2(a)(iv).
"Salary" is defined in Section 3.1(a).
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"Stock Purchase Agreement" means that certain Stock Purchase Agreement,
dated January 22, 1999, among the Employer, Daily Journal, Michael W. Payton and
Terence E. Hahm.
"Termination Date" means the date on which Employee's employment with
Employer is terminated pursuant to this Agreement.
"Termination Notice" is defined in Section 4.1(d).
SECTION 2. EMPLOYMENT TERMS AND DUTIES
2.1 Employment. The Employer hereby employs the Employee, and the
Employee hereby accepts employment by the Employer, upon the terms and
conditions set forth in this Agreement.
2.2 Term. The Employee's term of employment will commence on January 22,
1999 and will end on January 23, 2004 unless earlier terminated pursuant to
Section 4 of this Agreement. Upon the termination of Employee's employment with
Employer, Employee shall be entitled only to the payments, if any, provided for
in Section 4.4 of this Agreement.
2.3 Duties. The Employee will have such duties as are assigned or
delegated to the Employee by the Board of Directors or President of the
Employer, and will initially serve as Managing Director and Assistant Secretary
of the Employer. The Employee will devote his entire business time, attention,
skill, and energy exclusively to the business of the Employer. The Employee
will (a) use his commercially reasonable efforts to promote the success of the
Employer's business, (b) perform his assigned duties diligently, loyally,
conscientiously, and with reasonable skill, (c) comply in all material respects
with all rules, procedures and standards promulgated from time to time by the
Employer with regard to his conduct and his access to and use of the Employer's
property, information, equipment and premises, and (d) cooperate fully with the
Board of Directors in the advancement of the best interests of the Employer.
If the Employee is elected as a director of the Employer or as a director or
officer of any of its affiliates, the Employee will fulfill his duties as such
director or officer without additional compensation. Employee acknowledges that
the Employer retains its full management prerogatives and discretion to manage
and direct its business affairs, including the adoption, amendment,
reorganization or modification of research, development, production, marketing
or organizational decisions as it sees fit, notwithstanding any employee's
individual interest in or expectation regarding a particular business program,
position or product.
SECTION 3. COMPENSATION
3.1 Basic Compensation. The Employee will be paid an annual salary of
$375,000, subject to adjustment as provided below (the "Salary"), which will be
payable in equal periodic installments according to the Employer's customary
payroll practices, but no less frequently than monthly. The Employee will also,
during the Employment Period, be permitted to participate in such life
insurance, hospitalization, major medical, and other employee benefit plans of
the Employer that may be in effect from time to time, to the extent the Employee
is eligible under the terms of those plans, and be subject to the vacation, sick
leave and holiday policies of Employer as in effect from time to time
(collectively, the "Benefits"). Employee acknowledges that Employee's Benefits
may be amended, enlarged, diminished or eliminated by Employer in its discretion
from time to time.
3.2 Incentive Compensation. As additional compensation for the services
to be rendered by the Employee pursuant to this Agreement, the Employee will
earn Incentive Compensation as provided in this Section 3.2.
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(a) Definitions. As used in this Section 3.2, the following terms
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have the meanings specified below:
(i) "Hurdle Amount" means either $1,000,000 for a full Fiscal Year
or, for a partial Fiscal Year, the amount determined by multiplying
$1,000,000 by a fraction in which the numerator is the number of days in
such partial Fiscal Year and the denominator is three hundred sixty-five
(365).
(ii) "Pre-Tax Operating Income" means the Employer's income from
ordinary business operations (which will not include capital gains and
interest or other investment income in excess of interest expense) from
sale or rental of software, consulting services and other business
operations conducted by Employer, less expenses and other charges (which
will include interest expense in excess of interest income and will not
include any provision for federal and state income taxes), all as
reflected on the Employer's books, and will be calculated in accordance
with generally accepted accounting principles as in effect from time to
time and without taking the payment of Incentive Compensation to the
Employee and Michael W. Payton into account. Pre-Tax Operating Income may
be a negative number for any given period. For a partial Fiscal Year,
Pre-Tax Operating Income shall be the Pre-Tax Operating Income for the
full Fiscal Year multiplied by a fraction in which the numerator is the
number of days in such partial Fiscal Year and the denominator is three
hundred sixty-five (365). Daily Journal will have the exclusive right,
unless otherwise agreed by Daily Journal, to sell and otherwise
disseminate any information produced or processed by Employer. It is
understood that Employer's business operations will not include such sale
and dissemination of information, as distinguished from software and
consulting services.
(b) Determination of Incentive Compensation. For each Fiscal Year in
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which Employee is eligible to receive Incentive Compensation, Employer
shall prepare a schedule detailing the Pre-Tax Operating Income for such
Fiscal Year and calculating the Incentive Compensation as follows:
FIRST, Employer shall subtract the Hurdle Amount from the Pre-Tax
Operating Net Income for the Fiscal Year, with the remaining amount being
the "Excess Pre-Tax Operating Income," which can be a negative number;
SECOND, Employer shall add the Excess Pre-Tax Operating Income to the
total Excess Pre-Tax Operating Income for each Fiscal Year and any
partial Fiscal Year from the date of this Agreement through the date on
which Incentive Compensation is being determined, with the total amount
being the "Cumulative Excess Pre-Tax Operating Income;"
THIRD, Employer shall multiply the Cumulative Excess Pre-Tax Operating
Income by fifteen percent (15%), with the product being the "Cumulative
Incentive Compensation;"
FOURTH, the Employer shall subtract from the Cumulative Incentive
Compensation the amount of Incentive Compensation previously paid to
Employee from the date of this Agreement, leaving an amount equal to the
"Incentive Compensation;" and
FIFTH, if the Incentive Compensation is a positive number, it shall be
paid to Employee as Incentive Compensation for that Fiscal Year.
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Employer shall deliver the schedule to the Employee, together with any
Incentive Compensation due to the Employee, within 90 days following the
completion for the Fiscal Year of the annual financial audit of Daily
Journal Corporation's consolidated financial statements by its public
accounting firm. Workpapers and other relevant documents with respect to
the calculation of the Incentive Compensation shall be made available to
Employee for inspection, and Employer shall make the persons in charge of
the preparation of the financial statements of Employer available for
reasonable inquiry by Employee. Employee shall notify Employer in writing
within 30 days following receipt of the schedule which shows any Incentive
Compensation due if Employee does not agree with the amount of Incentive
Compensation or any part of the calculations shown on the schedule.
Employer and Employee will use good faith efforts during the 10 day period
following delivery of the written notice to Employer to resolve any
disputes. If Employer and Employee cannot resolve the disputes within the
10 day period, their disputes shall be promptly submitted to an independent
public accounting firm jointly selected by Employer and Employee, which
shall conduct such additional review as is necessary to resolve the
specific disputes referred to it and, based thereon, shall determine the
Incentive Compensation due to the Employee and related calculations. The
review of the independent accountant shall be restricted to only those
matters that are specifically identified to it by Employer and Employee as
being the subject of dispute. The independent accountant's determination
described above shall be made no later than 60 days following the selection
of the independent accountant, shall be confirmed in writing by the
independent accountant and shall be final and binding upon Employer and
Employee. The fees and expenses of the independent accountant shall be
prorated among Employer and Employee in proportion to the amounts in
dispute resolved against each of them.
(c) Prorated Incentive Compensation. For the Fiscal Year ended
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September 30, 1999 and any subsequent Fiscal Year in which Employee ceases
to be eligible to earn Incentive Compensation under this Agreement for any
period of time, Employee shall only be eligible to earn Prorated Incentive
Compensation. "Prorated Incentive Compensation" is determined by
multiplying the Incentive Compensation for a full Fiscal Year by a fraction
of which the numerator is the actual number of days during which Employee
was eligible to earn Incentive Compensation during such Fiscal Year and the
denominator is three hundred sixty-five (365).
3.3 Expense Reimbursement. Employer shall reimburse Employee for
business expenses incurred in connection with the performance of Employee's
duties under this Agreement in accordance with Employer's business expense
reimbursement policies and procedures as in effect from time to time.
SECTION 4. TERMINATION
4.1 Events of Termination. The Employment Period, the Employee's
Salary, Bonus and Incentive Compensation, and any and all other rights of the
Employee under this Agreement or otherwise as an employee of the Employer will
terminate:
(a) upon the death of the Employee;
(b) upon the Disability of the Employee (as defined in Section 4.2)
immediately upon notice from either party to the other;
(c) by Employer for Cause (as defined in Section 4.3), immediately upon
determination by the Board of Directors after providing the notice
specified in Section 4.3; or
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(d) by either party at any time reasonably or unreasonably in the
absolute discretion of such party upon at least five (5) days' prior
written notice from the terminating party to the other party (a
"Termination Notice").
4.2 Definition of "Disability". For purposes of Section 4.1, the
Employee will be deemed to have a "Disability" if, for physical or mental
reasons, the Employee is unable to perform the essential functions of the
Employee's duties under this Agreement for 60 consecutive days, or 90 days
during any twelve month period, as determined in accordance with this Section
4.2. The Disability of the Employee will be determined by a medical doctor
selected by written agreement of the Employer and the Employee upon the request
of either party by notice to the other. If the Employer and the Employee cannot
agree on the selection of a medical doctor, each of them will select a medical
doctor and the two medical doctors will select a third medical doctor who will
determine whether the Employee has a Disability. The determination of the
medical doctor selected under this Section 4.2 will be binding on both parties.
The Employee must submit to a reasonable number of examinations by the medical
doctor making the determination of Disability under this Section 4.2, and the
Employee hereby authorizes the disclosure and release to the Employer of such
determination and all supporting medical records. If the Employee is not legally
competent, the Employee's legal guardian or duly authorized attorney-in-fact
will act in the Employee's stead, under this Section 4.2, for the purposes of
submitting the Employee to the examinations, and providing the authorization of
disclosure, required under this Section 4.2.
4.3 Definition of "for Cause". For purposes of Section 4.1, the phrase
"for Cause" means the good faith determination by the Board of Directors, after
notice to the Employee and provision to the Employee of an opportunity to
present the Employee's view of the relevant facts and circumstances to the Board
of Directors, that the Employee has
(a) breached any of the Employee's material fiduciary duties or
material legal or contractual obligations to the Employer or any
stockholder of the Employer, which breach, if curable, has not been cured
by Employee to Employer's reasonable satisfaction within 30 days after
notice to Employee by Employer,
(b) engaged in gross or persistent misconduct which is materially
injurious to the Employer, or
(c) has been convicted of or pleaded nolo contendre to (i) any
misdemeanor which either (1) relates to the affairs of the Employer and is
materially injurious to the Employer or (2) which brings Employee into
public disrepute, or (ii) any felony.
4.4 Termination Pay. Effective upon the Termination Date, the Employer
will be obligated to pay the Employee (or, in the event of his death, his
designated beneficiary as defined below) only such compensation as is provided
in this Section 4.4, and in lieu of all other amounts and in settlement and
complete release of all claims the Employee may have against the Employer under
this Agreement. For purposes of this Section 4.4, the Employee's designated
beneficiary will be such individual beneficiary or trust, located at such
address, as the Employee may designate by notice to the Employer from time to
time or, if the Employee fails to give notice to the Employer of such a
beneficiary, the Employee's estate. Notwithstanding the preceding sentence, the
Employer will have no duty, in any circumstances, to attempt to open an estate
on behalf of the Employee, to determine whether any beneficiary designated by
the Employee is alive or to ascertain the address of
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any such beneficiary, to determine the existence of any trust or to locate or
attempt to locate any beneficiary, personal representative, or trustee.
(a) Termination upon Death. If this Agreement is terminated because
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of the Employee's death, the Employee will be entitled to receive his
Salary through the end of the calendar month in which his death occurs. The
Employee will receive Incentive Compensation for the period ending with the
end of the month in which death occurs.
(b) Termination upon Disability. If this Agreement is terminated by
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either party as a result of the Employee's Disability, as determined under
Section 4.2, the Employer will pay the Employee his Salary through the
remainder of the calendar month during which such termination is effective
and for three (3) consecutive months thereafter, less any payment or other
compensation made by Employer to Employee for any vacation, holiday, sick
leave or other leave. The Employee will also receive Incentive
Compensation for the period ending with the end of the third calendar month
following the month in which termination for Disability is effective.
(c) Termination by the Employer for Cause. If the Employer terminates
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the Employee's employment under this Agreement for Cause, the Employee will
be entitled to receive his Salary only through the date such of such
termination. The Employee will not earn (i) any Incentive Compensation for
the Fiscal Year during which such termination occurs or any subsequent
Fiscal Year or (ii) any additional Incentive Compensation whatsoever.
(d) Elective Termination by Employer. If Employer terminates this
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Agreement under subparagraph 4.1(d), the Employee will be entitled to
receive (i) salary at an annual rate of $375,000 through January 3, 2004,
payable in equal periodic installments according to the Employer's
customary payroll practices, but no less frequently than monthly, and (ii)
his Incentive Compensation for the period ending with the end of the month
in which the Termination Date occurs.
(e) Elective Termination by Employee. If Employee terminates this
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Agreement under subparagraph 4.1(d), the Employee will be entitled to
receive:
(i) If a notice has not been delivered to Employee under Section 4.3
within six months prior to the date on which a Termination Notice is
delivered, the Employee will be entitled to receive his Declining Salary
through January 3, 2004 and Incentive Compensation for the period ending
with the end of the month in which the Termination Date occurs, or
(ii) If a notice has been delivered to Employee under Section 4.3
within six months prior to the date on which a Termination Notice is
delivered, the Employee will be entitled to receive his Declining Salary
only through the Termination Date. The Employee will not earn (A) any
Incentive Compensation for the Fiscal Year during which the Termination
Date occurs or any subsequent Fiscal Year or (B) any additional Incentive
Compensation whatsoever.
Notwithstanding paragraphs (d) and (e) above, Employer shall have no obligation
to pay any Salary or Declining Salary after the Termination Date or any
Incentive Compensation for any monthly periods following the month during which
the Termination Date occurs if prior to the Termination Date Employer has
incurred aggregate unreimbursed Damages pursuant to Section 5.2 of the Asset
Purchase Agreement which exceed $250,000.
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For purposes of this Agreement, "Declining Salary" means the following
annual salary levels during the period in which the Employee is eligible to
receive Declining Salary:
During 1999, $375,000
During 2000, $300,000
During 2001, $225,000
During 2002, $175,000
During 2003 and 2004, $150,000.
Declining Salary will be payable in equal periodic installments according to the
Employer's customary payroll practices, but no less frequently than monthly.
The Employee's accrual of, or participation in plans providing for, the
Benefits will cease at the Termination Date, and the Employee will be entitled
to accrued Benefits pursuant to such plans only as provided in such plans. The
Employee will not receive, as part of his termination pay pursuant to this
Section 4, any payment or other compensation for any vacation, holiday, sick
leave, or other leave unused on the Termination Date.
SECTION 5. NON-DISCLOSURE COVENANT; EMPLOYEE INVENTIONS
5.1 Acknowledgments by the Employee. The Employee acknowledges that (a)
during the Employment Period and as a part of his employment, the Employee will
be afforded access to Confidential Information; (b) public disclosure of such
Confidential Information could have an adverse effect on the Employer and its
business; (c) because the Employee possesses substantial technical expertise and
skill with respect to the Employer's business, the Employer desires to obtain
exclusive ownership of each Employee Invention, and the Employer will be at a
substantial competitive disadvantage if it fails to acquire exclusive ownership
of each Employee Invention; (d) the Employer has required that the Employee make
the covenants in this Section 5 as a condition to its purchase of substantially
all of the assets of Quindeca Corporation; and (e) the provisions of this
Section 5 are reasonable and necessary to prevent the improper use or disclosure
of Confidential Information and to provide the Employer with exclusive ownership
of all Employee Inventions.
5.2 Agreements of the Employee. In consideration of the compensation
and benefits to be paid or provided to the Employee by the Employer under this
Agreement, the Employee covenants as follows:
(a) Confidentiality.
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(i) During and following the Employment Period, the Employee will
hold in confidence the Confidential Information and will not disclose it
to any person except with the specific prior written consent of the
Employer or except as otherwise expressly permitted by the terms of this
Agreement.
(ii) Any trade secrets of the Employer will be entitled to all of the
protections and benefits under any applicable state trade secret law and
any other applicable law. If any information that the Employer deems to
be a trade secret is found by a court of competent jurisdiction not to be
a trade secret for purposes of this Agreement, such information will,
nevertheless, be considered Confidential Information for purposes of this
Agreement. The Employee hereby waives any requirement that the Employer
submit proof of the economic value of any trade secret or post a bond or
other security.
(iii) If the Employee is requested or becomes legally compelled (by
oral questions, interrogatories, requests for information or
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documents, subpoena, civil or criminal investigative demand, or similar
process) or is required by a regulatory body to make any disclosure that
is prohibited or otherwise constrained by this Agreement, the Employee
will provide the Employer with prompt notice of such request so that it
may seek an appropriate protective order or other appropriate remedy.
Subject to the foregoing, the Employee may furnish that portion (and only
that portion) of the Confidential Information that, in the written
opinion of its counsel reasonably acceptable to Employer, the Employee is
likely legally compelled or is otherwise required to disclose or else
stand liable for contempt or suffer other material censure or material
penalty; provided, however, that the Employee must use reasonable efforts
to obtain reliable assurance that confidential treatment will be accorded
any Confidential Information so disclosed.
(iv) The Employee will not remove from the Employer's premises
(except to the extent such removal is for purposes of the performance of
the Employee's duties at home or while traveling, or except as otherwise
specifically authorized by the Employer) any document, record, notebook,
plan, model, component, device, or computer software or code, whether
embodied in a disk or in any other form owned, leased or licensed by
Employer (collectively, the "Proprietary Items"). The Employee recognizes
that, as between the Employer and the Employee, all of the Proprietary
Items, whether or not developed by the Employee, are the exclusive
property of the Employer. Upon termination of this Agreement by either
party, or upon the request of the Employer during the Employment Period,
the Employee will return to the Employer all of the Proprietary Items in
the Employee's possession or subject to the Employee's control, and the
Employee shall not retain any copies, abstracts, sketches, or other
physical embodiment of any of the Proprietary Items.
(b) Employee Inventions. Each Employee Invention will belong
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exclusively to the Employer. The Employee acknowledges that all of the
Employee's writing, works of authorship, specially commissioned works
listed in Exhibit A, and other Employee Inventions are works made for hire
and the property of the Employer, including any copyrights, patents, or
other intellectual property rights pertaining thereto. If it is determined
that any such works are not works made for hire, the Employee hereby
assigns to the Employer all of the Employee's right, title, and interest,
including all rights of copyright, patent, and other intellectual property
rights, to or in such Employee Inventions. The Employee covenants that he
will promptly:
(i) disclose to the Employer in writing any Employee Invention;
(ii) assign to the Employer or to a party designated by the Employer,
at the Employer's request and without additional compensation, all of the
Employee's right to the Employee Invention for the United States and all
foreign jurisdictions;
(iii) execute and deliver to the Employer such applications,
assignments, and other documents as the Employer may request in order to
apply for and obtain patents or other registrations with respect to any
Employee Invention in the United States and any foreign jurisdictions;
(iv) sign all other papers necessary to carry out the above
obligations; and
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(v) at the expense of Employer, give testimony and render any other
assistance in support of the Employer's rights to any Employee Invention.
5.3 Disputes or Controversies. The Employee recognizes that should a
dispute or controversy arising from or relating to this Agreement be submitted
for adjudication to any court, arbitration panel, or other third party, the
preservation of the secrecy of Confidential Information may be jeopardized. All
pleadings, documents, testimony, and records relating to any such adjudication
will be maintained in secrecy and will be available for inspection by the
Employer, the Employee, and their respective attorneys and experts, who will
agree, in advance and in writing, to receive and maintain all such information
in secrecy, except as may be limited by them in writing.
SECTION 6. NON-COMPETITION AND NON-INTERFERENCE
6.1 Acknowledgments by the Employee. The Employee acknowledges that:
(a) the services to be performed by him under this Agreement are of a special,
unique, unusual, extraordinary, and intellectual character; (b) the Employer's
business is national in scope and its products are marketed throughout the
United States and Canada; (c) the Employer competes with other businesses that
are or could be located in any part of the United States and Canada; (d) the
Employer has required that the Employee make the covenants in this Section 6 as
a condition to its purchase of substantially all of the assets (including all
goodwill) of Quindeca Corporation; and (e) the provisions of this Section 6 are
reasonable and necessary to protect the Employer's business. For purposes of
this Section 6 only, during the Employment Period "Employer" shall include Daily
Journal.
6.2 Covenants of the Employee. In consideration of the acknowledgments
by the Employee, and in consideration of the compensation and benefits to be
paid or provided to the Employee by the Employer, the Employee covenants that he
will not, directly or indirectly:
(a) during the Payment Period, except in the course of his employment
hereunder, engage or invest in, own, manage, operate, finance, control, or
participate in the ownership, management, operation, financing, or control
of, be employed by, associated with, or in any manner connected with, lend
the Employee's name or any similar name to, lend Employee's credit to or
render services or advice to, any business whose products or activities
compete in whole or in part with the products or activities of the Employer
anywhere within the United States or Canada; provided, however, that the
Employee may purchase or otherwise acquire up to (but not more than) one
percent (1%) of any class of securities of any enterprise (but without
otherwise participating in the activities of such enterprise) if such
securities are listed on any national or regional securities exchange or
have been registered under Section 12(g) of the Securities Exchange Act of
1934;
(b) whether for the Employee's own account or for the account of any
other person, at any time during the Payment Period, solicit business of
the same or similar type being carried on by the Employer, from any person
known by the Employee to be a customer of the Employer, whether or not the
Employee had personal contact with such person during and by reason of the
Employee's employment with the Employer;
(c) whether for the Employee's own account or the account of any other
person (i) at any time during the Payment Period, solicit, employ, or
otherwise engage as an employee, independent contractor, or otherwise, any
person who is or was an employee of the Employer at any time during the
Employment Period or in any manner induce or attempt to induce any employee
of the Employer to terminate his employment with the
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Employer; or (ii) at any time during the Payment Period, interfere with the
Employer's relationship with any person, including any person who at any
time during the Employment Period was an employee, contractor, supplier, or
customer of the Employer; or
(d) at any time during or after the Payment Period, disparage the
Employer or any of its shareholders, directors, officers, employees, or
agents.
Nothing in paragraphs (a) or (b) above shall prevent Employee, following the
Employment Period, from engaging or investing in, owning, managing, operating,
financing, controlling, or participating in the ownership, management,
operation, financing, or control of, being employed by, associated with, or in
any manner connected with, lending the Employee's name or any similar name to,
lending Employee's credit to or rendering services or advice to, any business
which markets or develops software and related consulting services that Employee
can demonstrate (i) are not based upon and do not use any Confidential
Information or Employee Inventions, (ii) in the case of software, do not perform
substantially the same function as any software product owned by or exclusively
licensed to Employer, and (iii) is not specifically targeted for any industry
served by Employer during the Employment Period or, if disclosed to Employee
during the Employment Period, is proposed to be served by the Employer and for
which the Employer has taken active steps during the Employment Period.
If any covenant in this Section 6.2 is held to be unreasonable, arbitrary,
or against public policy, such covenant will be considered to be divisible with
respect to scope, time, and geographic area, and such lesser scope, time, or
geographic area, or all of them, as a court of competent jurisdiction may
determine to be reasonable, not arbitrary, and not against public policy, will
be effective, binding, and enforceable against the Employee.
The period of time applicable to any covenant in this Section 6.2 will be
extended by the duration of any violation by the Employee of such covenant.
The Employee will, while the covenant under this Section 6.2 is in effect,
give notice to the Employer, within ten days after accepting any other
employment, of the identity of the Employee's employer. Daily Journal or the
Employer may notify such employer that the Employee is bound by this Agreement
and, at the Employer's election, furnish such employer with a copy of this
Agreement or relevant portions thereof.
SECTION 7. GENERAL PROVISIONS
7.1 Injunctive Relief and Additional Remedy. The Employee acknowledges
that the injury that would be suffered by the Employer as a result of a breach
of either Section 5 or 6 of this Agreement would be irreparable and that an
award of monetary damages to the Employer for such a breach would be an
inadequate remedy. Consequently, the Employer will have the right, in addition
to any other rights it may have, to obtain injunctive relief to restrain any
breach or threatened breach or otherwise to specifically enforce any provision
of either Section 5 or 6 of this Agreement, and the Employer will not be
obligated to post bond or other security in seeking such relief. Without
limiting the Employer's rights under this Section 7 or any other remedies of the
Employer, if the Employee breaches any of the provisions of Section 5 or 6, the
Employer will have the right to cease making any payments otherwise due to the
Employee under this Agreement provided that Employer shall remit to Employee
such withheld payments upon a final determination that Employee did not engage
in a breach of either Section 5 or 6 of this Agreement.
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7.2 Covenants of Sections 5 and 6 Are Essential Covenants. The
covenants by the Employee in Sections 5 and 6 are essential elements of this
Agreement, and without the Employee's agreement to comply with such covenants,
the Employer would not have purchased substantially all of the assets of
Quindeca Corporation pursuant to the Asset Purchase Agreement and the Employer
would not have entered into this Agreement or employed or continued the
employment of the Employee. The Employer and the Employee have independently
consulted their respective counsel and have been advised in all respects
concerning the reasonableness and propriety of such covenants, with specific
regard to the nature of the business conducted by the Employer.
The Employee's covenants in Section 5 are independent covenants and the
existence of any claim by the Employee against the Employer under this Agreement
or otherwise, or against Daily Journal, will not excuse the Employee's breach of
any covenant in Section 5.
If the Employee's employment hereunder expires or is terminated for any
reason, this Agreement will continue in full force and effect as is necessary or
appropriate to enforce the covenants and agreements of the Employee in Sections
5 and 6.
7.3 Representations and Warranties by the Employee. The Employee
represents and warrants to the Employer as follows:
(a) The execution and delivery by the Employee of this Agreement do
not, and the performance by the Employee of the Employee's obligations
hereunder will not, with or without the giving of notice or the passage of
time, or both: (i) violate any judgment, writ, injunction, or order of any
court, arbitrator, or governmental agency applicable to the Employee; or
(ii) conflict with, result in the breach of any provisions of or the
termination of, or constitute a default under, any agreement to which the
Employee is a party or by which the Employee is or may be bound.
(b) The Employee has no outstanding commitments inconsistent with any
of the terms of this Agreement or the services to be rendered by Employee
under this Agreement.
7.4 Representations and Warranties by the Employer. The Employer
represents and warrants to the Employee that the execution and delivery by the
Employer of this Agreement have been duly authorized by Employer and do not, and
the performance by the Employer of the Employer's obligations hereunder will
not, with or without the giving of notice or the passage of time, or both: (i)
violate any judgment, writ, injunction, or order of any court, arbitrator, or
governmental agency applicable to the Employer; or (ii) conflict with, result in
the breach of any provisions of or the termination of, or constitute a default
under, any agreement to which the Employer is a party or by which the Employer
is or may be bound.
7.5 Waiver. The rights and remedies of the parties to this Agreement
are cumulative and not alternative. Neither the failure nor any delay by either
party in exercising any right, power, or privilege under this Agreement will
operate as a waiver of such right, power, or privilege, and no single or partial
exercise of any such right, power, or privilege will preclude any other or
further exercise of such right, power, or privilege or the exercise of any other
right, power, or privilege. To the maximum extent permitted by applicable law,
(a) no claim or right arising out of this Agreement can be discharged by one
party, in whole or in part, by a waiver or renunciation of the claim or right
unless in writing signed by the other party; (b) no waiver that may be given by
a party will be applicable except in the specific instance for which it is
given; and (c) no notice to or demand on one party will be deemed to be a waiver
of any obligation of such party or of the right
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of the party giving such notice or demand to take further action without notice
or demand as provided in this Agreement.
7.6 Binding Effect; Delegation of Duties Prohibited. This Agreement
shall inure to the benefit of, and shall be binding upon, the parties hereto and
their respective successors, assigns, heirs, and legal representatives,
including any entity with which the Employer may merge or consolidate or to
which all or substantially all of its assets may be transferred. The duties and
covenants of the Employee under this Agreement, being personal, may not be
delegated.
7.7 Notices. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given when (a) delivered by hand (with written confirmation of receipt), (b)
sent by facsimile (with written confirmation of receipt), provided that a copy
is mailed by registered mail, return receipt requested, or (c) when received by
the addressee, if sent by a nation-ally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and facsimile
numbers set forth below (or to such other addresses and facsimile numbers as a
party may designate by notice to the other parties):
If to Employer:
Choice Information Systems, Inc.
c/o Daily Journal Corporation
915 E. First Street
Los Angeles, CA 90012
Attn: Gerald L. Salzman
Fax: 213-330-2666
If to the Employee:
Jerry L. Short
P.O. Box 16040
Golden, CO 80402
Fax: 888-719-7819
7.8 Entire Agreement; Amendments. This Agreement, the Asset Purchase
Agreement and the Shareholders Agreement, and the documents executed in
connection with this Agreement, the Asset Purchase Agreement and the
Shareholders Agreement, contain the entire agreement between the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, between the parties hereto with respect to the
subject matter hereof. This Agreement may not be amended orally, but only by an
agreement in writing signed by the parties hereto.
7.9 Governing Law. This Agreement will be governed by, and construed
and enforced in accordance with, the laws of the State of California without
regard to conflicts of laws principles.
7.10 Mandatory Arbitration. Any controversy or claim arising out of or
relating to this Agreement, or the breach thereof, shall be settled by
arbitration administered by the American Arbitration Association under its
National Rules for the Resolution of Employment Disputes, and judgment upon the
award rendered by the arbitrators may be entered by any court having
jurisdiction thereof. Any arbitration under this Agreement shall be adjudicated
by three (3) arbitrators, one selected by Employer within fifteen (15) days
after the commencement of arbitration, one selected by Employee within fifteen
(15) days after the commencement of arbitration and one selected by the two
arbitrators within five (5) days after their appointment. If the arbitrators
selected by the parties are unable or fail to agree upon a third arbitrator, the
third arbitrator shall be selected by the American
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Arbitration Association. The place of the arbitration shall be at a place within
the City of Los Angeles, California. Either party may apply to the arbitrators
seeking injunctive relief until the arbitration award is rendered or the
controversy is otherwise resolved. Consistent with the expedited nature of
arbitration, each party will, upon the written request of the other party,
promptly provide the other with copies of documents relevant to the issued
raised by any claim or counterclaim. Any dispute regarding discovery, or the
relevance or scope thereof, shall be determined by the arbitrators, which
determination shall be conclusive. All discovery shall be completed within
forty-five (45) days following the appointment of the third arbitrator. The
award shall be by majority vote of the panel and shall be made within six (6)
months of the filing of the notice of intention to arbitrate, and the
arbitrators shall agree to comply with this schedule before accepting
appointment. The arbitration panel's award shall be final. The parties agree and
consent that judgment upon the arbitration award may be entered in any federal
or state court having jurisdiction thereof. The prevailing party shall be
entitled to recover its costs and reasonable attorneys' fees, and the party
losing the arbitration shall pay all expenses and fees of the American
Arbitration Association, all costs of the stenographic record, all expenses of
witnesses or proofs that may have been produced at the direction of the
arbitrators, and the fees, costs, and expenses of the arbitrators. The
arbitration panel shall designate the prevailing party for these purposes.
Except as may be required by law, neither a party, its counsel and other
representatives, nor an arbitrator may disclose the existence, content, or
results of any arbitrator hereunder without the prior written consent of both
parties.
7.11 No Guarantee. Nothing in this Agreement shall constitute an
obligation of Daily Journal, and Employee acknowledges that Daily Journal does
not guarantee or otherwise agree to perform any obligations of Employer whether
pursuant to this Agreement or otherwise.
7.12 Section Headings, Construction. The headings of Sections in this
Agreement are provided for convenience only and will not affect its construction
or interpretation. All references to "Section" or "Sections" refer to the
corresponding Section or Sections of this Agreement unless otherwise specified.
All words used in this Agreement will be construed to be of such gender or
number as the circumstances require. Unless otherwise expressly provided, the
word "including" does not limit the preceding words or terms.
7.13 Severability. If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
7.14 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
7.15 Indemnification. The Employer shall indemnify Employee for, and
provide for advancement of expenses relating to, any proceedings brought or
threatened to be brought against Employee by reason of the fact that Employee
was an employee, officer or director of Employer or any of its affiliates
following the date of this Agreement to the same extent and on the same terms as
Daily Journal provides indemnification and expense advancement to its employees,
officers and directors from time to time.
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IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date above first written above.
EMPLOYER: CHOICE INFORMATION SYSTEMS, INC.
By:__________________________________
Name:
Title:
EMPLOYEE: /s/ Jerry L. Short
_____________________________________
Jerry L. Short
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EXHIBIT A
List of Employee Inventions
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All software heretofore invented by Employee or under his direction relating to
business heretofore conducted by Employer or Quindeca Corporation.
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