Employment Agreement - Kona Grill Inc. and Jason J. Merritt
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered into on this
1st day of October, 2003 ("Effective Date") by and between Kona Grill, Inc., a
Delaware corporation (the "Company"), and Jason J. Merritt (hereinafter, the
"Executive").
RECITALS
A. The Executive is highly knowledgeable regarding the business and
affairs of the Company, its policies, methods and personnel, and is currently
employed as the Vice President of the Company.
B. The Board of Directors of the Company (the "Board") recognizes that
the Executive has contributed to the growth of the Company, and desires to
assure the Executive of continued employment.
C. The Executive is willing to make his services available to the
Company and on the terms and conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual covenants set
forth herein, the parties agree as follows:
1. Employment Duties.
1.1 During the Term of Employment under this Agreement ("Term of
Employment"), the Executive shall serve as Chief Operating Officer of the
Company, shall faithfully and diligently perform all services as may be assigned
to him by the Board, and shall exercise such power and authority as may from
time to time be delegated to him by the Board. The Executive shall devote his
full time and attention to the business and affairs of the Company, render such
services to the best of his ability, and promote the interests of the Company.
2. Term.
2.1 Initial Term. The initial term of this Agreement shall be five
(5) years, commencing on the Effective Date, unless sooner terminated in
accordance with Section 5 hereof ("Initial Term").
2.2 Renewal Terms. At the end of the Initial Term, the Term of
Employment automatically shall renew for successive one (1) year terms ("Renewal
Term"), subject to earlier termination as set forth herein.
3. Compensation.
3.1 Base Salary. During the Executive's first year of employment
under this Agreement, the Executive shall receive a base salary at the annual
rate of $175,000 (the "Base
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Salary") retroactive to October 1, 2003, with such Base Salary payable in
installments consistent with the Company's normal payroll schedule, subject to
applicable withholding and other taxes. Thereafter, the Base Salary shall be
reviewed, at least annually, by the Board for merit increases and shall increase
on October 1, 2004, to $200,000 per annum. At no time after October 1, 2004,
shall Executive's Base Salary fall below $200,000.
3.2 Bonuses
a. During each year of the Term of Employment, the Executive
shall be eligible to receive discretionary bonuses in annual amounts as
determined by the Board in its sole discretion. For the calendar year ending
December 31, 2003, Executive shall receive a bonus payable by April 1, 2004,
which shall consist of (i) a performance bonus to be determined by the Company's
Board in its sole discretion plus (ii) an additional amount ("Stock Grant Tax
Amount") equal to the full amount of federal, state and local income taxes and
any associated interest, penalties and other additions to tax payable by
Executive on account of the stock grant contemplated in Section 4.2(a) of this
Agreement so that after grossing up all payments for the Stock Grant Tax Amount
payable by Executive on account of the receipt of the Stock Grant Tax Amount
under this Section 3.2(a) the Executive will be in the same economic position
that he would have been if the stock grant contemplated in Section 4.2(a) of
this Agreement had not occurred. To the extent any taxing authority later
determines that the Stock Grant Tax Amount is greater than originally reported
by Executive, the Company shall, within ten (10) days after Executive delivers a
written request for reimbursement, pay Executive all such additional amounts
payable by Executive to such taxing authorities on a grossed-up basis as
contemplated by this Section 3.2(a).
b. For the Bonus Period in which the Executive's employment
with the Company terminates for any reason, the Company shall pay the Executive
a pro rata portion (based upon the period ending on the date on which the
Executive's employment with the Company terminates) of the annual bonus
otherwise payable under Section 3.2(a) for the Bonus Period in which such
termination of employment occurs; provided, however, that the Bonus Period for
purposes of this Section 3.2(b) shall be deemed to end on the last day of the
fiscal quarter of the Company in which the Executive's employment so terminates.
c. The Executive shall receive such additional bonuses, if
any, as the Board may in its sole and absolute discretion determine.
d. Any bonuses payable pursuant to this Section 3.2 are
sometimes hereinafter referred to as "Incentive Compensation." Each period for
which Incentive Compensation is payable under the Agreement is sometimes
hereinafter referred to as a Bonus Period. Unless otherwise specified by the
Board or provided under this Agreement, the Bonus Period shall be the fiscal
year of the Company.
4. Benefits and Expense Reimbursement.
4.1 Compensation/Benefit Programs. During the Term of Employment,
the Executive shall be entitled to participate in all medical, dental, vision,
hospitalization, accidental death and dismemberment, disability, travel and life
insurance plans, and any and all other plans
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as are presently and hereinafter offered by the Company to its executive
personnel, including pension, profit-sharing and deferred compensation plans,
subject to the general eligibility and participation provisions set forth in
such plans.
4.2 Stock Grant and Stock Options.
a. Stock Grant. Upon the execution of this Agreement by the
parties hereto, the Company shall grant Executive 40,000 shares of Company's
Common Stock. For purposes of this Section 4.2(a), the Company acknowledges and
agrees that the fair market value of the Company's Common Stock on the date of
this Agreement is $1.20 per share. The shares of the Company's Common Stock
granted to Executive under this Section 4.2(a) shall be subject to certain
restrictions as defined from time to time by the Company in its sole discretion.
b. Stock Options. Upon the execution of this Agreement by the
parties hereto, the Company shall grant Executive Three Hundred Thousand
(300,000) stock options (the "Stock Options") to purchase Common Stock of the
Company under (and therefore subject to all terms and conditions of) the
Company's 2002 Stock Plan as attached hereto as Exhibit A (the "Company's Stock
Plan") at an exercise price equal to the current fair market value per share of
the Company's Common Stock which is $1.20 per share. The Stock Options will be
granted as incentive stock options to the extent possible under the Company's
Stock Plan and applicable law. Sixty Thousand (60,000) Stock Options shall vest
upon each anniversary date of this Agreement provided, however, upon the
occurrence of a Change in Control, all unvested Stock Options shall vest
immediately. All or any portion of the vested Stock Options may be exercised at
any one or more times by the Executive during the Term of Employment and for a
period of twelve (12) months following the Term of Employment. The Stock Options
shall be granted pursuant to certain restrictions as defined from time to time
by the Company in its sole discretion.
4.3 Vacation. The Executive shall be entitled to three (3) weeks
of paid vacation each calendar year during the Term of Employment, to be taken
at such times as the Executive and the Company shall mutually determine and
provided that no vacation time shall significantly interfere with the duties
required to be rendered by the Executive hereunder. Any vacation time not taken
by Executive during any calendar year may not be carded forward into any
succeeding calendar year. Any earned but unused vacation time will be paid out
to Executive at the time of his termination.
4.4 Reimbursement of Expenses. Upon the submission of proper
substantiation by the Executive, and subject to the Company's general policies,
the Company shall reimburse the Executive for all reasonable expenses actually
paid or incurred by Executive during the Term of Employment in the course of and
pursuant to the business of the Company.
4.5 Life Insurance. Executive agrees to cooperate with the Company
in obtaining all life insurance as the Board or any lender deems necessary.
4.6 Directors & Officers Insurance. At all times during the Term
of Employment, Executive shall be considered an officer of the Company and shall
be covered by D&O
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Insurance, or any other similar type of insurance, that provides coverage for
the Executive's acts or omissions undertaken during the course and scope of his
employment.
5. Termination.
5.1 Termination for Cause. The Company shall at all times have the
right, upon written notice to the Executive, to terminate the Term of Employment
for Cause as defined below. For purposes of this Agreement, the term "Cause"
shall mean (i) an action of the Executive which constitutes a willful and
material breach of, or willful and material failure or refusal (other than by
reason of his disability or incapacity) to perform his duties under, this
Agreement that is not cured within forty-five (45) days after receipt by the
Executive of written notice of same, (ii) fraud, embezzlement or
misappropriation of funds during the Term of Employment, or (iii) a conviction
of any crime during the Term of Employment which involves dishonesty or a breach
of trust or involves the Company or its executives. Any termination for Cause
shall be made by written notice to the Executive, which shall set forth in
reasonable detail all acts or omissions upon which the Company is relying for
the termination. The Executive shall have the right to address the Board
regarding the acts or omissions set forth in the notice of termination. Upon any
termination pursuant to this Section 5.1, the Company shall (i) pay to the
Executive any unpaid Base Salary and earned but unused vacation time through the
date of termination, (ii) pay to the Executive his accrued but unpaid Incentive
Compensation, if any, for any Bonus Period ending on or before the date of the
termination of Executive's employment with the Company in accordance with
Section 3.2(b).
5.2 Disability.
a. In the event the Executive becomes disabled and shall be
unable, or fail, to perform the essential functions of his position with or
without reasonable accommodation, for any period of forty-five (45) days or
more, the Company shall have the option, in accordance with applicable law, to
terminate this Agreement upon written notice to the Executive. Upon termination
pursuant to this Section 5.2, the Company shall (i) pay to the Executive any
unpaid Base Salary and earned but unused vacation time through the effective
date of termination specified in such notice, (ii) pay to the Executive his
accrued but unpaid Incentive Compensation, if any, for any Bonus Period ending
on or before the date of termination of the Executive's employment with the
Company in accordance with Section 3.2(b), and (iii) pay to the Executive a
severance payment equal to nine (9) months of the Executive's Base Salary in
effect at the time of the termination of the Executive's employment with the
Company.
b. For purposes of this Section 5.2, the Executive shall be
considered Disabled or to be suffering from a Disability if the Executive is
unable, after any reasonable accommodations required by the Americans with
Disabilities Act or any applicable state law, to perform the essential functions
of his position because of a physical or mental impairment. In the absence of
agreement between Company and the Executive, whether the Executive is Disabled
or suffering from a Disability (and the date as of which Executive became
Disabled) will be determined by a licensed physician selected by Company. If a
licensed physician selected by the Executive disagrees with the determination of
the physician selected by Company, the two (2) physicians shall select a third
(3rd) physician. The decision of the third (3rd) physician concerning the
Executive's Disability then shall be binding and conclusive on all interested
parties.
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5.3 Death. Upon the death of the Executive during the Term of
Employment, the Company shall pay to the estate of the deceased Executive (i)
any unpaid Base Salary and earned but unused vacation time through the
Executive's date of death and (ii) any accrued but unpaid Incentive Compensation
for any Bonus Period ending on or before the Executive's date of death in
accordance with Section 3.2(b).
5.4 Termination Without Cause
a. At any time the Company shall have the right to terminate
the Term of Employment without cause by providing written notice not less than
sixty (60) days prior to the termination date, to the Executive. Upon any
termination pursuant to this Section 5.4, or in the event the Company elects not
to renew the Agreement at the end of the Initial or any Renewal Term (except if
the non-renewal is for cause pursuant to Section 5.1), the Company shall (i) pay
to the Executive any unpaid Base Salary and earned but unused vacation time
through the date of termination specified in the notice, (ii) pay to the
Executive the accrued but unpaid Incentive Compensation, if any, for any Bonus
Period ending on or before the date of the termination of the Executive's
employment with the Company in accordance with Section 3.2(b), (iii) continue to
pay the Executive's Base Salary in effect at the time of the termination for a
period (the "Continuation Period") of twelve (12) months following the
termination of the Executive's employment with the Company, in the manner and at
such times as the Base Salary otherwise would have been payable to the
Executive, and (iv) continue to provide the Executive with the benefits he was
receiving under Section 4.1 hereof (the "Benefits") through the end of the
Continuation Period in the manner and at such times as the Benefits otherwise
would have been payable or provided to the Executive. Further, all of
Executive's Stock Options in the Company, including, without limitation, the
Stock Options, shall continue to vest through the end of the Continuation Period
in the same manner and to the same extent as if his employment hereunder
terminated on the last day of the Continuation Period.
b. In the event that the Company is unable to provide the
Executive with any health-related Benefits required hereunder by reason of the
termination of the Executive's employment, coverage shall be continued under
COBRA beginning the first day of the month following the effective termination
date and shall continue for the duration of the Continuation Period and the
Company shall be responsible for paying the full cost of the COBRA premium
directly to the insurance carrier.
5.5 Termination by Executive
a. The Executive shall at all times have the right, by written
notice not less than (30) days prior to the termination date, to terminate the
Term of Employment.
b. Upon termination of the Term of Employment pursuant to this
Section 5.5 by the Executive without Good Reason (as defined below), the Company
shall pay to the Executive any unpaid Base Salary and earned but unused vacation
time through the effective date of termination specified in the notice.
c. Upon termination of the Term of Employment pursuant to this
Section 5.5 by the Executive for Good Reason, the Company shall pay to the
Executive the same
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amounts, and shall continue to compensate for Benefits in the same amounts, that
would have been payable or provided by the Company to the Executive under
Section 5.4 of this Agreement if the Term of Employment had been terminated by
the Company without Cause.
d. For purposes of this Agreement, "Good Reason" shall mean
(i) the adjustment downward of the Executive's compensation and/or benefits as
provided for by Section 3 of this Agreement; and (ii) any failure by the Company
to comply with any of the provisions of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive. "Good Reason" shall not exist as a result of a change in the
Executive's job duties or job title.
5.6 Change in Control of the Company
a. Unless Executive elects to terminate this Agreement
pursuant to subparagraph c below, Executive understands and acknowledges that
the Company may be merged or consolidated with or into another entity and that
such entity shall automatically succeed to the rights and obligations of the
Company hereunder or that the Company may undergo another type of Change in
Control. The Executive hereby acknowledges and agrees that the Executive shall
have no right to terminate this Agreement for a period of one year following the
date of a Change in Control. In the event such a merger or consolidation or
other Change in Control is initiated prior to the end of the Initial or any
Renewal Term, then the provisions of this Section 5.6 shall be applicable.
b. In the event of a pending Change in Control wherein the
Company and/or the Executive has not received written notice at least five (5)
business days prior to the anticipated closing date of the transaction giving
rise to the Change in Control from the successor to all or a substantial portion
of the Company's business and/or assets that such successor is willing as of the
closing to assume and agree to perform the Company's obligations under this
Agreement in the same manner and to the same extent that the Company is hereby
required to perform, then such Change in Control shall be deemed to be a
termination of this Agreement by the Company without Cause during the Term of
Employment and the applicable portions of Section 5.4 hereof will apply.
c. In any Change in Control situation, Executive may, at his
sole discretion, elect to terminate this Agreement at any time on or after the
one-year anniversary of the date of the Change in Control by providing written
notice to the Company and/or a successor to all or a substantial portion of the
Company's business and/or assets at least (30) days prior to the anticipated
termination date. In such case, or in the event that the Company and/or its
successor terminates the Executive after a Change in Control for any reason, the
applicable provisions of Section 5.4 hereof will apply as though the Company had
terminated the Agreement without Cause during the Term of Employment.
d. For purposes of applying this Section 5 under the
circumstances described in (b) above, the effective date of termination will be
the closing date of the transaction giving rise to the Change in Control and all
compensation, reimbursements and lump-sum payments due Executive must be paid in
full by the Company at or prior to such closing.
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e. A "Change in Control" shall mean a change in control of
a nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulations 14A promulgated under the Securities Exchange Act of
1934, as amended, as in effect on the date of this Agreement, or if Item 6(e) is
no longer in effect, any regulations issued by the United States Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended,
which serve similar purposes; provided further that, without limitation, a
Change in Control shall be deemed to have occurred if and when:
i. a public offering of the Common Stock of the
Company registered under the Securities Act of 1933, as
amended, and/or any other applicable securities laws, is made,
ii. the stockholders of the Company shall approve a
merger, consolidation, recapitalization, stock purchase or
reorganization of the Company, a reverse stock split of
outstanding voting securities, or consummation of any such
transactions if stockholder approval is not obtained, other
than any such transaction which would result in at least
seventy-five percent (75%) of the total voting power
represented by the voting securities of the surviving entity
outstanding immediately after such transaction being
beneficially owned by at least seventy-five (75%) of the
holders of outstanding voting securities of the Company
immediately prior to the transaction, with the voting power of
each such continuing holder relative to other such continuing
holders not substantially altered in the transaction, or
iii. the stockholders of the Company shall approve a
plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of all or a
substantial portion of the Company's assets to another person
or entity which is not a wholly-owned subsidiary of the
Company (i.e., fifty percent (50%) or more of the total assets
of the Company).
f. The Executive shall be notified in writing by the
Company at any time that the Company or any member of its Board anticipates that
a Change in Control may take place.
g. In the event that a Change in Control occurs and any
payments made to the Executive hereunder, or pursuant to any plan, program or
policy of the Company in connection with, on account of, or as a result of, such
Change in Control constitute "excess parachute payments" as defined in Section
280G of the Internal Revenue Code of 1986, as amended (the "Code"), subject to
the excise tax imposed by Section 4999 of the Code, or any successor sections
thereof, the Executive shall receive from the Company or its successor, in
addition to any other amounts payable under this Agreement, a lump-sum payment
equal to the amount of (i) such excise tax, and (ii) the federal and state
income taxes payable by the Executive with respect to any payments made to the
Executive under this subparagraph (g). Such amount will be due and payable by
the Company or its successor within ten (10) days after the Executive deliv-
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ers a written request for reimbursement accompanied by a copy of his tax
return(s) showing the excise tax actually incurred by the Executive.
6. Invention Disclosure and Assignment.
6.1 Disclosure. Executive will, without further consideration,
disclose immediately in writing to Company each and every invention or
improvement, whether or not patentable, copyrightable, or protectable as a trade
secret, that Executive may make or conceive, either solely or jointly with
others, during the Initial Term and the Renewal Terms of this Agreement and
which results from any work for Company, any use of Company's premises or
property, or any use of the Company information or other resources. The
foregoing shall be referred to as a "Company Invention/Improvement," and each
Company Invention/Improvement shall be Company's sole property, free from any
legal or equitable title of Executive, and all necessary documents for
perfecting title of a Company Invention/Improvement shall be executed by
Executive without further consideration and delivered to Company on demand.
Company Invention/Improvement shall include, but not be limited to, all
inventions, improvements, designs, original works of authorship, formulas,
processes, compositions of matter and trade secrets. In addition, Executive
acknowledges and agrees that any copyrightable works prepared by Executive
within the scope of his employment are "works for hire" under the Copyright Act
and that the Company will be considered the author and owner of such
copyrightable works.
6.2 Cooperation. Executive shall promptly review, sign and return
all documents, communicate all pertinent information and do anything else
reasonably requested by Company in order to transfer all rights to any Company
Invention/Improvement to Company or its nominee and to help Company apply for,
obtain, modify, defend, enforce or transfer or otherwise assist Company in the
complete enjoyment of its patent, trade secret, copyright and comparable rights
for such anywhere in the world. Executive will be reimbursed for any reasonable
expenses actually incurred to comply with the foregoing. Executive will not be
entitled to further consideration for services rendered or fights transferred
according to this section, except that if the Executive is no longer providing
services to Company when services according to this section are rendered,
Executive shall be entitled to receive reasonable compensation for the time
reasonably required to render these services.
6.3 Notice. Executive agrees to notify Company in writing before
making any disclosure, or performing or causing to be performed any work for or
on behalf of Company which appears to conflict or threaten to conflict with (a)
rights claimed by such Executive in an Invention or idea conceived by Executive
or others prior to Executive's relationship with Company or otherwise outside
the scope of these terms and conditions, or (b) rights of others arising out of
obligations incurred by Executive prior to Executive's relationship with Company
or in connection with his employment, or otherwise outside the scope of these
terms and conditions. If Executive fails to give notice under the circumstances
specified in the foregoing, Company may assume that no such conflicting
invention or idea exists, and Executive agrees that Executive will make no claim
against Company with respect to the use of any such invention or idea in any
form for any work which Executive performs for or on behalf of Company.
6.4 Confidential Information and Non-Disclosure. All confidential
information which Executive may now possess, may obtain during the Initial Term
or any subsequent
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Renewal Term, or may create at any time while he is still employed by Company,
relating to the business of the Company, its predecessor and any customer or
supplier of the Company or its predecessor, shall not be published, disclosed or
made accessible by him to any other person, firm or corporation during the
Initial Term or any subsequent Renewal Term or any time thereafter without the
prior written consent of the Company; provided, however, information shall not
be deemed confidential information if such information was generally publicly
available prior to the receipt thereof by Executive or subsequently becomes
generally available through no fault of Executive. Upon request, Executive shall
return all tangible evidence of such confidential information and all other
Company property, including, but not limited to, files (including electronic
files), equipment, computer software, computer hardware, notebooks, reports,
letters, manuals, drawings, blue prints, schematics, keys, pagers, telephones,
credit cards and copies thereof, to the Company prior to or at the termination
of his employment.
7. Non Competition; Non-Solicitation.
7.1 No Conflict of Interest. During the term of Executive's
employment with Company, Executive must not engage in any work, paid or unpaid,
that creates an actual or potential conflict of interest with Company. Such work
shall include, but is not limited to, directly or indirectly competing with
Company in any way, or acting as an officer, director, Executive, consultant,
stockholder, volunteer, lender, or agent of any business enterprise of the same
nature as, or which is in direct competition with, the business in which Company
is now engaged or in which Company becomes engaged during the term of
Executive's employment with Company, as may be determined by the Company in its
sole discretion. If Company believes such a conflict exists during the term of
this Agreement, Company may ask Executive to choose to discontinue the other
work or resign employment with Company. In addition, Executive agrees not to
refer any client or potential client of Company to competitors of Company,
without obtaining Company's prior written consent, during the term of
Executive's employment.
8. Post-Termination Non-Competition.
8.1 Consideration For Promise to Refrain From Competing. Executive
agrees that Executive's services are special and unique, that Company's
disclosure of confidential, proprietary information and specialized training and
knowledge to Executive, and that Executive's level of compensation and benefits
and post-termination severance, as applicable, are partly in consideration of
and conditioned upon Executive not competing with Company. Executive
acknowledges that such consideration for Executive's services under this
Agreement is adequate consideration for Executive's promises contained within
this Section 8.
8.2 Promise To Refrain From Competing. Executive understands
Company's need for Executive's promise not to compete with Company is based on
the following: (a) Company has expended, and will continue to expend,
substantial time, money and effort in developing its proprietary information;
(b) Executive will, in the course of Executive's employment, develop, and be
personally entrusted with and exposed to such proprietary information; (c) both
during and after the term of Executive's employment, Company will be engaged in
the highly competitive casual dining industry; (d) Company provides services
nationally and may provide services internationally in the future; and (e)
Company will suffer great loss and irreparable harm if Executive were to enter
into competition with Company. Therefore, in exchange for the con-
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sideration described in Sections 3 and 4 above, Executive agrees that for a
period commencing on the Effective Date and ending eighteen (18) months after
termination of Executive's employment with the Company (the "Covenant Period"),
Executive will not either directly or indirectly, whether as a owner, director,
officer, manager, consultant, agent or Executive: (i) work for a competitor,
which is defined to include any company in the business of preparation and
distribution of Contemporary American or Pacific Island restaurant concepts
similar to the Company and featuring a Sushi Bar existing during the Covenant
Period, within a twenty five (25) mile radius of any Kona Grill or any planned
location of such restaurants ("Restricted Business"); or (ii) make or hold any
investment in any Restricted Business in the United States, whether such
investment be by way of loan, purchase of stock or otherwise, provided that
there shall be excluded from the foregoing the ownership of not more than 5% of
the listed or traded stock of any publicly held corporation. For purposes of
this Section 8, the term "Company" shall mean and include Company, any
subsidiary or affiliate of Company, any successor to the business of Company (by
merger, consolidation, sale of assets or stock or otherwise) and any other
corporation or entity of which Executive may serve as a director, officer or
Executive at the request of Company or any successor of Company.
8.3 Reasonableness of Restrictions. Executive represents and
agrees that the restrictions on competition, as to time, geographic area, and
scope of activity, required by this Section 8 are reasonable, do not impose a
greater restraint than is necessary to protect the goodwill and business
interests of Company, and are not unduly burdensome to Executive. Executive
expressly acknowledges that Company competes on a nationwide basis and that the
geographical scope of these limitations is reasonable and necessary for the
protection of Company's trade secrets and other confidential and proprietary
information. Executive further agrees that these restrictions allow Executive an
adequate number and variety of employment alternatives, based on Executive's
varied skills and abilities. Executive represents that Executive is willing and
able to compete in other employment not prohibited by this Agreement.
8.4 Reformation if Necessary. In the event a court of competent
jurisdiction determines that the geographic area, duration, or scope of activity
of any restriction under this Section 8 and its subsections is unenforceable,
the restrictions under this section and its subsections shall not be terminated
but shall be reformed and modified to the extent required to render them valid
and enforceable. Executive further agrees that the court may reform this
Agreement to extend the period of this covenant not to compete by an amount of
time equal to any period in which Executive is in breach of this covenant.
9. Nonsolicitation.
9.1 Nonsolicitation of Customers or Prospects. Executive
acknowledges that information about Company's customers is confidential and
constitutes trade secrets. Accordingly, Executive agrees that during the
Covenant Period, Executive will not, either directly or indirectly, separately
or in association with others, interfere with, impair, disrupt or damage
Company's relationship with any of its customers or customer prospects by
soliciting or encouraging others to solicit any of them for the purpose of
diverting or taking away business from Company.
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9.2 Nonsolicitation of Company's Executives. Executive agrees that
during the Covenant Period, Executive will not, either directly or indirectly,
separately or in association with others, interfere with, impair, disrupt or
damage Company's business by soliciting, encouraging or attempting to hire any
of Company's Executives or causing others to solicit or encourage any of
Company's Executives to discontinue their employment with Company.
10. Injunctive Relief. Executive acknowledges that Executive's breach of
the covenants contained in Sections 6, 7, 8, 9, and 10 (collectively
"Covenants") would cause irreparable injury to Company and agrees that in the
event of any such breach, Company shall be entitled to seek temporary,
preliminary and permanent injunctive relief without the necessity of proving
actual damages or posting any bond or other security.
11. Agreement to Arbitrate. To the fullest extent permitted by law,
Executive and Company agree to arbitrate any controversy, claim or dispute
between them arising out of or in any way related to this Agreement, the
employment relationship between Company and Executive and any disputes upon
termination of employment, including but not limited to breach of contract,
tort, discrimination, harassment, wrongful termination, demotion, discipline,
failure to accommodate, family and medical leave, compensation or benefits
claims, constitutional claims; and any claims for violation of any local, state
or federal law, statute, regulation or ordinance or common law. Claims for
injunctive relief pursuant to Section 11 above are excluded. For the purpose of
this agreement to arbitrate, references to "Company" include all parent,
subsidiary, or related entities and their Executives, supervisors, officers,
directors, agents, pension or benefit plans, pension or benefit plan sponsors,
fiduciaries, administrators, affiliates and all successors and assigns of any of
them, and this agreement shall apply to them to the extent Executive's claims
arise out of or relate to their actions on behalf of Company.
11.1 Consideration. The mutual promise by Company and Executive to
arbitrate any and all disputes between them (except for those referenced above)
rather than litigate them before the courts or other bodies, provides the
consideration for this agreement to arbitrate.
11.2 Initiation of Arbitration. Either party may exercise the right
to arbitrate by providing the other party with written notice of any and all
claims forming the basis of such right in sufficient detail to inform the other
party of the substance of such claims. In no event shall the request for
arbitration be made after the date when institution of legal or equitable
proceedings based on such claims would be barred by the applicable statute of
limitations.
11.3 Arbitration Procedure. The arbitration will be conducted in
Phoenix, Arizona by a single neutral arbitrator and in accordance with the then
current rules for resolution of employment disputes of the American Arbitration
Association ("AAA"). The parties are entitled to representation by an attorney
or other representative of their choosing. The arbitrator shall have the power
to enter any award that could be entered by a judge of the trial court of the
State of Arizona, and only such power, and shall follow the law. The parties
agree to abide by and perform any award rendered by the arbitrator. The
arbitrator shall issue the award in writing and therein state the essential
findings and conclusions on which the award is based. Judgment on the award may
be entered in any court having jurisdiction thereof.
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11.4 Costs of Arbitration. Each party shall bear their own costs
for all expenses relating to the arbitration.
12. General Provisions.
12.1 Successors and Assigns. The rights and obligations of Company
under this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of Company. Executive shall not be entitled to assign any
of Executive's rights or obligations under this Agreement.
12.2 Waiver. Either party's failure to enforce any provision of
this Agreement shall not in any way be construed as a waiver of any such
provision, or prevent that party thereafter from enforcing each and every other
provision of this Agreement.
12.3 Attorneys' Fees. Each side will bear its own attorneys' fees
in any dispute unless a statutory section at issue, if any, authorizes the award
of attorneys' fees to the prevailing party.
12.4 Severability. In the event any provision of this Agreement is
found to be unenforceable by an arbitrator or court of competent jurisdiction,
such provision shall be deemed modified to the extent necessary to allow
enforceability of the provision so limited, it being intended that the parties
shall receive the benefit contemplated herein to the fullest extent permitted by
law. If a deemed modification is not satisfactory in the judgment of such
arbitrator or court, the unenforceable provision shall be deemed deleted, and
the validity and enforceability of the remaining provisions shall not be
affected thereby.
12.5 Interpretation; Construction. The headings set forth in this
Agreement are for convenience only and shall not be used in interpreting this
Agreement. Furthermore, Executive acknowledges that Executive has had an
opportunity to draft, review, and revise the Agreement and have it reviewed by
legal counsel, if desired, and, therefore, the normal rule of construction to
the effect that any ambiguities are to be resolved against the drafting party
shall be employed in the interpretation of this Agreement.
12.6 Governing Law. This Agreement will be governed by and
construed in accordance with the laws of the United States and the State of
Arizona. Each party consents to the jurisdiction and venue of the state or
federal courts in Phoenix, Arizona, if applicable, in any action, suit, or
proceeding arising out of or relating to this Agreement.
12.7 Notices. Any notice required or permitted by this Agreement
shall be in writing and shall be delivered as follows with notice deemed given
as indicated: (a) by personal delivery when delivered personally; (b) by
overnight courier upon written verification of receipt; (c) by telecopy or
facsimile transmission upon acknowledgment of receipt of electronic
transmission; or (d) by certified or registered mail, return receipt requested,
upon verification of receipt. Notice shall be sent to the addresses set forth
below, or such other address as either party may specify in writing.
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12.8 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument and agreement.
13. Survival. Sections 8 ("Post-Termination Non-Competition"), 9
("Nonsolicitation"), 10 ("Injunctive Relief"), 11 ("Agreement to
Arbitrate"), 12 ("General Provisions") and 14 ("Entire Agreement")
of this Agreement shall survive Executive's employment by Company.
14. Entire Agreement. This Agreement, the attached exhibits, and any
documents related to Executive's stock options, constitutes the
entire agreement between the parties relating to this subject matter
and supersedes all prior or simultaneous representations,
discussions, negotiations, and agreements, whether written or oral.
This Agreement may be amended or modified only with the written
consent of Executive and the President of Company. To the extent
that the terms of this Employment Agreement conflicts with the
Restricted Stock Grant Agreement, the terms of this Agreement shall
control. No oral waiver, amendment or modification will be effective
under any circumstances whatsoever.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
KONA GRILL, INC.
By: /s/ Chandler
-------------------------------
Name: Chandler
Title: President
EXECUTIVE:
/s/ Jason Merritt
-----------------------------------
Jason Merritt
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