EXHIBIT 10.1

 

VIRTUALSCOPICS, INC.

 

EMPLOYMENT AGREEMENT

 

This Employment Agreement (this “Agreement”) is made and effective this 19th day
of August, 2014, between VirtualScopics, Inc., a Delaware corporation (the
“Company”), and James A. Groff (“Executive Officer”).

 

WITNESSETH

 

WHEREAS, Executive Officer has been serving as acting Chief Financial Officer
(CFO) for the Company since August 31, 2013;

 

WHEREAS, the Company desires now to employ Executive Officer as its CFO
effective the date hereof, pursuant to this Employment Agreement;

 

WHEREAS, Executive Officer desires to be employed by the Company as its CFO; and

 

WHEREAS, the Company and Executive Officer intend and desire to be legally bound
by this Agreement;

 

NOW, THEREFORE, in consideration of the premises and mutual covenants and
conditions contained in this Agreement, the Company and Executive Officer agree
as follows:

 

1.     Employment. The Company hereby employs Executive Officer as its CFO for
the term of employment as defined in paragraph 2 of this Agreement. Executive
Officer shall be responsible for the management of the operations of the
Company, subject to the supervision and direction of the Board of Directors of
the Company (the “Board”). Executive Officer shall report to the CEO and the
Board.

 

2.     Term of Employment. Executive Officer’s Term of Employment under this
Agreement shall commence as of the effective date hereof and shall automatically
be extended for additional one-year periods so long as the Executive Officer
remains fully employed by the Company or until this Agreement is amended or
superseded by a new agreement.

 

3.     Performance. Executive Officer shall devote his full working time,
attention, skills and energies to the performance of his duties as CFO of the
Company.

 

4.     Salary, Bonus and Benefits.

 

(a) Salary. As basic compensation for his services under this Agreement, and
effective as of the effective date hereof, the Company shall pay to Executive
Officer a gross salary of $150,000 per year, which may be further increased or
decreased as determined by the Compensation Committee of the Board; provided,
however, any salary decreases shall occur only as part of a broad-based cost
reduction program approved by the Board. Any increases or decreases in the
salary made after the effective date of this Agreement shall be considered to be
the salary for purposes of this Agreement. Executive Officer’s salary shall be
paid in accordance with the customary payroll practices of the Company.

 

 

 

 

(b) Bonus. In addition to his salary, and as incentive bonus for his services
under this Agreement, the Company shall establish an annual incentive bonus plan
for Executive Officer tied to the achievement of certain Company annual bonus
plan goals approved by the Board’s Compensation Committee, with a targeted
maximum payout of twenty percent (20%) of Executive Officer's salary in effect
at the end of each fiscal year. The bonus for 2014 shall take into account
Executive Officer’s performance since January 1, 2014. The bonus will be paid to
Executive Officer in accordance with the customary bonus payout practices of the
Company, typically within two (2) months of the official close of the fiscal
year. The Compensation Committee reserves the right per the Company’s annual
bonus plan and at its sole discretion, to exceed the maximum payout for
exceptional performance.

 

(c) Benefits. Executive Officer shall participate in all benefit plans, option
plans, retirement plans, vacation plans, and other plans, arrangements, policies
and perquisites as are afforded from time to time to other executive officers of
the Company, including, but not limited to, all health, medical and dental
(health) insurance plans, disability insurance plans and all other insurance
plans.

 

Executive Officer also shall be entitled to reimbursement of all reasonable
expenses which are incurred by Executive Officer in the performance of his
duties with the Company and which are documented in accordance with procedures
approved by the Company for all executive officers of the Company.

 

(d) Stock Options.

 

(i) The Company shall award Executive Officer an option to purchase 25,000
shares of the Company’s common stock, par value $0.001 per share (“Common
Stock”) (each award being subject to adjustment as provided below in this
Section) pursuant to the terms of the Company’s Amended and Restated 2006
Long-Term Incentive Plan, as may be amended from time to time (“2006 Plan”), as
approved by the Company’s Compensation Committee on the effective date of this
Agreement.

 

(ii) Provided Executive Officer is employed by the Company on the date which is
twelve (12) months after the effective date hereof, the Company shall award
Executive Officer an option to purchase 25,000 shares of the Company's Common
Stock (each award subject to adjustment as provided below in this Section)
pursuant to the terms of the 2006 Plan (or any replacement plan).  Provided
Executive Officer is employed by the Company on the date which is twenty-four
(24) months after the effective date hereof, the Company shall award Executive
Officer an option to purchase 25,000 shares of the Company's Common Stock (each
award subject to adjustment as provided below in this Section) pursuant to the
terms of the 2006 Plan (or any replacement plan).

 

 

 

 

In each case under this Section 4(d): (x) the options will vest at the rate of
twenty-five percent (25%) on each anniversary of the date of the award while the
Executive Officer is employed by the Company until fully vested; (y)  the number
of shares to be subject to an option shall be subject to adjustment upon the
occurrence of certain events to the extent and in the manner provided in the
2006 Plan for “Awards” thereunder, including but not limited to Section 4(c)
thereof, or similar provisions in any amendments to the 2006 Plan or similar
provisions in any replacement plan; and (z) the grants are expressly contingent
upon there being sufficient Shares (as defined in the 2006 Plan) reserved for
awards of the type of award under the 2006 Plan (or any replacement plan) on the
applicable date to cover the specified number.

 

(e) Change in Control Bonus.

 

(i) Payment of Change in Control Bonus. If a Change in Control occurs on or
before the third anniversary of the effective date of this Agreement (“Change in
Control Period”) and provided that the Executive Officer remains in the
continuous employment of the Company through the occurrence of such Change in
Control, then the Company shall pay the Executive Officer a lump-sum cash
payment equal to fifty percent (50%) of the Executive Officer’s annual salary
for the year in which the Change in Control occurs (the “Change in Control
Bonus”) within forty-five (45) days following the occurrence of such Change in
Control. The Change in Control Period may be extended by the Compensation
Committee of the Board at any time prior to the end of such period.

 

(ii) Change in Control of the Company. A “Change in Control of the Company”
means the first occurrence of any of the following:

 

(1) Any person or group (within the meaning of Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)), other than
the Company or a trustee or other fiduciary holding securities under an employee
benefit plan of the Company or a corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company, becomes the beneficial owner (within the
meaning of Rule 13(d)(3) under the Exchange Act), directly or indirectly, of
securities representing more than fifty percent (50%) of the combined voting
power of the Company’s then-outstanding securities entitled generally to vote
for the election of directors;

 

(2) The Company merges or consolidates with another corporation (other than a
majority-controlled subsidiary of the Company) unless the Company’s stockholders
immediately before the merger or consolidation are to own at least fifty percent
(50%) of the combined voting power of the resulting entity’s voting securities
entitled generally to vote for the election of directors; or

 

(3) The Company sells or otherwise disposes of all or substantially all of the
business or assets of the Company.

 

A Change in Control shall be deemed to occur: (A) with respect to a Change in
Control pursuant to Section 4(e)(ii)(1), on the date any person or group first
becomes the beneficial owner, directly or indirectly, of securities representing
more than fifty percent (50%) of the combined voting power of the Company’s
then-outstanding securities entitled generally to vote for the election of
directors, or (B) with respect to a Change in Control pursuant to Section
4(e)(ii)(2) or (3), on the date the applicable transaction closes.

 

 

 

  

(iii) Sections 280G and 4999 of the Code. In the event that the Executive
Officer becomes entitled to any payment or benefit under this Agreement (such
benefits together with any other payments or benefits payable to the Executive
Officer under any other agreement with the Executive Officer, or plan or policy
of the Company, are referred to in the aggregate as the “Total Payments”), if
all or any part of the Total Payments will be subject to the tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended, and all
regulations, interpretations and administrative guidance issued thereunder (the
“Code”), or any similar tax that may hereafter be imposed (the “Excise Tax”),
then:

 

(1) Within thirty (30) days following an event entitling the Executive Officer
to a payment under this Agreement, the Company will notify the Executive Officer
in writing: (i) whether the payments and benefits under this Agreement, when
added to any other payments and benefits making up the Total Payments, exceed an
amount equal to 299% of the Executive Officer’s “base amount” as defined in
Section 280G(b)(3) of the Code (the “299% Amount”); and (ii) the amount that is
equal to the 299% Amount.

 

(2) The payments and benefits under this Agreement shall be reduced such that
the Total Payments do not exceed the 299% Amount, so that no portion of the
payments and benefits under this Agreement will be subject to the Excise Tax.
Any payment or benefit so reduced will be permanently forfeited and will not be
paid to the Executive Officer.

 

(3) The calculation of the 299% Amount and the determination of how much the
Executive Officer’s payments and benefits must be reduced in order to avoid
application of the Excise Tax will be made by the Company's public accounting
firm prior to the Executive Officer’s termination of employment, which firm must
be reasonably acceptable to the Executive Officer (the “Accounting Firm”). The
Company will cause the Accounting Firm to provide detailed supporting
calculations of its determinations to the Company and the Executive Officer.
Notice must be given to the Accounting Firm within fifteen (15) business days
after an event entitling the Executive Officer to a payment under this
Agreement. All fees and expenses of the Accounting Firm will be borne solely by
the Company.

 

(4) For purposes of making the reduction of amounts payable under this
Agreement, such amounts will be eliminated in compliance with the requirements
of Section 409A of the Code and in the following order: (1) any cash
compensation, (2) any health or welfare benefits, and (3) any equity
compensation. Reductions of such amounts will take place in the chronological
order with respect to which such amounts would be paid from the date of the
event entitling the Executive to a payment under this Agreement absent any
acceleration of payment.

 

 

 

 

(iv) Administration. The Compensation Committee shall administer this Section
4(e). Except as otherwise specifically provided herein, the Compensation
Committee shall have the sole responsibility for and the sole control of the
operation and administration of this Section 4(e), and shall have the sole
power, authority and discretion to take all action and to make all decisions and
interpretations which may be necessary or appropriate in order to administer and
operate this Section 4(e). All decisions and interpretations of the Compensation
Committee are final and binding on the Executive Officer. In the administration
of this Section 4(e), the Compensation Committee may, to the maximum extent
permitted by law, engage agents and delegate to them such duties as it sees fit.
No director, officer, agent or employee of the Company shall be liable to the
Executive Officer for any action taken or omitted in connection with the
interpretation and administration of this Section 4(e).

 

(v) Nontransferability. No amount payable to the Executive Officer under this
Section 4(e) will, except as otherwise specifically provided by law, be subject
in any manner to anticipation, alienation, attachment, garnishment, sale,
transfer, assignment (either at law or in equity), levy, execution, pledge,
encumbrance, charge or any other legal or equitable process, and any attempt to
do so will be void; nor will any benefit be in any manner liable for or subject
to the debts, contracts, liabilities, engagements or torts of the person
entitled thereto. This Section 4(e) is binding upon the Executive Officer and
his personal representatives, but neither this Section 4(e) nor any obligations
or benefits under this Section 4(e) may be assigned by the Executive Officer.

 

(vi) Confidentiality. Payment of the Change in Control Bonus is contingent upon
the Executive Officer’s compliance, during the period prior to a Change in
Control, with all confidentiality requirements, provisions or agreements related
to any and all proposed Change in Control transactions, as determined by the
Board of Directors in its sole discretion.

 

5.Other Activities.

 

(a) Executive Officer may serve from time to time as an advisor, director or
trustee of outside organizations (e.g., for-profit organizations, not-for-profit
organizations, professional organizations), provided that such service does not
conflict with (i) the business or reputation of the Company, or (ii) Executive
Officer’s performance of his duties with the Company. Executive Officer has
provided the Chairman with a current list of all such outside organizations to
which he provides such service.

 

(b) Executive Officer shall consult with, and obtain the consent of, the
Chairman, which consent shall not be unreasonably withheld, conditioned or
delayed, with respect to his service and anticipated time commitment/s as an
advisor, director, consultant or trustee of any outside organization.

 

(c) The Chairman shall have the discretion, to be exercised reasonably, in
determining whether or not Executive Officer’s service as an advisor, director,
consultant or trustee of any outside organization that conflicts with (i) the
business or reputation of the Company, or (ii) Executive Officer’s performance
of his duties with the Company; provided, however, in the event of a dispute
between Chairman and Executive Officer concerning whether such service
constitutes a conflict described in this Section 5(c), the Board shall decide
whether such service is a conflict described for purposes of this Section 5(c).

 

 

 

 

6.Intentionally omitted.

  

7.Termination of Employment.

 

(a) Voluntary termination by Executive Officer. Executive Officer may
voluntarily terminate his employment under this Agreement by delivering written
notice to the Board of his decision to terminate his employment providing the
Board with a minimum of thirty (30) days advance written notice from date of
termination. Executive Officer shall not be deprived, by reason of such
termination, of any rights, payments, options, unrestricted Shares or benefits
which have vested or have been earned or to which Executive Officer is otherwise
entitled as of the effective date of such termination, and no such right,
payment, option or benefit will be reduced or otherwise affected by reason of
such termination.

 

(b) Involuntary termination for cause. The employment of Executive Officer under
this Agreement shall terminate for cause upon delivery to Executive Officer of
notice in writing from the Chairman of the Board of Directors (acting pursuant
to a duly adopted resolution of the Board) of the termination of his employment
for cause. Cause shall mean:

 

(i) any willful act or failure to act by Executive Officer that causes material
harm to the Company or at the discretion and/or sole opinion of the Board has
the potential to cause material harm to the Company; any fraud by Executive
Officer upon the Company; the conviction of Executive Officer, or the plea of
nolo contendere by Executive Officer, with respect to any felony at any time
during his business career; for the purposes of this subparagraph 7(b), any act
or failure to act by Executive Officer which was done or omitted to be done by
Executive Officer in good faith and for a purpose which he reasonably believed
to be in the best interests of the Company shall not be considered to have been
willful; or

 

(ii) any material breach by Executive Officer of his obligations under this
Agreement that is not cured by Executive Officer within thirty (30) days after
receipt by him of written notice from the Chairman of his determination that a
material breach has occurred; or

 

(iii) Executive Officer’s unethical behavior, dishonesty, or moral turpitudes
which has caused harm or injury to the business, operations or financial
condition of the Company or at the discretion and/or sole opinion of the Board
has the potential to cause harm or injury to the Company.

 

(c) In the event that Executive Officer is terminated for cause, then Executive
Officer’s rights and duties under this Agreement shall terminate as of the
effective date of such termination. Notwithstanding anything to the contrary
contained in this Agreement, it is the intention and agreement of the Company
and Executive Officer that Executive Officer shall not be deprived, by reason of
termination for cause, of any rights, payments, options, unrestricted Shares or
benefits which have vested or have been earned or to which Executive Officer is
otherwise entitled as of the effective date of such termination, and it is also
the intention and agreement of the Company and Executive Officer that no such
right, payment, option or benefit will be reduced or otherwise affected by
reason of such termination.

 

 

 

 

(d) Involuntary termination without cause. The Company has the right to
terminate Executive Officer without cause. In the event that the Executive
Officer is involuntarily terminated without cause, the Company shall pay
Executive Officer, as separation pay, six (6) months’ worth of his annual
salary, as defined in 4(a) herein, as of the date upon which his termination
becomes effective; plus six (6) months' worth of benefits Executive Officer is
then currently receiving. The salary and benefits shall be payable in the normal
course for the six (6) month period following the effective date of the
termination. In addition, in the event such termination occurs after June 30 of
any calendar year, Executive Officer shall be entitled to receive payment of any
bonus earned through the date of such termination, pro rated for the number of
days elapsed in such calendar year.

 

(e) The Company’s obligation to pay the severance pay and benefits provided for
under Section 7(d) of this Agreement is expressly conditioned upon Executive
Officer’s execution and delivery to the Company of a Release Agreement, as
drafted at the time of Executive Officer’s termination of employment, including,
but not limited to:

 

(i) An unconditional release of all rights to any claims, charges, complaints,
grievances, known or unknown to Executive Officer, against Company, its
affiliates or assigns, through the date of Executive Officer’s termination from
employment;

 

(ii) A representation and warranty that Executive Officer has not filed or
assigned any claims, charges, complaints, or grievances that the Company, its
affiliates, or assigns;

 

(iii) An agreement not to use, disclose or make copies of any confidential
information of the Company, as well as to return any such confidential
information and property to the Company upon execution of release;

 

(iv) An agreement to maintain the confidentiality of the release, except as may
be disclosed by Executive Officer to his advisors for purposes of evaluating the
terms of the release; and

 

(v) An agreement to indemnify the Company, or its affiliates or assigns, in the
event that Executive Officer breaches any portion of the Release Agreement.

 

Executive Officer acknowledges such Release Agreement shall not be construed as
an admission by the Company or any other release of any wrongdoing whatsoever
against Executive Officer, and all of the releases specifically deny any such
wrongdoing.

 

In the event the Executive Officer breaches any provision of this Agreement or
the Company’s Confidentiality and Non-Competition Agreement he is signing of
even date herewith, the Company’s obligation to pay severance pay and benefits
shall immediately cease and the Executive Officer shall be required to reimburse
the Company for all severance pay and benefits received herein.

 

 

 

 

(f) Rights under Long Term Incentive Plan. Upon the termination of Executive
Officer’s employment he shall have such rights under the Company’s Amended and
Restated 2006 Long Term Incentive Plan, subject to any future amendments the
Company may make thereto.

 

8.Section 409A of the Code.

 

(a) The compensation and benefits under this Agreement are intended to comply
with or be exempt from the requirements of Section 409A of the Code, and this
Agreement will be interpreted and administered in a manner consistent with that
intent. The preceding provision, however, shall not be construed as a guarantee
by the Company of any particular tax effect to the Executive Officer under this
Agreement. The Company shall not be liable to the Executive Officer if any
payment made or provision under this Agreement that is determined to result in
an additional tax, penalty or interest under Section 409A of the Code, nor for
reporting in good faith any payment made under this Agreement as an amount
includible in gross income under Section 409A of the Code. The parties agree
that they shall work together in good faith to amend this Agreement, if
reasonably necessary to comply with Section 409A of the Code or an
interpretation thereof by the IRS or the Treasury Department.

 

(b) References to termination of employment and similar terms used in this
Agreement mean, to the extent necessary to comply with Section 409A of the Code,
the date that the Executive Officer first incurs a separation from service
within the meaning of Section 409A of the Code. Each payment under this
Agreement shall be designated as a separate payment within the meaning of
Section 409A of the Code.

 

(c) The bonus referred to Section 4(b) of this Agreement shall be paid on a
timely basis upon official close of the fiscal year, but in no event later than
March 15th of the year following the year over which the bonus is earned.

 

(d) To the extent any reimbursement provided under this Agreement is includable
in the Executive Officer's income, such reimbursements shall be paid to the
Executive Officer not later than December 31st of the year following the year in
which the Executive Officer incurs the expense and the amount of reimbursable
expenses provided in one year shall not increase or decrease the amount of
reimbursable expenses to be provided in a subsequent year.

 

(e) Notwithstanding anything in this Agreement to the contrary, if at the time
of the Executive Officer's separation from service with the Company the
Executive Officer is a specified employee as defined in Section 409A of the
Code, and any payment payable under this Agreement as a result of such
separation from service is required to be delayed by six (6) months pursuant to
Section 409A of the Code, then the Company will make such payment on the date
that is six (6) months following the Executive Officer's separation from service
with the Company. The amount of such payment will equal the sum of the payments
that would have been paid to the Executive Officer during the six-month period
immediately following the Executive Officer's separation from service had the
payment commenced as of such date and will not include interest.

 

 

 

 

9.     Confidentiality, Commitments by Executive Officer. Executive Officer
hereby acknowledges that he has executed, and agrees to be bound by the Company
agreement or agreements containing confidentiality, non-compete and restrictive
covenant provisions and this Agreement shall not be deemed to supersede such
agreement or agreements.

 

10.     Arbitration. Subject to the provisions of Section 11 of this Agreement
regarding injunctive relief, any controversy or claim arising out of or relating
to this Agreement, or any breach thereof, shall be determined and settled by
arbitration in Rochester, New York administered by the American Arbitration
Association under its Commercial Arbitration Rules then in effect.

 

11.     Enforceability. If any provision of this Agreement shall be found in
arbitration or by any court of competent jurisdiction to be contrary to law or
public policy and therefore unenforceable, the Company and Executive Officer
hereby waive such provision or part thereof, but only to the extent that such
provision or part is found in arbitration or by such court to be unenforceable.
The Company and Executive Officer agree that such provision should be modified,
consistent with the intent of this Agreement, by the arbitrator or such court so
that it becomes enforceable, and, as modified, will be enforced as any other
provision of this Agreement. The lack of enforceability of any particular
provision of this Agreement shall not affect any other provision of this
Agreement.

 

12.     Governing Law. This Agreement and the rights and obligations of
Executive Officer and the Company shall be governed by and construed under the
laws of the State of New York and venued in Monroe County, New York.

 

13.     No Waiver. The failure by either Executive Officer or the Company at any
time to require performance or compliance by the other with any provision of
this Agreement shall in no way affect either party’s full right to require such
performance or compliance at any time thereafter. The waiver by either party of
a breach of any provision of this Agreement shall not be taken or held to be a
waiver of any succeeding breach of such provision or as a waiver of the
provision itself.

 

14.     Binding Agreement. This Agreement shall be binding upon and inure to the
benefit of Executive Officer and his heirs and legal representatives, and shall
be binding upon and inure to the benefit of the Company and its legal
representatives, successors and assigns.

 

15.     Notice. Any notice required or permitted to be given under the Agreement
shall be in writing and shall be deemed to be delivered when delivered
personally to Executive Officer, to the Chairman of the Board of Directors or to
an officer of the Company, or three (3) business days after the date of mailing,
if the mailing is made postage pre-paid, by registered or certified mail, return
receipt requested, to the business address if to the Company, or the residence
address if to Executive Officer or to such other address as the applicable party
may from time to time designate. 

 

 

 

 

Currently, and until such time as changed in writing, the addresses of the
respective parties for mailing purposes is set forth below:

 

VirtualScopics, Inc.

500 Linden Oaks

Rochester, NY 14625

James A. Groff

79 Red Leaf Drive

Rochester, NY 14624

 

16.     Entire Agreement. Subject to the Confidentiality and Non-Competition
Agreement, the agreements acknowledged in Section 9 above and an Indemnification
Agreement entered into by the parties on or about the date hereof, all of which
remain in full force and effect, this Agreement constitutes the only agreement
and the entire agreement between Executive Officer and the Company relating to
his employment and supersedes and cancels any and all previous contracts,
arrangements or understandings with respect thereto.

 

17.     Amendment. This Agreement may not be amended or modified except in a
writing executed by both Executive Officer and the Company.

 

18.     Headings. The descriptive headings used in this Agreement are for
convenience only and shall not control or affect the meaning or construction of
any provision in this Agreement.

 

19.     Legal Fees. Company shall reimburse Executive Officer for such
reasonable legal fees incurred by Executive Officer in connection with the
review and negotiation of this Agreement up to $2,000.

 

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

 

IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written.

 

  VIRTUALSCOPICS, INC.         By: /s/ Terence A. Walts       Terence A. Walts  
  Chairman, Compensation Committee to the Board of Directors           EXECUTIVE
OFFICER:           /s/ James A. Groff       James A. Groff