Exhibit 10.1

 

EMPLOYMENT AGREEMENT

 

 

THIS AGREEMENT is entered into effective the 1st day of July, 2003, by and
between AUSTINS STEAKS & SALOON, INC. (“Company”), and James C. Verney
(Executive).

 

WHEREAS, Company is a corporation organized under the laws of the State of
Delaware, with its principal place of business in Roanoke, Virginia; and

 

WHEREAS, Executive is and desires to be employed by the Company on the terms set
forth in this Agreement; and

 

WHEREAS, Company has offered employment to Executive, a resident of the State of
North Carolina, subject to the execution of this Agreement; and the Company is
willing to employ the Executive only if the Executive executes this Agreement;
and Executive desires to be employed with Company, on the terms hereinafter set
forth effective as of the Effective Date.

 

NOW, THEREFORE, in consideration of the above premises and the mutual covenants
contained in this Agreement and other good and valuable consideration, the
parties agree as follows:

 

1.                                      Duties and Obligations.  The Company and
Executive agree that Executive shall serve as President and Chief Executive
Office of the Company.  In such capacity he shall be the principal executive
officer of the Company, and shall be responsible for the day-to-day operation of
the Company. Executive shall have and fulfill all duties and responsibilities as
may be determined from time to time by the Board of Directors of the Company.

 

Executive shall serve Company faithfully and to the best of his ability under
the direction of the Board of Directors, and shall devote all his professional
time, energy and skill to such employment.  Except for his employment with the
Company, during the term of this Agreement, Executive shall not enter into any
employment, independent contractor relationship, or consulting arrangement, with
any other person or entity, or provide services to any other person or entity,
without the prior written consent of the Company.  Executive may engage in
personal charitable activities so long as such activities do not interfere with
the performance of his duties as an employee of the Company.

 

In the event of his election to the Board of Directors of the Company, Executive
will receive no additional compensation for his services as a Board member.

 

1

--------------------------------------------------------------------------------

 

2.                                      Compensation and Bonus.  Executive’s
base salary will be at the rate of $210,000 per annum, for the Initial Contract
Term as defined in Section 6 of this Agreement.  Thereafter, for any Renewal
Term, as defined in Section 6 of this Agreement, Executive’s base salary will be
determined by the Board, but shall not be less than $210,000 per annum. 
Executive’s base salary shall be paid in twenty-six (26) equal bi-weekly
payments.

 

In addition to base salary, beginning with the calendar year 2004, Executive
will be eligible to receive an annual bonus, based upon meeting or exceeding
performance objectives (the Performance Target) determined annually by the Board
of Directors of Company.  Executive will be consulted in the determination of
the Performance Target, but the Board of Directors of Company will have the sole
discretion to establish the Performance Target.  No bonus will be paid for the
calendar year ending December 31, 2003.

 

The Performance Target will be established on or before January 1, 2004, by the
Compensation Committee of the Board.  Attainment of 80% , but less than 100%, of
the Performance Target will result in payment of an amount equal to one-third
(1/3) of the Bonus Fund (defined below).  Attainment of 100%, but less than
120%, of the Performance Target will result in payment of an amount equal to
two-thirds (2/3) of the Bonus Fund.  The attainment of 120% or more of the
Target will result in payment of the entire Bonus Fund.  Bonus terms for Renewal
Years shall be determined by the Board.  The Bonus Fund shall be an amount equal
to Fifty Percent (50%) of Executive’s then annual base salary. Under no
circumstances shall Executive’s annual bonus exceed an amount equal to Fifty
Percent (50%) of Executive’s then annual base salary.

 

The Company shall reimburse Executive for all ordinary and necessary expenses in
a reasonable amount that Executive incurs in performing his duties under this
Agreement, including, but not limited to, travel, entertainment, professional
dues and subscriptions and all dues, fees and expenses associated with
membership in various professional, business and civic associations and
societies in which Executive’s participation is determined to be beneficial for
the Company.  Such expenses will be accounted for and reimbursed through
Company’s normal expense-reporting and approval process.

 

3.                                      Location of Employment.  Executive will
perform his services under this Agreement at the principal office of the
Company, located in Roanoke, Virginia.  The Company shall provide Executive with
such office space, secretarial or support staff, and other facilities and
services as may be suitable to his position and appropriate for the performance
of his duties.  During the first year of the Initial Contract Term, Executive
may occasionally work from Executive’s home office in Charlotte, NC.

 

2

--------------------------------------------------------------------------------

 

4.                                      Benefits.  In addition to salary,
Executive shall be entitled to participate in benefit plans which Company adopts
and offers to employees, subject to the same terms, conditions and eligibility
requirements as other Company employees, including, without limitation health
insurance, and retirement, whether pension or profit sharing, plans. 
Executive’s participation under any group insurance programs, retirement plans,
or other benefit programs, shall be subject to the applicable terms and
conditions of the particular plans or programs.  This paragraph shall not be
construed as a commitment on the part of the Company to establish, maintain, or
continue any such plans or programs.  Company specifically reserves the right to
amend, alter, or terminate such plans or programs, as it deems appropriate.

 

Notwithstanding the foregoing, Executive will not participate in any life or
disability insurance benefit plan currently offered by the Company to its
employees.  In lieu thereof, Executive will be provided, at no cost to
Executive, with a $1 million face amount standard (non-rated) term life
insurance policy which shall be in effect during the Initial Contract Term, the
First Renewal Term and the Second Renewal Term.  In the event that Executive is
unable to qualify for a standard premium, and Executive obtains a $1 million
face amount non-standard (rated) term life insurance policy, the Company will
reimburse Executive the cost of a $1 million face amount standard (non-rated)
term life insurance policy.  In addition, Executive shall be reimbursed for the
cost (not to exceed $333.00 per month) of a Northwestern Mutual Individual
Disability Policy currently in force covering Executive.

 

Executive shall be entitled to a $1,000 per month transportation allowance for
the Initial Contract Term.  Such allowance shall cover automobile as well as
other non-job related transportation expenses, including airfare for Executive.

 

Executive shall be reimbursed reasonable relocation expenses to move his sole
residence to Roanoke, Virginia, which shall be limited to the cost to relocate
personal property.  Relocation expenses will be paid within 15 days after
submission to the Company of any invoice received by Executive in regard to the
said expenses.  Executive shall be reimbursed for actual expenses related to the
cost of maintaining a non-primary residence in Roanoke, Virginia, not to exceed
$1,750.00 per month, through June 30, 2004.

 

5.                                      Stock Options.  The Board of Directors
shall grant to Executive, options to purchase common stock of the Company as
follows:

 

(a) As soon as is practicable following the execution of this Agreement, Options
to purchase 75,000 shares of common stock of Company.  Said Options shall vest
as of the last day of the Initial

 

3

--------------------------------------------------------------------------------

 

Contract Term, assuming Executive remains employed or his employment has been
terminated without cause.  Said Option shall also vest upon a Change of
Control.  Said Options shall be subject to exercise within 10 years of vesting,
or within 90 days after termination of employment.  The exercise price for said
Options shall be the Book Value per share of the common stock as of March 31,
2003, or $0.88 per share.

 

(b)  Options to purchase an additional 50,000 shares of common stock of Company
shall be granted at the beginning of the First Renewal Term.  Said Option shall
vest as of the last day of the First Renewal Term, assuming Executive remains
employed or his employment has been terminated without cause.  Said Option shall
also vest upon a Change of Control.  Said Options shall be subject to exercise
within 10 years of vesting, or within 90 days after termination of employment. 
The exercise price for said Options shall be the Book Value per share of the
common stock as of March 31, 2003, or $0.88.

 

All options will be subject to a separate option agreement which will contain
standard anti-dilution provisions and appropriate acceleration provisions in
connection with (i) the sale of all or substantially all of the assets of the
Company (ii) the merger of the Company or (iii) a sale of control of the Company
to a non-affiliated third party.

 

For purposes of this Agreement, a Change in Control of the Company means the
occurrence of any of the following events during the period in which this
Agreement remains in effect.  A Change in Control will be deemed to occur on the
date the event occurs:

 

A.                                   Change in Voting Power. Any person or
persons acting together which would constitute a “group” for purposes of
Section 13(d) of the Exchange Act (other than the Company, or any Subsidiary, or
any entity beneficially owned by any of the foregoing) acquire and beneficially
own (as defined in Rule 13(d)-3 under the Exchange Act) without Board approval
or consent, directly or indirectly, at least thirty percent (30%) of the total
voting power of the Company entitled to vote generally in the election of the
Board;

 

B.                                     Change in Board of Directors. Either:

 

1.                                       the Current Directors (as hereinafter
defined) cease for any reason to constitute at least a majority of the members
of the Board (for these purposes, a “Current Director” means any

 

4

--------------------------------------------------------------------------------

 

member of the Board as of the date of this Agreement, and any successor of a
Current Director whose election or nomination for election by the Company̓s
stockholders was approved by at least a majority of the current Directors then
on the Board); or

 

2.                                       at any meeting of the stockholders of
the Company called for the purpose of electing directors, a majority of the
persons nominated by the Board for election as directors fail to be elected;

 

C.                                     Liquidation, Merger, Consolidation or
Recapitalization. The stockholders of the Company approve:

 

1.                                       a plan of complete liquidation of the
Company; or

 

2.                                       an agreement providing for the merger,
consolidation or recapitalization of the Company (i) in which the Company is not
the continuing or surviving corporation (other than consolidation or merger with
a wholly owned subsidiary of the Company in which all shares outstanding
immediately prior to the effectiveness thereof are changed into or exchanged for
the same consideration) or (ii) pursuant to which the shares are converted into
cash, securities or other property, except a consolidation, merger, or
recapitalization of the Company in which the holders of the shares immediately
prior to the consolidation, merger, or recapitalization have, directly or
indirectly, at least a majority of the common stock of the continuing or
surviving corporation immediately after such consolidation,  merger, or
recapitalization in which the Board immediately prior to the merger or
consolidation would, immediately after the merger , or recapitalization or
consolidation, constitute a majority of the board of directors of the continuing
or surviving corporation;

 

D.                                    Sale of Assets. The stockholders of the
Company approve an agreement (or agreements) providing for the sale or other
disposition (in one transaction or a series of transactions) of all or
substantially all of the assets of the Company.

 

6.                                      Term and Termination. Unless otherwise
terminated in accordance with this Agreement, Executive’s employment shall
continue for an Initial Term commencing on the effective date of this Agreement,
and continuing for a period of eighteen (18) months thereafter (the “Initial
Term”).

 

5

--------------------------------------------------------------------------------

 

Thereafter, the Agreement shall automatically renew for subsequent one year
terms (Renewal Terms) unless either party provides written notice of termination
to the other party more than 30 days in advance of the beginning of any Renewal
Term.

 

Executive’s employment shall be terminated only in one of the following ways:

 

A.                                   At any time by mutual written agreement of
both parties to this Agreement;                                or

 

B.                                     Upon thirty (30) days written notice from
the Company to Executive; or

 

C.                                     Automatically and immediately should one
of the following events occur:

 

1.                                       Death.  Executive dies; or

 

2.                                       Disability.  Executive becomes totally
and permanently disabled, meaning Executive’s inability for a period of three
(3) months, to perform his duties contemplated by this Agreement, such that he
does not constitute a Qualified Individual with a Disability under the terms of
the Americans with Disabilities Act of 1990.  Such total and permanent
disability shall be determined by the Company based on medical and other
evidence satisfactory to it; or

 

D.                                    For Cause.  At any time by the Company, by
written notice to Executive, terminating this Agreement and discharging
Executive for Cause, as defined in this section of this Agreement.

 

1.                                       Cause. Termination by the Company of
Executive’s employment for “Cause” means:

 

1.                                       Executive has materially breached this
Agreement.  A material breach of this Agreement shall include but shall not be
limited to a habitual or repeated neglect of Executive’s duties (illness, injury
or incapacity of the Executive, or Executive’s failure to meet the performance
criteria established for and communicated to Executive, in writing, by the
Company shall not constitute “Cause”);

 

2.                                       Executive has breached his duty of
loyalty to the

 

6

--------------------------------------------------------------------------------

 

Company;

 

3.                                       Executive has committed an act of gross
negligence, in connection with the performance of his duties that is injurious
to the business of the Company;

 

4.                                       Executive has committed an act of gross
misconduct relating to his employment or the Company’s business, including, but
not limited to, theft or embezzlement of the Company’s property or money, or an
act of fraud against the Company;

 

5.                                       Executive is convicted of a felony, or
a crime involving moral turpitude.

 

2.                                       If Company believes Cause exists, as
defined herein, a written notice will be delivered to Executive by the Chairman
of the Board or of the Compensation Committee, that specifically identifies the
manner in which the Chairman believes that Executive has given the Company Cause
for termination of Executive’s employment, and giving Executive an opportunity
for Executive, together with Executive’s counsel, to be heard before the Board
of Directors of the Company.  The meeting of the Board of Directors shall not be
sooner than fifteen (15) calendar days from the date of the written notice. 
After granting Executive the opportunity to be heard, the Board of Directors of
the Company may then make a finding that, in the good faith opinion of
two-thirds of the Board of Directors (excluding the Executive), Executive acted
(or failed to act when he should have acted) in a manner constituting Cause as
defined herein, and specifying the particulars of that finding.  Following the
opportunity for the Executive, together with the Executive’s counsel, to be
heard, the Board of Directors may excuse the Executive from any further Board of
Directors’ proceeding where the finding is discussed or made.  Pending an
opportunity for Executive, together with Executive’s counsel, to be heard before
the Board of Directors of the Company, Executive may be immediately placed upon
an indefinite suspension without pay and shall be required to immediately leave
the Company’s premises.  In the event that two-thirds of the Board of Directors
(excluding the Executive), do not find that Executive acted (or failed to act
when he should have acted) in a manner constituting Cause as defined herein,

 

7

--------------------------------------------------------------------------------

 

then Executive shall be reimbursed for any compensation lost during said
suspension.

 

In the event Executive’s employment is terminated at any time by mutual written
agreement of both parties, voluntarily terminated by Executive, automatically
and immediately terminated upon Executive’s death or total and permanent
disability, or terminated for “Cause”, as defined in this Agreement, then
following termination, Executive shall not be entitled to payment of further
compensation (whether salary or bonus) or benefits of any type (other
Executive’s right to “vested” benefits under the Company’s benefit plans or
continuing insurance coverage under the Company’s Health Benefit Plan pursuant
to the Consolidated Omnibus Budget Reconciliation Act (COBRA) at Executive’s
sole expense) under this agreement.  In the event Executive’s employment is
terminated without “Cause,” as defined in this Agreement, then Executive shall
be entitled to a Severance Benefit as set forth in Section 7, below.  If the
Company terminates this Agreement without Cause, the Company shall have the
right at its option, to require Executive to immediately leave the Company’s
premises.

 

7.                                      Severance.  In the event that the
Company terminates Executive’s employment at any time, upon thirty (30) days’
written notice, without Cause, then Executive’s sole remedy shall be payment of
the following Severance Benefit.

 

A.                                   If said termination without Cause occurs
during the Initial Term of this Agreement, Executive shall be entitled to a
severance payment in an amount equal to six (6) months’ base salary at the rate
then in effect.  If the Company terminates this Agreement without Cause, the
Company shall have the right at its option, to require Executive to immediately
leave the Company’s premises; provided, that the Company shall be obligated to
pay (as additional severance) Executive’s base salary during the 30-day notice
period.

 

B.                                     If termination occurs during a one (1)
year renewal period under this Agreement, Executive shall be entitled to a
severance payment in an amount equal to one (1) year’s base salary at the rate
then in effect.  If the Company terminates this Agreement without Cause, the
Company shall have the right at its option, to require Executive to immediately
leave the Company’s premises; provided, that the Company shall be obligated to
pay (as additional severance) Executive’s base salary during the 30-day notice
period.

 

C.                                     Executive shall not be entitled to, and
shall not receive any cash

 

8

--------------------------------------------------------------------------------

 

bonus paid for any year in which the termination occurs, on or pro rata basis or
otherwise.  The base salary portion of the severance shall be payable, at the
Executive’s option, in a lump sum or in equal monthly installments consistent
with the Company’s ordinary payroll practices.

 

D.                                    In the event Executive elects continuing
insurance coverage under the Company’s Health Benefit Plan pursuant to the
Consolidated Omnibus Budget Reconciliation Act (COBRA) following any Termination
Without Cause, then, in addition to payment of salary as set forth above, the
Company shall reimburse Executive for all premiums paid by Executive for said
continuation coverage for a period of six-months, if the Termination Without
Cause occurs within or at the expiration the Initial Contract Term, or for a
period of one year, if the Termination Without Cause occurs following the
Initial Contract Term.

 

8.                                      Company Property.

 

A.                                   Confidential Information.  “Confidential
Information” shall mean all financial, advertising, marketing, sales, computer
systems, computer software, and any other information relating to the Company’s
Business, its intellectual property, trade secrets, proprietary information,
customers, vendors, distributors, licensors and employees, including, without
limitation, any information, knowledge, data, forms, manuals or systems relating
to:

 

1.                                       Customer, vendor, licensor, distributor
and personnel files of the Business and all contracts and commitments of the
Business;

 

2.                                       All technical, and non-technical trade
secrets, ideas, research and development, know-how, formulas, software programs,
software documentation, source codes, computer databases (including without
limitation, data and related documentation), all other proprietary rights of the
Business, all copies and tangible embodiments thereof (in whatever form or
medium) compositions, manufacturing, design and production processes and
techniques, technical data, proprietary technical information, data processing
reports, and other technical information and systems relating to the goods and
services of the Business;

 

9

--------------------------------------------------------------------------------

 

designs, drawings, specifications; pricing and cost information; customer,
vendor, licensor and distributor lists and data;

 

3.                                       Financial reports, budgets or
projections for all or any portion of the Business;

 

4.                                       Business, advertising and marketing
plans, data and proposals for presently offered or prospective products or
services of the Business.

 

B.                                     Trade Secrets.  Confidential Information
shall remain the sole property of Company, and shall be deemed trade secrets as
defined by Virginia law; provided, however, that Confidential Information shall
not include any information known generally to the public (other than as a
result of unauthorized disclosure by the Executive or the Company or any other
past, present or future employee of Company) or any information of a type not
otherwise considered confidential by persons engaged in the same business or a
business similar to that conducted by the Company or any of its affiliates.

 

C.                                     Restrictions on Use.  During the term of
employment hereunder and indefinitely thereafter, Executive shall not, without
the written consent of the Board of Directors of the Company or a person
authorized thereby, disclose or use (except in the course of his employment
hereunder and in furtherance of the business of the Company or any of its
affiliates) any such Confidential Information or proprietary data of the Company
or any of its affiliates unless such disclosure is required by the order of a
court of competent jurisdiction or a governmental agency having authority to
issue such an order.  Upon termination of his employment under this Agreement,
Executive shall promptly return to Company any and all copies he may have of any
of the materials, Confidential Information, data and other items referred to
above, and shall not retain or use any such information.

 

D.                                    Intellectual Property.  Any and all
writings, analysis, improvements, procedures, methods, discoveries, concepts and
techniques (collectively the “Intellectual Property”),  which Executive may
make, conceive, discover or develop, either solely or jointly with any other
person or persons, at any time during the term of this Agreement, whether during
working hours or at any other time and whether at the request or upon the
suggestion of the Company or otherwise, which relate to or are useful in

 

10

--------------------------------------------------------------------------------

 

connection with any business now or hereafter carried on or contemplated by the
Company, including, without limitation, developments or expansions of its
present fields of operations, shall be the sole and exclusive property of the
Company.

 

9.                                      Diversion of Employees. During the term
of Executive’s employment under this Agreement, and for a period of eighteen
(18) months after the termination of his employment with Company for any reason
whatsoever, Executive will not, directly or indirectly, (a) induce or attempt to
influence any employee of Company to terminate his employment with Company; (b)
employ or recommend for employment (other than in response to potential
employers seeking job references about employees they specifically identify by
name) any employee of the Company; or (c) identify for purposes of employment
any employee of Company.

 

10.                               Non-competition Agreement.  Executive
acknowledges that Company is engaged in a business involving relationships with
franchisees and customers, the success of which business is in large part due to
the undisturbed continuation of such relationships with customers and that all
goodwill created as a result of any such contact belongs to Company.

 

Executive acknowledges his duty of loyalty to the Company and agrees that during
the term of Executive’s employment, Executive will not directly or indirectly,
for his own account or for the account of another, cause, encourage, induce,
attempt to induce, or aid, assist, or abet any other party or person in inducing
or attempting to induce any franchisee or customer of Company to terminate or
change in any manner adverse to the Company any existing relationship with the
Company, other than for the benefit of the Company.

 

In order to further protect the Company’s legitimate business interests which
are a product of substantial effort and investment by Company, including,
without limitation, and the Company’s goodwill, the Executive agrees that if his
employment with the Company terminates, voluntarily or otherwise, for any reason
whatsoever, Executive shall not, directly or indirectly, for himself or on
behalf or in conjunction with any other person (including, without limitation,
any sole proprietor, general partnership, limited liability company, limited
liability partnership, limited partnership, business trust, corporation or other
entity) for a period of one (1) year following the latter of the date of
termination of his employment, accept an engagement as an independent contractor
or employment as an employee with any entity which is defined as a Competitor of
the Company, as defined on Exhibit B attached hereto (even if such engagement or
employment offer is unsolicited) which involves Executive providing products or
services comparable to those provided by the Company to its customers.

 

11

--------------------------------------------------------------------------------

 

Executive acknowledges that he has carefully read and considered the provisions
of this agreement and agrees that the restrictions contained in this Section are
reasonable and necessary in order to protect the legitimate interests of the
Company and that any breach of these covenants by Executive will cause Company
irreparable harm for which there exists no adequate remedy at law.  Executive,
therefore, acknowledges that in the event of his violation of the provisions of
this Section, Company shall be entitled to obtain from any court of competent
jurisdiction preliminary and/or permanent injunctive relief arising from such
violation, which rights shall be cumulative and in addition to any other rights
or remedies to which the Company may be entitled.  Executive is fully aware of
the restrictions that this agreement places upon Executive’s future employment
with someone other than the Company.

 

11.                               Prior Agreements.  Executive represents to
Company (a) that there are no restrictions, agreements or understandings
whatsoever to which Executive is party which would prevent or make unlawful his
execution or performance of this Agreement or his employment hereunder, (b) that
his execution of this Agreement and his employment hereunder shall not
constitute a breach of any contract, agreement or understanding, oral or
written, to which he is a party or by which he is bound, and (c) that he is free
and able to execute this Agreement and, as to the Effective Date, to begin his
employment with Company.

 

12.                               Applicable Law.  The validity and construction
of this Agreement or any of its provisions shall be governed by and determined
in accordance with the laws of the State of Virginia.

 

13.                               Entire Agreement.  This Agreement contains the
entire understanding between the parties and supercedes all other oral and
written agreements or understandings between them relating to Executive’s
employment.  No modification or addition to this Agreement, or waiver or
cancellation of any provision under this Agreement, shall be valid except by a
written agreement signed by both parties.

 

14.                               Non-Waiver.  No delay or failure by either
party to exercise any right under this Agreement, and no partial or single
exercise or waiver of that right, shall constitute a waiver of that or any other
or future right.

 

15.                               Notices.  Any notice to be delivered under
this Agreement shall be given in writing and delivered, personally, via telefax
or similar electronic transmission, or by certified mail, postage prepaid,
addressed to the Company or to Executive at its or his last known address.  Any
such notice shall be deemed given when actually received by the party to whom
the notice is directed.

 

12

--------------------------------------------------------------------------------

 

16.                               Assignment.  In no event may Executive assign
to another any of his duties or obligations under this Agreement.

 

17.          Construction.  The language in all parts of this Agreement shall in
all cases be construed as a whole according to its fair meaning, strictly
neither for nor against any party hereto, and without implying a presumption
that the terms thereof shall be more strictly construed against one party.

 

18.          Severability.  If any portion of this Agreement shall be invalid or
unenforceable, the parties agree that such invalidity or unenforceability shall
in no way affect the validity or enforceability of any other portion of this
Agreement.

 

19.          Survival.  The provisions of this agreement shall survive the
termination of Executive’s employment.

 

20.          Review and Execution.  Executive acknowledges that he has read and
understands all of the terms of this Agreement, that he is executing the
Agreement voluntarily with full knowledge of its significance, that he has been
advised to consult with an attorney prior to signing the Agreement, and that has
been offered an opportunity to take a reasonable time to consider the Agreement.

 

 

 

AUSTINS STEAKS & SALOON, INC.

 

 

 

 

 

By:

/s/ Paul C. Schorr, III

 

 

 

 

 

 

Its:

Chairman

 

 

 

 

 

 

JAMES C. VERNEY

 

 

 

 

 

/s/ James C. Verney

 

 

13

--------------------------------------------------------------------------------