Exhibit 10.5

 

CHANGE IN CONTROL AGREEMENT

 

This Change in Control Agreement (this “Agreement”), dated as of March 15, 2005,
is between Captaris, Inc., a Washington corporation (the “Company”), and David
Anastasi (the “Executive”).

 

The Board of Directors of the Company (the “Board”) has determined that it is in
the best interests of the Company and its shareholders to ensure that the
Company will have the continued dedication of the Executive, notwithstanding the
possibility, threat or occurrence of a Change in Control (as defined in Appendix
A to this Agreement, which is incorporated herein by this reference) of the
Company. The Board believes it is imperative to diminish the inevitable
distraction of the Executive arising from the personal uncertainties and risks
created by a pending or threatened Change in Control, to encourage the
Executive’s full attention and dedication to the Company currently and in the
event of any threatened or pending Change in Control, and to provide the
Executive with reasonable compensation and benefits arrangements upon a Change
in Control.

 

In order to accomplish these objectives, the Board has caused the Company to
enter into this Agreement.

 

1. EMPLOYMENT

 

1.1 Certain Definitions

 

(a) “Change in Control Date” shall mean the first date during the Term of
Agreement (as defined in Section 1.1(b)) on which a Change in Control occurs.

 

(b) “Term of Agreement” shall mean an initial period commencing on the date
hereof and ending 18 months after the date hereof; provided, however, that
commencing on the date that is 12 months after the date hereof, and on each
annual anniversary of such date (such date and each annual anniversary thereof
shall be hereinafter referred to as the “Renewal Date”), the Term of Agreement
shall be automatically extended so as to terminate 18 months from such Renewal
Date, unless prior to the Renewal Date the Company shall give notice to the
Executive that the Term of Agreement shall not be so extended.

 

1.2 Post-Change in Control Period

 

The Company hereby agrees to continue the Executive in its employ or in the
employ of its affiliated companies, and the Executive hereby agrees to remain in
the employ of the Company or its affiliated companies, in accordance with the
terms and provisions of this Agreement, for the period commencing on the Change
in Control Date and ending 18 months after such date (the “Post-Change in
Control Period”).

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

1.3 Position and Duties

 

During the Post-Change in Control Period, the Executive’s position, authority,
duties and responsibilities shall be reasonably commensurate with the most
significant of those held, exercised and assigned at any time during the 90-day
period immediately preceding the Change in Control Date.

 

1.4 Location

 

During the Post-Change in Control Period, the Executive’s services shall be
performed at any office located no more than 50 miles from the office where
Executive was performing services as of the Change in Control Date.

 

1.5 Employment at Will

 

The Executive and the Company acknowledge that, except as may otherwise be
provided under any other written agreement between the Executive and the
Company, the employment of the Executive by the Company or its affiliated
companies is “at will” and, prior to the Change in Control Date, may be
terminated by either the Executive or the Company or its affiliated companies
for any reason and at any time. Moreover, if prior to the Change in Control
Date, the Executive’s employment with the Company or its affiliated companies
terminates for any reason, then the Executive shall have no further rights under
this Agreement.

 

1.6 Board of Directors

 

If the Executive is or becomes a member of the Board, his or her continuation as
such shall be subject to the will of the Company’s shareholders and the Board,
as provided in the Company’s bylaws and articles of incorporation. Therefore,
removal of the Executive from, or nonelection of the Executive to, the Board by
the Company’s shareholders or the Board, as provided in the Company’s bylaws and
articles of incorporation, shall in no event be deemed a breach of this
Agreement by the Company.

 

2. ATTENTION AND EFFORT

 

During the Post-Change in Control Period, and excluding any periods of vacation
and sick leave to which the Executive is entitled, the Executive will devote all
of his or her productive time, ability, attention and effort to the business and
affairs of the Company and the discharge of the responsibilities assigned to
him/her hereunder, and will use his or her best efforts to perform such
responsibilities faithfully and efficiently. It shall not be a violation of this
Agreement for the

 

-2-

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

Executive to (a) serve on corporate, civic or charitable boards or committees,
(b) deliver lectures, fulfill speaking engagements or teach at educational
institutions, and (c) manage personal investments, so long as such activities do
not significantly interfere with the performance of the Executive’s
responsibilities in accordance with this Agreement. It is expressly understood
and agreed that to the extent any such activities have been conducted by the
Executive prior to the Post-Change in Control Period, the continued conduct of
such activities (or the conduct of activities similar in nature and scope
thereto) during the Post-Change in Control Period shall not thereafter be deemed
to interfere with the performance of the Executive’s responsibilities to the
Company.

 

3. COMPENSATION

 

During the Post-Change in Control Period, the Company agrees to pay or cause to
be paid to the Executive, and the Executive agrees to accept in exchange for the
services rendered hereunder by him/her, the following compensation:

 

3.1 Salary

 

The Executive shall receive an annual base salary (the “Annual Base Salary”), at
least equal to the annual salary established by the Board or the Compensation
Committee of the Board (the “Compensation Committee”) for the fiscal year in
which the Change in Control Date occurs. The Annual Base Salary shall be paid in
substantially equal installments and at the same intervals as the salaries of
other officers of the Company are paid. During the Post-Change in Control
Period, the Board or the Compensation Committee shall review the Annual Base
Salary at least annually and shall determine any increases in future years.

 

3.2 Bonus

 

In addition to Annual Base Salary, the Executive shall be awarded, for each
fiscal year ending during the Post-Change in Control Period, an annual bonus in
cash at least equal to the Executive’s target bonus amount for the fiscal year
in which the Change in Control Date occurs; provided, however, that for the
fiscal year in which the Change in Control Date occurs, the Executive shall be
awarded a bonus in cash at least equal to the annualized bonus amount that
Executive is on pace for as of the Change in Control Date (the “Annual Bonus”).
Each such Annual Bonus shall be paid no later than 90 days after the end of the
fiscal year for which the Annual Bonus is awarded, unless the Executive shall
elect to defer the receipt of such Annual Bonus. Notwithstanding the foregoing,
in the event the fiscal year end is different prior to the Post-Change in
Control Period than it is after the Post-Change in Control Period, then the
Annual Bonus paid to the Executive for the fiscal year in which the Change in
Control Date occurs shall be paid no later than 90 days after the new fiscal
year end and shall be proportionately adjusted to reflect additional days or
less days in the new fiscal year as a result of the difference in fiscal years.

 

-3-

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

4. BENEFITS

 

4.1 Incentive, Retirement and Welfare Benefit Plans; Vacation

 

During the Post-Change in Control Period, the Executive shall be entitled to
participate, subject to and in accordance with applicable eligibility
requirements, in such fringe benefit programs as shall be provided to other
executives of the Company and its affiliated companies from time to time during
the Post-Change in Control Period by action of the Board (or any person or
committee appointed by the Board to determine fringe benefit programs and other
emoluments), including, without limitation, paid vacations; any incentive,
savings and retirement plan, practice, policy or program; and all welfare
benefit plans, practices, policies and programs (including, without limitation,
medical, prescription, dental, disability, salary continuance, employee life,
group life, accidental death and travel accident insurance plans and programs).

 

4.2 Expenses

 

During the Post-Change in Control Period, the Executive shall be entitled to
receive prompt reimbursement for all reasonable employment expenses incurred by
him/her in accordance with the policies, practices and procedures of the Company
and its affiliated companies in effect for the executives of the Company and its
affiliated companies during the Post-Change in Control Period.

 

5. TERMINATION

 

Employment of the Executive during the Post-Change in Control Period may be
terminated as follows:

 

5.1 By the Company or the Executive

 

Upon giving Notice of Termination (as defined below), the Company may terminate
the employment of the Executive with or without Cause, and the Executive may
terminate his or her employment for Good Reason or for any reason, at any time
during the Post-Change in Control Period. “Cause” and “Good Reason” are as
defined in Appendix A to this Agreement.

 

5.2 Automatic Termination

 

This Agreement and the Executive’s employment during the Post-Change in Control
Period shall terminate automatically upon the death or Total Disability of the
Executive. The term “Total Disability” as used herein shall mean the Executive’s

 

-4-

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

inability (with or without such accommodation as may be required by law and
which places no undue burden on the Company), as determined by a physician
selected by the Company and acceptable to the Executive, to perform the duties
set forth hereunder for a period or periods aggregating 120 calendar days in any
12-month period as a result of physical or mental illness, loss of legal
capacity or any other cause beyond the Executive’s control, unless the Executive
is granted a leave of absence by the Board.

 

5.3 Notice of Termination

 

Any termination by the Company or by the Executive during the Post-Change in
Control Period shall be communicated by Notice of Termination to the other party
given in accordance with Section 10 hereof. The term “Notice of Termination”
shall mean a written notice which (a) indicates the specific termination
provision in this Agreement relied upon and (b) to the extent applicable, sets
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive’s employment under the provision so
indicated. The failure by the Executive or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing of
Good Reason or Cause shall not waive any right of the Executive or the Company
hereunder or preclude the Executive or the Company from asserting such fact or
circumstance in enforcing the Executive’s or the Company’s rights hereunder.

 

5.4 Date of Termination

 

During the Post-Change in Control Period, the term “Date of Termination” shall
mean (a) if the Executive’s employment is terminated by reason of death, at the
end of the calendar month in which the Executive’s death occurs, (b) if the
Executive’s employment is terminated by reason of Total Disability, immediately
upon a determination by the Company of the Executive’s Total Disability, and (c)
in all other cases, ten days after the date of mailing or personal delivery of
the Notice of Termination. The Executive’s employment and performance of
services will continue during such ten-day period; provided, however, that the
Company may, upon notice to the Executive and without reducing the Executive’s
compensation during such period, excuse the Executive from any or all of his or
her duties during such period.

 

6. TERMINATION PAYMENTS

 

In the event of termination of the Executive’s employment during the Post-Change
in Control Period, all compensation and benefits set forth in this Agreement
shall terminate except as specifically provided in this Section 6.

 

-5-

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

6.1 Termination by the Company for Other Than Cause or by the Executive for Good
Reason

 

If the Company terminates the Executive’s employment other than for Cause or the
Executive terminates his or her employment for Good Reason prior to the end of
the Post-Change in Control Period, the Executive shall be entitled to:

 

(a) receive payment of the following accrued obligations (the “Accrued
Obligations”):

 

(i) the Executive’s Annual Base Salary through the Date of Termination to the
extent not theretofore paid;

 

(ii) the product of (x) the Annual Bonus payable with respect to the fiscal year
in which the Date of Termination occurs and (y) a fraction, the numerator of
which is the number of days in the current fiscal year through the Date of
Termination, and the denominator of which is 365; and

 

(iii) any compensation previously deferred by the Executive (together with
accrued interest or earnings thereon, if any) and any accrued vacation pay, in
each case to the extent not theretofore paid;

 

(b) reimbursement of Executive’s COBRA expenses for Executive and his family for
a period of 18 months, or until such time as Executive obtains new health
insurance coverage, whichever occurs first.;

 

(c) (i) base salary continuation, payable in the course of the Company’s
regularly scheduled payroll and subject to normal withholdings, for a period of
time equal to 18 months and (ii) an amount, paid as a lump sum, equal to one and
one-half times the target Annual Bonus payable for the fiscal year in which the
Date of Termination occurs;

 

(d) immediate vesting of all stock options granted by the Company to the
Executive outstanding as of the Change in Control Date; and

 

(e) an extension of the post-termination exercise period of all stock options
granted by the Company to the Executive outstanding as of the Change in Control
Date, so that such options shall be exercisable for a period of one year from
the Date of Termination.

 

6.2 Termination for Cause or Other Than for Good Reason

 

If the Executive’s employment shall be terminated by the Company for Cause or by
the Executive for other than Good Reason during the Post-Change in Control
Period, this Agreement shall terminate without further obligation to the
Executive

 

-6-

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

other than the obligation to pay to the Executive his or her Annual Base Salary
through the Date of Termination plus the amount of any compensation previously
deferred by the Executive, in each case to the extent theretofore unpaid.

 

6.3 Expiration of Term

 

In the case of a termination of the Executive’s employment as a result of the
expiration of the term of this Agreement, the Executive shall not be entitled to
receive any payments hereunder, other than the Accrued Obligations.

 

6.4 Termination Because of Death or Total Disability

 

If the Executive’s employment is terminated by reason of the Executive’s death
or Total Disability during the Post-Change in Control Period, this Agreement
shall terminate automatically without further obligations to the Executive or
his or her legal representatives under this Agreement, other than for payment of
Accrued Obligations (which shall be paid to the Executive’s estate or
beneficiary, as applicable in the case of the Executive’s death).

 

6.5 Excess Parachute Payments

 

Notwithstanding any other provision of this Agreement, if either the Company or
the Executive receives confirmation from the Company’s independent tax counsel
or its certified public accounting firm (the “Tax Advisor”) that any portion of
any payment by the Company or a related entity to the Executive, or any benefit
received by the Executive, under this Agreement or otherwise (each a “Payment”)
would be considered to be an “excess parachute payment” within the meaning of
Section 280G of the Internal Revenue Code of 1986, as amended, (the “Code”) or
any successor statute then in effect, then the Payments (under this Agreement or
otherwise) shall be reduced (the “Reduction”) to the highest amount that, in the
opinion of the Tax Advisor, may be paid to the Executive by the Company without
having any portion of any Payment treated as an “excess parachute payment;”
provided that the Company may elect, in its sole and absolute discretion, not to
apply the Reduction if, in the opinion of the Tax Advisor, the after-tax value
to the Executive of the total Payments prior to the Reduction is greater than
the after-tax value to the Executive if the total Payments are determined taking
into account the Reduction. For purposes of determining the after-tax value of
the Payments, (i) the Executive shall be deemed to pay income taxes at the
highest rate of federal income tax and the highest rate or rates of state and
local income taxes in the state and locality of the Executive’s domicile for
income tax purposes for the taxable year in which the total Payments will be
made, provided that the state and local income tax rate shall be determined
assuming that such taxes are fully deductible for federal income tax purposes,
and (ii) the Executive shall be deemed to pay employment taxes at the applicable
rate under Section 3101(b) of the Code. The Reduction shall be applied to the
Payments in any manner determined by the Company in its reasonable discretion.

 

-7-

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

6.6 Payment Schedule

 

Unless otherwise provided herein, all payments under this Section 6 shall be
made to the Executive at the same intervals as such payments were made to
him/her immediately prior to termination.

 

6.7 Application of Other Payments

 

In the event the Executive has received any payments under any other agreement
or any Company plan, policy or program where the payment is made as a result of
or in connection with the termination or severance of the Executive, then any
amounts to which the Executive is entitled hereunder will be reduced by the
amount of any such payments.

 

7. REPRESENTATIONS, WARRANTIES AND OTHER

CONDITIONS

 

In order to induce the Company to enter into this Agreement, the Executive
represents and warrants to the Company as follows:

 

7.1 Health

 

The Executive is in good health and knows of no physical or mental disability
which, with or without any accommodation which may be required by law and which
places no undue burden on the Company, would prevent him/her from fulfilling his
or her obligations hereunder. The Executive agrees, if the Company requests, to
submit to periodic medical examinations by a physician or physicians designated
by, paid for and arranged by the Company. The Executive agrees that the
examination’s medical report shall be provided to the Company.

 

7.2 No Violation of Other Agreements

 

The Executive represents that neither the execution nor the performance of this
Agreement by the Executive will violate or conflict in any way with any other
agreement by which the Executive may be bound.

 

8. CIIN AGREEMENT

 

The Executive will not, at any time during the term of employment by the
Company, or at any time thereafter, directly, indirectly or otherwise, be in
breach of the Confidential Information, Inventions and Non-Competition Agreement
(the “CIIN Agreement”) between the Executive and the Company. Any breach of the
CIIN Agreement by the Executive shall constitute a breach of this Agreement.

 

-8-

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

The Executive understands that the Company will be relying on this Agreement and
the CIIN Agreement in continuing the Executive’s employment, paying him/her
compensation, granting him/her any promotions or raises, or entrusting him/her
with any information which helps the Company compete with others.

 

The terms and provisions of the CIIN Agreement that are intended to survive
termination of the CIIN Agreement shall be unaffected by and shall survive the
termination of this Agreement and the termination of the Executive’s employment
with the Company

 

9. NOTICE AND CURE OF BREACH

 

Whenever a breach of this Agreement by either party is relied upon as
justification for any action taken by the other party pursuant to any provision
of this Agreement, other than any action that constitutes “Cause” under this
Agreement, before such action is taken, the party asserting the breach of this
Agreement shall give the other party at least ten days’ prior written notice of
the existence and the nature of such breach before taking further action
hereunder and shall give the party purportedly in breach of this Agreement the
opportunity to correct such breach during the ten-day period.

 

10. FORM OF NOTICE

 

Every notice required by the terms of this Agreement shall be given in writing
by serving the same upon the party to whom it was addressed personally or by
registered or certified mail, return receipt requested, at the address set forth
below or at such other address as may hereafter be designated by notice given in
compliance with the terms hereof:

 

If to the Executive:   David Anastasi     16759 SE 48th Place    
Bellevue, Washington 98006 If to the Company:   Captaris, Inc.     10885 NE 4th
Street     Bellevue, Washington 98004     Attn: General Counsel

 

-9-

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

or such other address as shall be provided in accordance with the terms hereof.
Except as set forth in Section 5.4 hereof, if notice is mailed, such notice
shall be effective upon mailing.

 

11. ASSIGNMENT

 

This Agreement is personal to the Executive and shall not be assignable by the
Executive. The Company may assign its rights hereunder to (a) any corporation
resulting from any merger, consolidation or other reorganization to which the
Company is a party or (b) any corporation, partnership, association or other
person to which the Company may transfer all or substantially all of the assets
and business of the Company existing at such time. All the terms and provisions
of this Agreement shall be binding upon and inure to the benefit of and be
enforceable by the parties hereto and their respective successors and permitted
assigns.

 

The Company will require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all the business
and/or assets of the Company to assume expressly and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. As used in this
Agreement, “Company” shall mean Captaris, Inc. and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.

 

12. WAIVERS

 

No delay or failure by any party hereto in exercising, protecting or enforcing
any of its rights, tides, interests or remedies hereunder, and no course of
dealing or performance with respect hereto, shall constitute a waiver thereof.
The express waiver by a party hereto of any right, title, interest or remedy in
a particular instance or circumstance shall not constitute a waiver thereof in
any other instance or circumstance. All rights and remedies shall be cumulative
and not exclusive of any other rights or remedies.

 

13. AMENDMENTS IN WRITING

 

No amendment, modification, waiver, termination or discharge of any provision of
this Agreement, nor consent to any departure therefrom by either party hereto,
shall in any event be effective unless the same shall be in writing,
specifically identifying this Agreement and the provision intended to be
amended, modified, waived, terminated or discharged and signed by the Company
and the Executive, and each such amendment, modification, waiver, termination or
discharge shall be effective only in the specific instance and for the specific
purpose for which given. No provision of this Agreement shall be varied,
contradicted or explained by any oral agreement, course of dealing or
performance or any other matter not set forth in an agreement in writing and
signed by the Company and the Executive.

 

-10-

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

14. SECTION 409A OF THE CODE

 

Notwithstanding any other provision of this Agreement, the Company and the
Executive intend that any payments, benefits or other provisions applicable to
this Agreement comply with the payout and other limitations and restrictions
imposed under Section 409A of the Code (“Section 409A”), as clarified or
modified by guidance from the U.S Department of Treasury or the Internal Revenue
Service – in each case if and to the extent Section 409A is otherwise applicable
to this Agreement and such compliance is necessary to avoid the penalties
otherwise imposed under Section 409A. In this connection, the Company and the
Executive agree that the payments, benefits and other provisions applicable to
this Agreement, and the terms of any deferral and other rights regarding this
Agreement, shall be deemed modified if and to the extent necessary to comply
with the payout and other limitations and restrictions imposed under Section
409A, as clarified or supplemented by guidance from the U.S. Department of
Treasury or the Internal Revenue Service – in each case if and to the extent
Section 409A is otherwise applicable to this Agreement and such compliance is
necessary to avoid the penalties otherwise imposed under Section 409A.

 

15. APPLICABLE LAW AND VENUE

 

This Agreement shall in all respects, including all matters of construction,
validity and performance, be governed by, and construed and enforced in
accordance with, the laws of the State of Washington, without regard to any
rules governing conflicts of laws. Executive irrevocably consents to the
jurisdiction and venue of the state and federal courts located in King County,
Washington, and agrees not to bring any action, or seek to remove or transfer
any action, relating to this Agreement in or to any other court, other than a
state or federal court located in King County, Washington.

 

16. ARBITRATION

 

Except in connection with enforcing Section 8 hereof, for which legal and
equitable remedies may be sought in a court of law, any dispute arising under
this Agreement shall be subject to arbitration. The arbitration proceeding shall
be conducted in accordance with the Commercial Arbitration Rules of the American
Arbitration Association (the “AAA Rules”) then in effect, conducted by one
arbitrator either mutually agreed upon or selected in accordance with the AAA
Rules. The arbitration shall be conducted in King County, Washington, under the
jurisdiction of the Seattle office of the American Arbitration Association. The
arbitrator shall have authority only to interpret and apply the provisions of
this Agreement, and shall have

 

-11-

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

no authority to add to, subtract from or otherwise modify the terms of this
Agreement. Any demand for arbitration must be made within sixty (60) days of the
event(s) giving rise to the claim that this Agreement has been breached. The
arbitrator’s decision shall be final and binding, and each party agrees to be
bound to by the arbitrator’s award, subject only to an appeal therefrom in
accordance with the laws of the State of Washington. Either party may obtain
judgment upon the arbitrator’s award in the Superior Court of King, County,
Washington.

 

17. SEVERABILITY

 

If any provision of this Agreement shall be held invalid, illegal or
unenforceable in any jurisdiction, for any reason, including, without
limitation, the duration of such provision, its geographical scope or the extent
of the activities prohibited or required by it, then, to the full extent
permitted by law, (a) all other provisions hereof shall remain in full force and
effect in such jurisdiction and shall be liberally construed in order to carry
out the intent of the parties hereto as nearly as may be possible, (b) such
invalidity, illegality or unenforceability shall not affect the validity,
legality or enforceability of any other provision hereof, and (c) any court or
arbitrator having jurisdiction thereover shall have the power to reform such
provision to the extent necessary for such provision to be enforceable under
applicable law.

 

18. ENTIRE AGREEMENT

 

This Agreement on and as of the date hereof constitutes the entire agreement
between the Company and the Executive with respect to Executive’s duties and
benefits upon and after a Change in Control and any other subject matters
addressed herein. All prior or contemporaneous oral or written communications,
understandings or agreements between the Company and the Executive with respect
to such subject matters, are hereby superseded and nullified in their
entireties. Any and all future oral or written communications, understandings or
agreements between the Company and the Executive with respect to such subject
matter shall not alter, amend, expand or otherwise change the duties and
benefits provided herein, unless in compliance with the requirements of
Paragraph 13 herein.

 

19. WITHHOLDING

 

The Company may withhold from any amounts payable under this Agreement such
federal, state or local taxes as shall be required to be withheld pursuant to
any applicable law or regulation.

 

20. COUNTERPARTS

 

This Agreement may be executed in counterparts, each of which counterpart shall
be deemed an original, but all of which together shall constitute one and the
same Instrument.

 

-12-

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

IN WITNESS WHEREOF, the parties have executed and entered into this Agreement on
the date set forth above.

 

EXECUTIVE

/s/ David Anastasi

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

David Anastasi

 

CAPTARIS, INC.

By:  

/s/ Robert L. Lovely

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

Name:   Robert L. Lovely Title:   Chairman, Compensation Committee

 

-13-

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

APPENDIX A

 

TO

 

CHANGE IN CONTROL AGREEMENT BETWEEN

 

CAPTARIS, INC. AND DAVID ANASTASI

 

For purposes of the Change in Control Agreement between Captaris, Inc. and David
Anastasi, the following capitalized terms shall have the following meanings:

 

“Cause” shall mean cause given by the Executive to the Company and shall include
the occurrence of one or more of the following events:

 

(a) Executive’s willful material misconduct or dishonesty in the performance of,
or the willful failure to perform, any material duty under this Agreement;

 

(b) Executive’s willful injury of the Company, or Executive’s breach of
fiduciary duty to the Company involving personal profit;

 

(c) Conviction of Executive of the violation of a state or federal criminal law
involving the commission of a crime against the Company or any felony;

 

(c) Habitual or repeated misuse by Executive of alcohol or controlled substances
that materially impairs Executive’s ability to perform his duties under this
Agreement;

 

(d) Any material and willful violation by Executive of any provisions of the
CIIN Agreement; or

 

(e) Any past or present act of Executive involving moral turpitude adversely
affecting the business, goodwill or reputation of the Company, or materially and
adversely affecting Executive’s ability to effectively represent the Company
with the public.

 

“Change in Control” shall mean:

 

(a) consummation of an acquisition by any Entity of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 40% or more of
either (1) the then outstanding shares of common stock of the Company (the
“Outstanding Company Common Stock”) or (2) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in the
election of directors (the “Outstanding Company Voting Securities”), excluding,

 

-14-

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

however, the following: (i) any acquisition directly from the Company, other
than an acquisition by virtue of the exercise of a conversion privilege where
the security being so converted was not acquired directly from the Company by
the party exercising the conversion privilege, (ii) any acquisition by the
Company, (iii) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any Related Company, or (iv) a Related
Party Transaction;

 

(b) a change in the composition of the Board during any two-year period such
that the individuals who, as of the beginning of such two-year period,
constitute the Board (the “Incumbent Board”) cease for any reason to constitute
at least a majority of the Board; provided, however, that for purposes of this
definition, any individual who becomes a member of the Board subsequent to the
beginning of the two-year period, whose election, or nomination for election by
the Company’s shareholders, was approved by a vote of at least two-thirds of
those individuals who are members of the Board and who were also members of the
Incumbent Board (or deemed to be such pursuant to this proviso) shall be
considered as though such individual were a member of the Incumbent Board; and
provided further, however, that any such individual whose initial assumption of
office occurs as a result of or in connection with an actual or threatened
solicitation of proxies or consents by or on behalf of an Entity other than the
Board shall not be considered a member of the Incumbent Board;

 

(c) consummation of a merger or consolidation of the Company with or into any
other company or other entity, excluding, in each case, a Related Party
Transaction;

 

(d) consummation of a statutory share exchange pursuant to which the Company’s
outstanding shares are acquired or a sale in one transaction or a series of
transactions undertaken with a common purpose of at least 50% of the Company’s
outstanding voting securities, excluding, in each case, a Related Party
Transaction; or

 

(e) consummation of a sale, lease, exchange or other transfer in one transaction
or a series of related transactions undertaken with a common purpose of all or
substantially all of the Company’s assets, excluding, in each case, a Related
Party Transaction.

 

Where a series of transactions undertaken with a common purpose is deemed to be
a Change in Control, the date of such Change in Control shall be the date on
which the last of such transactions is consummated.

 

“Entity” shall mean any individual, entity or group (within the meaning of
Section 13(d)(3) of the Exchange Act).

 

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

 

-15-

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

“Good Reason” shall mean the occurrence of any of the following events, without
the consent of the Executive:

 

(a) A demotion or other material reduction in the nature or status of the
Executive’s responsibilities as contemplated by Section 1.3, excluding for this
purpose an isolated and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive; provided that a change in the person or office to which the Executive
reports, without a corresponding reduction in duties, status and
responsibilities, resulting primarily from organizational changes incident to a
merger or acquisition, shall not constitute “Good Reason”;

 

(b) Any failure by the Company to comply with any of the provisions of Section 3
hereof, other than an isolated 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;

 

(c) The Company’s requiring the Executive to be based at any office or location
other than that described in Section 1.4 hereof; or

 

(d) Any failure by the Company to comply with and satisfy Section 11 hereof,
provided that the Company’s successor has received at least ten days’ prior
written notice from the Company or the Executive of the requirements of Section
11 hereof.

 

“Parent Company” shall mean a company or other entity which as a result of a
Change in Control owns the Company or all or substantially all of the Company’s
assets either directly or through one or more subsidiaries.

 

“Related Company” shall mean any entity that is directly or indirectly
controlled by, in control of or under common control with the Company.

 

“Related Party Transaction” shall mean a Change in Control pursuant to which:

 

(a) the Entities who are the beneficial owners of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such Change
in Control will beneficially own, directly or indirectly, at least 50% of the
outstanding shares of common stock, and the combined voting power of the then
outstanding voting securities entitled to vote generally in the election of
directors of the Successor Company in substantially the same proportions as
their ownership, immediately prior to such Change in Control, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities;

 

-16-

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

(b) no Entity (other than the Company, any employee benefit plan (or related
trust) of the Company or a Related Company, the Successor Company or, if
reference was made to equity ownership of any Parent Company for purposes of
determining whether clause (a) above is satisfied in connection with the
applicable Change in Control, such Parent Company) will beneficially own,
directly or indirectly, 40% or more of, respectively, the outstanding shares of
common stock of the Successor Company or the combined voting power of the
outstanding voting securities of the Successor Company entitled to vote
generally in the election of directors unless such ownership resulted solely
from ownership of securities of the Company prior to the Change in Control; and

 

(c) individuals who were members of the Incumbent Board will immediately after
the consummation of the Change in Control constitute at least a majority of the
members of the board of directors of the Successor Company (or, if reference was
made to equity ownership of any Parent Company for purposes of determining
whether clause (a) above is satisfied in connection with the applicable Change
in Control, of the Parent Company).

 

“Successor Company” shall mean the surviving company, the successor company or
Parent Company, as applicable, in connection with a Change in Control.

 

-17-