Exhibit 10.4

 

EMPLOYMENT AGREEMENT

          THIS AGREEMENT ("Agreement") is made and entered into as of this 31st day of August, 2000, by and between **LARRY C. HANGER**, an individual resident of the State of Georgia("Employee"), and **INNOTRAC CORPORATION**, a Georgia corporation (the "Employer").

W I T N E S S E T H:

          WHEREAS, the parties hereto desire to enter into an agreement for the Company's continued employment of Employee on the terms and conditions contained herein;

          NOW, THEREFORE, in consideration of the premises and the mutual promises and agreements contained herein, the parties hereto, intending to be legally bound, hereby agree as follows:

Section 1.          Employment. 

          Subject to the terms hereof, the Employer hereby employs Employee, and Employee hereby accepts such employment. Employee will serve as Senior Vice President - Business Development of theEmployer or in such other executive capacity as the Board of Directors of Employer (the "Board of Directors") may hereafter from time to time determine. Employee agrees to devote his full business time and best efforts to the performance of the dutiesthat Employer may assign Employee from time to time; provided that the Employee may also serve as an officer or director of Return.com Online, Inc. and may perform services for Return.com Online, Inc.; and provided further that the Employee may also serveon boards of directors or trustees of other companies and organizations, as long as such service does not materially interfere with the performance of his duties hereunder.

Section 2.          Term of Employment.

          The term of Employee's employment (the "Term") shall continue from the date hereof until the earlier of (a) December 31, 2005 or (b) the occurrence of any of the following events:

          (i)          The death or total disability of Employee (total disability meaning the failure to fully perform his normal required serviceshereunder for a period of three (3) months during any consecutive twelve (12) month period during the term hereof, as determined by the Board of Directors, by reason of mental or physical disability);

          (ii)          The termination by Employer of Employee's employment hereunder, upon prior written notice to Employee, for "good cause", asdetermined by the Board of Directors. For purposes of this Agreement, "good cause" for termination of Employee's employment shall exist (A) if Employee is convicted of, pleads guilty to, or confesses to any felony or any act of fraud, misappropriation orembezzlement, (B) if Employee fails to comply with the terms of this Agreement, and, within thirty (30) days after written notice from Employer of such failure, Employee has not corrected such failure or, having once received such notice of failure andhaving so corrected such failure, Employee at any time thereafter again so fails, (C) if Employee violates any of the provisions contained in Section 4 of this Agreement, or (D) if Employee tests positive for illegal drugs; or

          (iii)          The termination of this Agreement by either party upon at least ninety (90) days prior written notice. 

Section 3.          Compensation.

          3.1          Term of Employment. Employer will provide Employee with the following salary, expense reimbursement and additionalemployee benefits during the term of employment hereunder:

          (a)          Salary. Employee will be paid a salary (the "Salary") of no less than One Hundred Fifty Thousand Dollars ($150,000) perannum, less deductions and withholdings required by applicable law. The Salary shall be paid to Employee in equal monthly installments (or on such more frequent basis as other executives of Employer are compensated). The Salary shall be reviewed by theBoard of Directors of Employer on at least an annual basis.

          (b)          Bonus. Employee will be entitled to an annual bonus (the "Bonus") of 60% of Salary at Plan (to be defined) with a3-up-3-down formula. The Bonus shall be paid promptly upon the availability of annual financial results (which is expected to occur in early February of each year). 

          (c)          Vacation. Employee shall receive four (4) weeks vacation time per calendar year during the term of this Agreement. Anyunused vacation days in any calendar year may not be carried over to subsequent years.

          (d)          Expenses. Employer shall reimburse Employee for all reasonable and necessary expenses incurred by Employee at the requestof and on behalf of Employer.

          (e)          Benefit Plans. Employee may participate in such medical, dental, disability, hospitalization, life insurance and otherbenefit plans (such as pension and profit sharing plans) as Employer maintains from time to time for the benefit of other senior executives of Employer, on the terms and subject to the conditions set forth in such plans.

3.2          Effect of Termination.

          (a)          Except as hereinafter provided, upon the termination of the employment of Employee hereunder for any reason, Employee shall beentitled to all compensation and benefits earned or accrued under Section 3.1 as of the effective date of termination (the "Termination Date"), but from and after the Termination Date no additional compensation or benefits shall be earned by Employeehereunder. Employee shall be deemed to have earned any Bonus payable with respect to the calendar year in which the Termination Date occurs on a prorated basis (based on the number of days in such calendar year through and including the Termination Datedivided by 365) based upon the year to date financials and performance of the Employer and assuming performance at the target level for any individual performance criteria. Any such Bonus shall be payable upon termination.

          (b)          If Employee's employment hereunder is terminated by Employer pursuant to Section 2(b)(iii) hereof, then, in addition to anyother amount payable hereunder, Employer shall continue to pay Employee his normal Salary pursuant to Section 3.1(a) for a six-month period (on the same basis as if Employee continued to serve as an employee hereunder for such applicable period). IfEmployee's employment is terminated pursuant to Section 2(b)(i) hereof or if Employee's employment is terminated by Employer pursuant to Section 2(b)(iii), all options to purchase stock of the Company or an affiliate of the Company granted toEmployee shall immediately become exercisable upon such termination. In the case of a termination pursuant to Section 2(b)(i) hereof, the options will expire in accordance with their respective scheduled expiration dates. Except as provided inSection 3.3 , in the case of a termination by Employer pursuant to Section 2(b)(iii) hereof, the options will expire on the first anniversary after the effective date of the termination of Employee's employment hereunder. Upon the death of Employee,any options that Employee would otherwise be entitled to exercise hereunder may be exercised by his personal representatives or heirs, as applicable. Except as provided in Section 3.3, if Employee's employment is terminated by Employer pursuant to Section2(b)(ii) or by Employee pursuant to Section 2(b)(iii), those options which are exercisable as of the date of such termination shall be exercisable for a period of 90 days after such termination (and all other options not then exercisable shall beforfeited as of such date), and after such 90-day period, all unexercised options will expire. To the extent necessary, this provision shall be deemed an amendment of any option agreement between the Employee and the Employer or an affiliate of the Employer .

          3.3          Effect of Change in Control. Notwithstanding Section 3.2(b) above, if there is a Change in Control (as defined below) ofthe Employer and the Employee's employment is terminated within 18 months following the date of the Change in Control, the following provisions shall apply. 

          (a)          If Employee's employment hereunder is terminated by Employer pursuant to Section 2(b)(iii) hereof or by Employee for "GoodReason" as defined below, then, in addition to any other amount payable pursuant to Section 3.2(a), the Employee shall be entitled to received the compensation and benefits set forth in subsections (i) through (iv) below:

          (i)          Base Salary. Employee will continue to receive his Salary as then in effect (subject to withholding of all applicabletaxes) for a period of eighteen (18) months from his date of termination in the same manner as it was being paid as of the date of termination.

          (ii)          Health, Dental and Life Insurance Coverage. The health, dental and group term life insurance benefits coverage providedto Employee at his date of termination shall be continued at the same level and in the same manner as if his employment under this Agreement had not terminated (subject to the customary changes in such coverages if Employee retires, reaches age 65 orsimilar events), beginning on the date of such termination and ending on the date eighteen (18) months from the date of such termination. Any additional coverages Employee had at termination, including dependent coverage, will also be continued for suchperiod on the same terms, to the extent permitted by the applicable policies or contracts. Any costs Employee was paying for such coverages at the time of termination shall be paid by Employee by separate check payable to the Company each month in advanceor by re duction of amounts owed to Employee by the Employer. If the terms of any benefit plan referred to in this Section, or the laws applicable to such plan, do not permit continued participation by Employee, then the Company will arrange for othercoverage at its expense providing substantially similar benefits. The coverages provided for in this paragraph shall be applied against and reduce the period for which COBRA will be provided.

          (iii)          Stock Options. Notwithstanding any provision in any option agreement, all outstanding stock options granted to Employeeby Employer or an affiliate of Employer shall become fully vested on the date of Employee's termination of employment and shall remain exercisable as provided in the applicable option agreement or, if longer, for a period of three (3) years following thedate of termination of employment. To the extent necessary, this provision shall be deemed an amendment of any option agreement between the Employee and the Employer or an affiliate of the Employer.

          (b)          If Employee's employment hereunder is terminated by Employee pursuant to Section 2(b)(iii) hereof other than for "GoodReason" as defined below, then, in addition to any other amount payable pursuant to Section 3.2(a), the Employee shall be entitled to receive the compensation and benefits set forth in subsections (i) through (iii) of Subsection 3.3(a) above, provided,however, that a period of 12 months shall be substituted for 18 months in subsections 3.3(a)(i) and (ii).

          3.4          Definitions. For purposes of this Agreement, the following terms shall have the meanings set forth below:

                      (a)          "Change in Control" means any of the followingevents:

          (i)          The acquisition (other than from the Employer) by any person of beneficial ownership of fifty percent (50%) or more of thecombined voting power of the Employer's then outstanding voting securities; provided, however, that for purposes of this Section, person shall not include any person who on the date hereof owns 25% or more of the Employer's outstanding securities, and aChange in Control shall not be deemed to occur solely because fifty percent (50%) or more of the combined voting power of the Employer's then outstanding securities is acquired by (i) a trustee or other fiduciary holding securities under one or moreemployee benefit plans maintained by the Employer or any of its subsidiaries, or (ii) any corporation, which, immediately prior to such acquisition, is owned directly or indirectly by the shareholders of the Employer in the same proportion as theirownership of stock in the Employer immediately prior to such acquisition.

          (ii)          Approval by shareholders of the Employer of (1) a merger or consolidation involving the Employer if the shareholders of theEmployer, immediately before such merger or consolidation do not, as a result of such merger or consolidation, own, directly or indirectly, more than fifty percent (50%) of the combined voting power of the then outstanding voting securities of thecorporation resulting from such merger or consolidation in substantially the same proportion as their ownership of the combined voting power of the voting securities of the Employer outstanding immediately before such merger or consolidation, or (2) acomplete liquidation or dissolution of the Employer, or (3) an agreement for the sale or other disposition of all or substantially all of the assets of the Employer.

          (iii)          A change in the composition of the Board such that the individuals who, as of the date of this Agreement, constitute the Board(such Board shall be hereinafter referred to as the **"Incumbent Board"**) cease for any reason to constitute at least a majority of the Board; provided, however, for purposes of this **Section** that any individual who becomes a member of the Board subsequent to the Effective Date whose election, ornomination for election by the Employer's shareholders, was approved by a vote of at least a majority 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) shallbe considered as though such individual were a member of the Incumbent Board; but, provided, further, that any such individual whose initial assumption of office occurs as a result of either an actual or t hreatened election contest (as such terms areused in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act, including any successor to such Rule), or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board, shall not be so consideredas a member of the Incumbent Board.

          (iv)          The occurrence of any other event or circumstance which is not covered by (i) through (iii) above which the Board determinesaffects control of the Company and adopts a resolution that such event or circumstance constitutes a Change in Control for the purposes of this Agreement.

          (b)          A "Good Reason" for termination by Employee of Employee's employment shall mean the occurrence (without the Employee'sexpress written consent), within the eighteen (18) month period following the date of a Change in Control, of any one of the following acts by the Employer, or failures by the Employer to act, unless, in the case of any act or failure to act described inparagraph (i) or (iv) below, such act or failure to act is corrected within 30 days after notice by the Employee to the Employer of the act or failure to act:

          (i)          the assignment to Employee of any duties inconsistent with Employee's title and status set forth herein, or a substantialadverse alteration in the nature or status of Employee's responsibilities at the Employer from those in effect immediately prior to the Change in Control;

          (ii)          a substantial reduction by the Employer in Employee's Base Salary;

          (iii)          the relocation of Employee's principal office to a place more than 50 miles from Atlanta, Georgia;

          (iv)          the failure by the Employer to continue in effect any compensation or benefit plan or program in which Employee participatesimmediately prior to the Change in Control, which is material to Employee's total compensation, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Employerto continue the Employee's participation in such plan (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of Employee's participation relative to otherparticipants, as existed at the time of the Change in Control.

          The Employee's right to terminate the Employee's employment for Good Reason shall not be affected by the Employee's incapacity due to physical or mental illness, except for a total disabilityas defined in Section 2 above. The Employee's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder.

Section 4.          Partial Restraint on Post-termination Competition.

          4.1          Definitions.          For the purposes of this Section 4, the followingdefinitions shall apply:

          (a)          "Company Activities" means the business of selling caller ID technology and hardware, fulfillment services, e-commercefulfillment and e-commerce return services as well as other similar services that Innotrac or its subsidiaries is involved in at the date of this agreement.

          (b)          "Competitor" means any business, individual, partnership, joint venture, association, firm, corporation or other entity, otherthan the Employer or its affiliates or subsidiaries, engaged, wholly or partly, in Company Activities. 

          (c)          "Competitive Position" means (i) the direct or indirect ownership or control of all or any portion of a Competitor; or (ii) anyemployment or independent contractor arrangement with any Competitor whereby Employee will serve such Competitor in any managerial capacity.

          (d)          "Confidential Information" means any confidential, proprietary business information or data belonging to or pertaining toEmployer that does not constitute a "Trade Secret" (as hereinafter defined) and that is not generally known by or available through legal means to the public, including, but not limited to, information regarding Employer's customers or actively soughtprospective customers, suppliers, manufacturers and distributors gained by Employee as a result of his employment with Employer.

          (e)          "Customer" means actual customers or actively sought prospective customers of Employer during the Term.

          (f)          "Noncompete Period" or "Nonsolicitation Period" means the period beginning the date hereof and ending on the first anniversaryof the termination of Employee's employment with Employer.

          (g)          "Territory" means the area within a thirty-five (35) mile radius of any corporate office of Employer or any of its subsidiaries,affiliates or divisions. 

          (h)          "Trade Secrets" means information or data of or about Employer, including but not limited to technical or non-technical data,formulas, patterns, compilations, programs, devices, methods, techniques, drawings, processes, financial data, financial plans, products plans, or lists of actual or potential customers, clients, distributees or licensees, information concerningEmployer's finances, services, staff, contemplated acquisitions, marketing investigations and surveys, that (i) derive economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, otherpersons who can obtain economic value from their disclosure or use; and (ii) are the subject of efforts that are reasonable under the circumstances to maintain their secrecy.

          (i)          "Work Product" means any and all work product, property, data documentation or information of any kind, prepared, conceived,discovered, developed or created by Employee for Employer or its affiliates, or any of Employer's or its affiliates' clients or customers.

          4.2          Trade Name and Confidential Information. 

          (a)          Employee hereby agrees that (i) with regard to each item constituting all or any portion of the Trade Secrets, at all timesduring the Term and all times during which such item continues to constitute a Trade Secret under applicable law; and (ii) with regard to any Confidential Information, during the Term and the Noncompete Period:

          (i)          Employee shall not, directly or by assisting others, own, manage, operate, join, control or participate in the ownership,management, operation or control of, or be connected in any manner with, any business conducted under any corporate or trade name of Employer or name similar thereto, without the prior written consent of Employer; 

          (ii)          Employee shall hold in confidence all Trade Secrets and all Confidential Information and will not, either directly orindirectly, use, sell, lend, lease, distribute, license, give, transfer, assign, show, disclose, disseminate, reproduce, copy, appropriate or otherwise communicate any Trade Secrets or Confidential Information, without the prior written consent ofEmployer; and

          (iii)          Employee shall immediately notify Employer of any unauthorized disclosure or use of any Trade Secrets or ConfidentialInformation of which Employee becomes aware. Employee shall assist Employer, to the extent necessary, in the procurement or any protection of Employer's rights to or in any of the Trade Secrets or Confidential Information.

          4.3          Noncompetition.

          (a)          The parties hereto acknowledge that Employee is conducting Company Activities throughout the Territory. Employee acknowledgesthat to protect adequately the interest of Employer in the business of Employer it is essential that any noncompete covenant with respect thereto cover all Company Activities and the entire Territory.

          (b)          Employee hereby agrees that, during the Term and the Noncompete Period, Employee will not, in the Territory, either directly orindirectly, alone or in conjunction with any other party, accept, enter into or take any action in conjunction with or in furtherance of a Competitive Position. Employee shall notify Employer promptly in writing if Employee receives an offer of aCompetitive Position during the Noncompete Term, and such notice shall describe all material terms of such offer.

          Nothing contained in this Section 4 shall prohibit Employee from acquiring not more than five percent (5%) of any company whose common stock is publicly traded on a national securitiesexchange or in the over-the-counter market.

          4.4          Nonsolicitation During Employment Term. Employee hereby agrees that Employee will not, during the Term, either directlyor indirectly, alone or in conjunction with any other party solicit, divert or appropriate or attempt to solicit, divert or appropriate, any Customer for the purpose of providing the Customer with services or products competitive with those offered byEmployer during the Term. 

          4.5          Nonsolicitation During Nonsolicitation Period. Employee hereby agrees that Employee will not, during the NonsolicitationPeriod, either directly or indirectly, alone or in conjunction with any other party solicit, divert or appropriate or attempt to solicit, divert or appropriate, any Customer for the purpose of providing the Customer with services or products competitivewith those offered by Employer during the Term; provided, however, that the covenant in this clause shall limit Employee's conduct only with respect to those Customers with whom Employee had substantial contact (through direct or supervisory interactionwith the Customer or the Customer's account) during a period of time up to but no greater than two (2) years prior to the last day of the Term.

Section 5.          Miscellaneous.

          5.1          Severability. The covenants in this Agreement shall be construed as covenants independent of one another and asobligations distinct from any other contract between Employee and Employer. Any claim that Employee may have against Employer shall not constitute a defense to enforcement by Employer of this Agreement.

          5.2          Survival of Obligations. The covenants in Section 4 of this Agreement shall survive termination of Employee's employment,regardless of who causes the termination and under what circumstances.

          5.3          Notices. Any notice or other document to be given hereunder by any party hereto to any other party hereto shall be inwriting and delivered in person or by courier, by telecopy transmission or sent by any express mail service, postage or fees prepaid at the following addresses: 

                    Employer
                    Innotrac Corporation