**severance and change ofcontrol AGREEMENT**

 

THIS severanceand change of control AGREEMENT ("Agreement") is made andentered into as of September 26, 2001, by and between Provell, Inc., aMinnesota corporation (the "Company"), and George S. Richards, an individualand resident of the state of Minnesota ("Executive").

** **

**RECITALS**

 

A.            These Recitals shall be and hereby are incorporated asessential terms of this Agreement, and describe (i) the general nature andreasons for the Company's desire to enter into this Agreement and (ii)Executive's rights and obligations under this Agreement.  Any interpretation or construction of thisAgreement shall be considered in light of these Recitals.

 

B.            Executive is currently the Chairman of the Board of theCompany and is employed as the Company's Chief Executive Officer and, as such,is a key executive of the Company.

 

C.            The Board of Directors of the Company believes that it isimperative to diminish the inevitable distraction to Executive that arises byvirtue of the personal uncertainties and risks created by any pending orthreatened Change in Control (as defined herein) of the Company.

 

D.            The Company believes that it is important that it receivecertain assurances with respect to its Confidential Information and Executive'sWork Product (each as defined herein) and that the Company receive certainprotections with respect to Executive's activities following termination of hisemployment and is willing to offer Executive the compensation, bonuses andother benefits set forth in this Agreement in order to obtain such assurancesand protections.

 

NOW, THEREFORE, in consideration of the premises andfor other good and valuable consideration, the receipt and sufficiency of whichare hereby acknowledged, the Company and Executive agree as follows:

 

**ARTICLE 1**

** **

**definitions**

 

1.1           Annual Bonus.  For purposes of this Agreement, "AnnualBonus" means the greater of (i) $475,000, (ii) the targeted annual bonusamount, as established by the Board of Directors from time to time, then in effectat the time a Severance Payment is due under this Agreement or (iii) theaverage of the two most recent annual bonuses actually paid to Executive at thetime a Severance Payment is due under this Agreement.

 

1.2           Base Salary.  For purposes of this Agreement, "BaseSalary" means the greater of:  (i)$475,000, (ii) Executive's annual base salary, as established by the Board ofDirectors from time to time, then in effect at the time a Severance Payment isdue under this Agreement, or (iii) the average annual base salary paid toExecutive over the twenty-four (24) months preceding the time a SeverancePayment is due under this Agreement calculated by dividing the total basesalary paid to Executive over such twenty-four (24) months by two (2).

 

1.3           Cause.  For purposes of this Agreement,"Cause" means commission by Executive of any of the following:  (i) Executive repeatedly fails to performsubstantially the material duties specified for the position to which Executivehas been elected, which failure is willful and deliberate and which failure isnot corrected within 30 days following receipt by Executive of written noticefrom the Company’s Board of Directors which notice specifically describes theactions which the Board of Directors deems to constitute a failure by Executiveto substantially perform his material duties; (ii) Executive engages in conductwhich Executive knows at the time of its commission is materially injurious tothe Company; (iii) Executive is convicted of, or pleads NOLO CONTENDERE to (A)any felony (other than any felony arising out of negligence), or (B) any crimeor offense involving dishonesty with respect to the Company; or (iv) Executiveknowingly provides materially false information concerning the Company to theBoard of Directors of the Company, any governmental body or regulatory agencyor any lender or other financing source or proposed financing source of theCompany.

 

1.4           Change of Control.  For purposes of this Agreement, "Changeof Control" means:

 

(a)           any "Person" or "Persons"(as such terms are used in Sections 13(d) and 14(d) of the Securities ExchangeAct of 1934, as amended (the “Exchange Act”)) (other than the Company, anyemployee benefit plan of the Company or any entity which reports beneficialownership of the Company's outstanding securities on Schedule l3G pursuant toRegulation Section 240.l3d-l promulgated under the Exchange Act ) becomes a“Beneficial Owner” (as defined in Rule 13d-3 and Rule 13d-5 under the ExchangeAct), directly or indirectly, of securities of the Company representing 35% ormore of the voting power of all of the Company's then outstanding securities;or

 

(b)           the sale, transfer, lease, exchange,conveyance or other disposition (pursuant to a sale of assets, a merger orconsolidation or similar transaction), in one or a series of relatedtransactions, of all or substantially all of the assets of the Company; or 

 

(c)           a merger, consolidation or similartransaction to which the Company is a party, if the individuals and entitieswho were shareholders of the Company, as applicable, immediately prior to theeffective date of such merger, consolidation or similar transaction do not havethe same proportionate ownership of common stock of the surviving corporationimmediately following the effective date of such merger, consolidation orsimilar transaction; 

 

(d)           the adoption by the Company of a planproviding for its liquidation or dissolution; or

 

(e)           the Continuing Directors (as definedbelow) cease to constitute a majority of the Company’s Board of Directors.

 

(f)            Any references in this Agreement tothe date or the time of the Change of Control shall mean:  (i) with respect to subsection (a) above,the date such Person enters into an agreement or understanding pursuant to whichsuch Person will as a result of such agreement or understanding become abeneficial owner of 35% or more of the Company's voting shares; (ii) withrespect to subsections (b) and (c) above, the closing date for such sale ofassets, merger, consolidation or similar transaction; (iii) with respect tosubsection (d) above, the date such plan is approved by the shareholders of theCompany, and (iv) with respect to subsection (e) above, the date on which theContinuing Directors cease to constitute a majority of the Board of Directors.

 

1.4A        ContinuingDirectors.  For purposes of thisAgreement, “Continuing Directors” shall mean any person who is a member of theBoard of Directors of the Company, who is not an Acquiring Person (ashereinafter defined) or an Affiliate or Associate (as hereinafter defined) ofan Acquiring Person, or a representative of an Acquiring Person or of any suchAffiliate or Associate, and who (a) was a member of the Board of Directors onthe date of this Agreement as first written above or (b) subsequently becomes amember of the Board of Directors, if such person’s initial nomination forelection or initial election to the Board of Directors is recommended orapproved by a majority of the Continuing Directors.  For purposes of this Section 1.4A:  “Acquiring Person” shall mean any Person who or which, togetherwith all Affiliates and Associates of such Person, is the Beneficial Owner of10% or more of the shares of Common Stock of the Company then outstanding, butshall not include the Company, any subsidiary of the Company or any executivebenefit plan of the Company or of any subsidiary of the Company or any entityholding shares of Common Stock organized, appointed or established for, orpursuant to the terms of, any such plan; and “Affiliate” and “Associate” shallhave the respective meanings ascribed to such terms in Rule 12b–2promulgated under the Exchange Act.

 

1.5           Good Reason.  For purposes of this Agreement, "GoodReason" means termination of Executive’s employment by Executive in theevent that the Company:  (i) ceases toemploy Executive as the Company's Chief Executive Officer; (ii) reduces thescope of Executive's authority or responsibility without Executive’s consent;(iii) reduces Executive's base salary or the amount of annual bonus for whichExecutive is eligible without Executive’s consent, (iv) materially reduces anyother benefits to which Executive is entitled; (v) requires Executive'sprincipal place of employment to be anywhere other than the Company's principalexecutive offices, or there is a relocation of the Company's principalexecutive offices outside of the Minneapolis/St. Paul, Minnesota metropolitanarea; or (vi) otherwise fails to perform its obligations under this Agreement.

 

1.6           Severance Payment.  For purposes of this Agreement, "SeverancePayment" means the amount calculated by multiplying the sum of Executive'sBase Salary plus Annual Bonus by two and adding $593,750 to the product thusobtained:  

 

(Base Salary + Annual Bonus) x 2 + $593,750 =Severance Payment.

 

1.7           TerminationDate.  For purposes of thisAgreement, "Termination Date" means the date on which Executiveceases to be an employee of the Company.

 

**ARTICLE 2**

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**severance and Phantomappreciation payments**

 

2.1           Severance.  The Company shall pay to Executive theSeverance Payment (less appropriate payroll withholding as required by law)upon the earliest to occur of the following: (i) a Change of Control (provided Executive is employed by the Companyat the time of the Change of Control), (ii) a termination of Executive'semployment by the Company without Cause, or (iii) termination of Executive'semployment by Executive for Good Reason.

 

2.2           Phantom Appreciation Payment.  In addition to the Severance Payment, if theCompany has a Change of Control during the term of this Agreement, the Companyshall pay to Executive upon such Change of Control a bonus (less appropriatepayroll withholding as required by law) as calculated below (the "PhantomAppreciation Payment").  Notwithstandingthe foregoing, Executive shall only be entitled to the Phantom AppreciationPayment if Executive is employed by the Company at the time of the Change ofControl or, within six (6) months prior to such Change of Control, Executivewas terminated by the Company without Cause or Executive terminated hisemployment for Good Reason.  The PhantomAppreciation Payment is calculated as follows:

 

•              Tier I Calculation.  In the event the price per share of theCompany's common stock at the time of a Change of Control is less than $4.00,the Phantom Appreciation Payment will be an amount equal to the sum ofExecutive's Base Salary plus Annual Bonus multiplied by 50% (the product thusobtained to be referred to herein as the "Tier I Balance").

 

•              Tier II Calculation.  In the event the price per share of the Company'scommon stock at the time of a Change of Control is equal to or greater than$4.00 but is less than $5.00, the Phantom Appreciation Payment will be anamount equal to the sum of Executive's Base Salary plus Annual Bonus multipliedby 50% (the product thus obtained to be referred to herein as the "Tier IIBalance") plus an amount calculated by multiplying such Tier II Balance bya fraction, the numerator of which is the difference between the price pershare on the date of the Change of Control and $4.00 and the denominator ofwhich is $1.00.  

 

•              Tier III Calculation.  Subject to the Ceiling (as defined below),in the event that the price per share of the Company's common stock at the timeof a Change of Control is equal to or greater than $5.00, the Company shall payto Executive a bonus in the amount equal to the sum of Executive's Base Salaryplus Annual Bonus (the sum thus obtained to be referred to herein as the"Tier III Balance") plus an amount calculated by multiplying 75% ofsuch Tier III Balance by a fraction, the numerator of which is the differencebetween the price per share on the date of the Change of Control and $5.00 andthe denominator of which is $2.00.  

 

•              Ceiling.  In no event will the Phantom AppreciationPayment due under this Section 2.2 exceed the Tier III Balance multiplied by1.75 (the "Ceiling").  

 

•              Price per Share Calculation.  For purposes of this Section 2.2, the"price per share" on the date of the Change of Control means thegreater of (i) average closing price of the Company's common stock as reportedby the NASDAQ Stock Market for the ten (10) trading days ending the dayimmediately prior to the Change of Control, or (ii) the price per share to bepaid for the Company's common stock by a third party purchaser as set forth inthe purchase or reorganization agreement, if any, that gives rise to the Changeof Control.

 

2.3           Disability, and Medical/DentalCoverage; No Unpaid Vacation or Sick Leave.  In addition to any Severance Payment Executive may be entitled toreceive under Section 2.1 above, and any Phantom Appreciation Payment underSection 2.2 above, if Executive's employment is terminated upon a change ofcontrol, the Company shall continue to provide to Executive the same disabilityand medical/dental coverage provided to Executive immediately prior to theExecutive's Termination Date.  Suchcoverage shall be provided by the Company at its sole cost until the secondanniversary of the Termination Date. Executive may, in his sole discretion, continue health insurancebenefits under COBRA laws in effect on the Termination Date.  Executive acknowledges that the number ofmonths of health insurance benefits available under this Section 2.3 exceed bysix (6) months the number of required months under current law.  In addition, Executive shall for 2 yearsfollowing the Termination Date continue to participate in the Company’sExecutive Medical Reimbursement Plan. Executive shall not be deemed to have and shall not be paid for any unpaidvacation or sick leave upon his termination of employment for any reason,voluntary or involuntary.

 

2.4           Other Termination Benefits.  In addition to the benefits described above,upon termination (whether voluntary or involuntary) of Executive’s employmentwith the Company, Executive shall be entitled to receive the followingbenefits:

 

(a)           The Company shall pay to Executive(i) the full base salary earned by him and unpaid through the Termination Date,at the rate in effect at the time written notice of termination (voluntary orinvoluntary) was given; provided, however, that such rate shall not be lessthan $475,000 per year, (ii) and any amount earned by Executive as a bonus withrespect to the fiscal year of the Company preceding the termination of hisemployment if such bonus has not theretofore been paid to Executive.

 

(b)           The Company shall also pay toExecutive all legal fees and all expenses incurred by Executive as a result ofsuch termination of employment (including without limitation all fees andexpenses, if any, incurred by Executive in successfully seeking to obtain orenforce any right or benefit provided to Executive by this Agreement whether byarbitration or otherwise); and

 

(c)           Executive shall not be required tomitigate the amount of any payment provided for in this Section 2.4 by seekingother employment or otherwise.  Theamount of any payment or benefit provided in this Section 2.4 shall not bereduced by any compensation earned by Executive as a result of any employmentby another employer.

 

For the avoidanceof doubt, Executive acknowledges that the Company shall be under no obligationto provide Executive with an automobile or an automobile allowance at any timeafter the Termination Date pursuant to any term of this Agreement.

 

2.5           Payment.  All amounts due under Sections 2.1, 2.2, 2.3and 2.4 of this Agreement shall be paid to Executive no later than the close ofbusiness on the earlier to occur of the Termination Date or the date of theChange of Control.

 

**ARTICLE 3**

** **

**certain additionalpayments by the company**

 

3.1           Gross-Up Payment.  Anything to the contrary notwithstanding, inthe event it shall be determined that any payment, distribution or benefit madeor provided by the Company to or for the benefit of Executive (whether pursuantto this Agreement or otherwise) (a "Payment"), would be subject tothe excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, asamended (the "Code"), or any interest or penalties with respect tosuch excise tax (such excise tax, together with any such interest and penalties,being collectively referred to as the "Excise Tax"), then the Companyshall pay Executive in cash an amount (the "Gross-Up Payment") suchthat, after payment by Executive of all taxes (including any payroll or FICAtaxes, and any interest or penalties imposed with respect to all such taxes),including but not limited to income taxes, determined at the maximum effectiverate applicable thereto (and any interest and penalties imposed with respectthereto), and the Excise Tax imposed upon the Gross-Up Payment, Executiveretains an amount of the Gross-Up Payment equal to the Excise Tax imposed onthe Payments. An example of the calculation of the Gross-Up Payment is attachedhereto as Exhibit A.

 

3.2           Determination of Gross-Up Payment.  Subject to Section 3.3, all determinationsrequired to be made under this Article 3, including whether a Gross-Up Paymentis required and the amount of the Gross-Up Payment, shall be made by the firmof independent public accountants selected by the Company to audit its financialstatements for the year immediately preceding the Change in Control (the"Accounting Firm").  TheAccounting Firm shall provide detailed supporting calculations to the Companyand Executive within thirty (30) days after the Termination Date.  In the event that the Accounting Firm isserving as accountant or auditor for the individual, entity or group effectingthe Change in Control, Executive may appoint another nationally recognizedaccounting firm to make the determinations required under this Article 3 (whichaccounting firm shall then be referred to as the "AccountingFirm").  All fees and expenses ofthe Accounting Firm in connection with the work it performs pursuant to thisArticle 3 shall be promptly paid by the Company.  Any Gross-Up Payment (as determined pursuant to this Article 3)shall be paid by the Company to Executive within five (5) days of the receiptof the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable byExecutive, it shall furnish Executive with a written opinion that failure toreport the Excise Tax on Executive's applicable federal income tax return wouldnot result in the imposition of a negligence or a similar penalty.  Any determination by the Accounting Firmshall be binding upon the Company and Executive.  As a result of the uncertainty in the application of Section 4999of the Code at the time of the initial determination by the Accounting Firm, itis possible that Gross-Up Payments which will not have been made by the Companyshould have been made ("Underpayment").  In the event that the Company exhausts its remedies pursuant toSection 3.3, and Executive is thereafter required to make a payment of ExciseTax, the Accounting Firm shall promptly determine the amount of the Underpaymentthat has occurred and any such Underpayment shall be paid by the Company toExecutive within five (5) days after such determination.

 

3.3           Contest.  Executive shall notify the Company inwriting of any claim made by the Internal Revenue Service that, if successful,would require the Company to pay a Gross-Up Payment.  Such notification shall be given as soon as practicable but nolater than ten (10) business days after Executive knows of such claim and shallapprise the Company of the nature of such claim and the date on which suchclaim is requested to be paid. Executive shall not pay such claim prior to the expiration of the 30-dayperiod following the date on which Executive gives such notice to the Company(or such shorter period ending on the date that any payment of taxes withrespect to such claim is due).  If theCompany notifies Executive in writing prior to the expiration of such periodthat it desires to contest such claim, Executive shall:

 

(a)           give the Company any informationreasonably requested by the Company relating to such claim;

 

(b)           take such action in connection withcontesting such claim as the Company shall reasonably request in writing fromtime to time, without limitation, accepting legal representation with respectto such claim by an attorney selected, and paid, by the Company and reasonablyacceptable to Executive;

 

(c)           cooperate with the Company in goodfaith in order to effectively contest such claim; and

 

(d)           permit the Company to participate inany proceedings relating to such claim, provided that the Company shall bearand pay directly all costs and expenses (including additional interest andpenalties) incurred in connection with such contest and shall indemnify andhold Executive harmless, on an after-tax basis, for any Excise Tax or incometax, including interest and penalties with respect thereto, imposed as a resultof such representation and payment of costs and expenses.  Without limitation on the foregoingprovisions of this Section 3.3, the Company shall control all proceedings takenin connection with such contest.  At itssole option, the Company may pursue or forego any and all administrativeappeals, proceedings, hearings and conferences with the taxing authority in respectof such claim and may either direct Executive to pay the tax claimed and suefor a refund or contest the claim in any permissible manner.  Executive agrees to prosecute such contestto a determination before any administrative tribunal, in a court of initialjurisdiction and in one or more appellate courts, as the Company shalldetermine, provided that if the Company directs Executive to pay such claim andsue for a refund, the Company shall advance the amount of such payment toExecutive, on an interest-free basis, from any Excise Tax or income tax,including interest or penalties with respect thereto, imposed with respect tosuch advance or with respect to any imputed income with respect to suchadvance, and further provided that any extension of the statute of limitationsrelating to payment of taxes for the taxable year of Executive with respect towhich such contested amount is claimed to be due is limited solely to suchcontested amount.  Furthermore, theCompany's control of the contest shall be limited to issues with respect towhich a Gross-Up Payment would be payable hereunder, and Executive shall beentitled to settle or contest, as the case may be, any other issue raised bythe Internal Revenue Service or any other taxing authority.

 

3.4           Refund.  If, after the receipt by Executive of anamount advanced by the Company pursuant to Section 3.3, Executive becomesentitled to receive any refund with respect to such claim, Executive shall(subject to the Company's complying with the requirements of Section 3.3)promptly pay to the Company the amount of such refund (together with anyinterest paid or credited thereon after taxes applicable thereto).  If, after the receipt by Executive of anamount advanced by the Company pursuant to Section 3.3, a determination is madethat Executive shall not be entitled to any refund with respect to such claimand the Company does not notify Executive in writing of its intent to contestsuch denial of refund prior to the expiration of thirty (30) days after suchdetermination, then such advance shall be forgiven and shall not be required tobe repaid and the amount of such advance shall offset, to the extent thereof,the amount of Gross-Up Payment required to be paid.

** **

**ARTICLE 4**

** **

**TERM and survival;NOTICES TO EXECUTIVE**

 

4.1           Termand Survival.  The Company's obligationunder Article 2 to pay a Severance Payment upon a Change of Control and pay aPhantom Appreciation Payment upon a Change of Control shall terminate on thethird anniversary date of this Agreement, provided, however, tothe extent any such obligation arose on or prior to such third anniversary datedue to a Change of Control occurring on or prior to the third anniversary dateand such obligation remains unperformed on the third anniversary date, suchobligation shall survive.  The Company'sobligation to continue certain benefits under Section 2.3 or pay a SeverancePayment under Section 2.1 upon a termination without Cause or termination forGood Reason shall survive indefinitely. The rights and obligations of the parties with respect to Articles 5, 6and 7 shall survive for the periods set forth in Articles 5, 6 and 7.

 

4.2           Noticesto Executive.  All notices toExecutive alleging any breach of any term of this Agreement or purporting toterminate Executive’s employment with the Company shall be in writing,addressed to Executive, labeled “Personal and Confidential,” and sent to theaddress set forth for Executive in Section 10.9 hereof.  Any such notice shall describe, withparticularity, the conduct of Executive forming the basis for such allegedbreach or termination of employment. All such notices shall become effective on the 30th dayfollowing delivery thereof to Executive if Executive has not substantiallycured the conduct identified in such notice.

 

**ARTICLE 5**

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**PROTECTION OF TRADESECRETS AND**

**CONFIDENTIAL information**

 

5.1           Covenant to Protect ConfidentialInformation.  Executive acknowledgesthat in connection with Executive's employment by the Company, Executive willbe brought into contact with Confidential Information (as defined below), andExecutive and the Company agree that in consideration of the covenants of theCompany pursuant to this Agreement that upon a Change of Control, terminationby the Executive for Good Reason, or termination with Cause:

 

(a)           Executive will not disclose to anyperson or entity any Confidential Information after the Termination Date,except to employees of the Company who, in the reasonable judgment of Executiveneed such information for the performance of their duties, and attorneys,accountants or other representatives of the Company as may be necessary orappropriate in the ordinary course of performing Executive's duties as anexecutive of the Company, or otherwise with the Company's express prior writtenconsent.

 

(b)           Executive will not disclose or transferany Confidential Information to any third party without the express priorwritten consent of the Company (which consent shall not be unreasonablyhindered or delayed), except that Executive may make such disclosures to thirdparties:  (i) in the ordinary course ofconducting the business of the Company, (ii) subject to a confidentialityagreement in form and substance reasonably acceptable to the Company and (iii)in compliance with orders, rules or regulations of judicial, regulatory orself-regulatory organizations having jurisdiction over either the Company orExecutive.

 

(c)           Executive will deliver to the Companypromptly on the Termination Date, or at any other time that the Company may sorequest, all memoranda, notes, records (including electronic data records),reports and other documents (and all copies thereof) relating to theConfidential Information which he may then possess or have within his control.

 

(d)           For purposes of this Agreement,"Confidential Information" means any information which is proprietaryor unique to the business of the Company, including but not limited to tradesecret information, matters of a technical nature such as processes, devices,techniques, data and formulas, research subjects and results, marketingmethods, plans and strategies, operations, products, revenues, expenses,profits, sales, key personnel, customers, suppliers, pricing policies, anyinformation concerning the marketing and other business affairs and methods ofthe Company which is not readily available in the Company's industry, and anyinformation the Company has indicated to Executive in an unambiguous writing isconfidential.

 

5.2           Termination of Obligation ofConfidentiality.  Theconfidentiality obligations imposed by Section 5.1 shall cease to apply toConfidential Information after the EARLIEST of the date on which theConfidential Information which has been treated by the Company as ConfidentialInformation: (i) was known to Executive before it was obtained from theCompany; (ii) was publicly available on the date of first receipt from theCompany; (iii) has become generally known to the public in the United Statesthrough no fault of Executive; (iv) has been disclosed to Executive free of anyobligation of confidentiality by a third party who, to the knowledge ofExecutive, has the right to disclose the same and did not derive theinformation from the Company; or (v) was independently developed by Executivewithout the use of the Confidential Information; provided that, with respect toclauses (i), (iv) and (v) only, such date must be established through Executiveproviding the Company with written evidence clearly establishing suchexception.

 

5.3           Survival of Covenants.  The obligations of this Article 5 shallindefinitely survive the termination of Executive's employment with the Companyand shall be binding upon any and all of Executive's assigns, executors,administrators and other legal representatives.  However, notwithstanding anything to the contrary in thisAgreement, if the Company either breaches any covenant to pay or providebenefits to Executive under Article 2 hereof, whether before or after theTermination Date, in addition to all other remedies in equity or at law whichExecutive may otherwise be entitled to pursue, the Executive’s obligationsunder this Article 5 shall terminate and be of no further force or effect ifsuch breach has not been cured by the Company within five (5) calendar daysafter the date of such breach.  TheCompany understands and agrees that such termination under such circumstancesis reasonable and will not be deemed to be an election of remedies byExecutive, and that Executive shall be entitled to pursue all amounts andbenefits owed to him under Article 2 thereafter.

 

**ARTICLE 6**

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**work product**

 

6.1           Work Product. Executiveacknowledges that Work Product (as defined below) belongs solely to the Companyupon a Change of Control, termination by the Executive for Good Reason, ortermination with Cause:

 

(a)           At the request of the Company,Executive shall (i) assign  to theCompany all of his ownership in and rights to such Work Product, and (ii)assist the Company, at the Company’s expense, as requested during and afteremployment to evidence, perfect and enforce the rights of the Company in andownership of such Work Product by promptly executing and delivering to theCompany, the necessary written instruments and by performing such other acts asmay be necessary, in the opinion of the Company, so as to enable the Company toobtain and maintain patent, copyright or other intellectual property rights insuch Work Product and so as to vest the entire right and title thereto in theCompany.

 

(b)           Pursuant to the provisions of Minn.Stat. Section 181.78, the Company hereby notifies Executive that this Section6.1 does not apply to an invention for which no equipment, supplies, facilityor trade secret information of the Company was used and which was developedentirely on Executive's own time, and (i) which does not relate (A) directly tothe business of the Company, or (B) to the Company's actual or demonstrablyanticipated research or development, or (ii) which does not result from anywork performed by Executive for the Company.

 

(c)           For purposes of this Agreement,"Work Product" means all inventions, creations, innovations,improvements, technical information, systems, software developments, methods,designs, analyses, drawings, reports, service marks, trademarks, tradenames,logos and all similar or related information (whether patentable orunpatentable) which relate to the Company's actual or anticipated business,research and development or existing or future products or services which areconceived, developed or made by Executive (whether or not during usual businesshours and whether or not alone or in conjunction with any other person) whileemployed by the Company (including those conceived, developed or made prior tothe date of this Agreement), together with all patent applications, letterspatent, trademark, tradename and service mark applications or registrations, copyrightsand reissues thereof that may be granted for or upon any of the foregoing.

 

6.2           Survival of Covenants.  The obligations of this Article 6 shallindefinitely survive the termination of Executive's employment with the Companywith respect to inventions or other discoveries conceived or otherwisedeveloped during Executive's employment and shall be binding upon any and allof Executive's assigns, executors, administrators and other legalrepresentatives.  However,notwithstanding anything to the contrary in this Agreement, if the Companyeither breaches any covenant to pay or provide benefits to Executive underArticle 2 hereof, whether before or after the Termination Date, in addition toall other remedies in equity or at law which Executive may otherwise beentitled to pursue, the foregoing Work Product covenant shall terminate and beof no further force or effect if such breach has not been cured by the Companywithin five (5) calendar days after the date of such breach.  The Company understands and agrees that suchtermination under such circumstances is reasonable and will not be deemed to bean election of remedies by Executive, and that Executive shall be entitled topursue all amounts and benefits owed to him under Article 2 thereafter.

 

**ARTICLE 7**

** **

**NONCOMPETITION,NONSOLICITATION AND NONDISPARAGEMENT**

 

7.1           Noncompetition, Nonsolicitationand Nondisparagement.  Executiveacknowledges and agrees with the Company that, during the course of Executive'semployment with the Company, Executive has had and will continue to have theopportunity to develop relationships with existing employees, customers andother business associates of the Company, which relationships constitutegoodwill of the Company, and Executive acknowledges and agrees that the Companywould be irreparably damaged if Executive were to take actions that woulddamage or misappropriate such goodwill. Executive accordingly covenants and agrees that upon a Change ofControl, termination by the Executive for Good Reason or termination withCause: 

 

(a)           Executive acknowledges that theCompany currently conducts throughout the United States (the"Territory") the Membership/Enhancement Services Business, as definedbelow. Accordingly, in consideration of the covenants of the Company pursuant tothis Agreement, from the date hereof until the first anniversary of Executive'sTermination Date (the "Noncompete Period"), Executive shall not,directly or indirectly, engage in, assist, give or lend funds to or otherwisefinance, be employed by or consult with, or have a financial or other interestin, any “Competitor” (as defined below) which engages in theMembership/Enhancement Services Business, whether for or by himself or as anindependent contractor, agent, stockholder, partner or joint venturer with anysuch Competitor, provided that the aggregate ownership by Executive of no morethan two percent of the outstanding equity securities of any person, includingany Competitor, which securities are traded on a national or foreign securitiesexchange, quoted on the Nasdaq Stock Market or other automated quotation systemshall not be deemed to be giving or lending funds to, otherwise financing orhaving a financial interest in a Competitor. As used herein, the term, “Competitor” means those persons identified onExhibit B hereto and any company or any business unit of any company thatreceives more than 75% of its annual revenues engaging in theMembership/Enhancement Services Business. Also, as used herein, Membership/Enhancement Services Business means thesale or marketing of memberships to clubs for which club members/customers payan annual membership fee which fee is automatically renewed unless the customercancels his/her/its membership.

 

(b)           Executive covenants and agrees thatduring the Noncompete Period, Executive will not, directly or indirectly,either for himself or for any other person (i) solicit or initiate contact withany employee of the Company, or any former employee of the Company whoseemployment with the Company terminated within six months of such solicitationor contact, for the purpose of employing such individual, or (ii) make anydisparaging statements concerning the Company or its officers, directors oremployees, to any lessor, lessee, vendor, supplier, customer, distributor,employee, consultant or other business associate of the Company, as suchrelationship relates to the Company's conduct of the Membership/EnhancementServices Business.  Notwithstanding theforegoing, this Section 7.1(b) does not prohibit or restrict communicating withor hiring employees or former employees of the Company who first initiatecontact with Executive or who respond to a general public solicitation ofemployment such as a newspaper advertisement.

 

(c)           Executive understands that theforegoing restrictions may limit Executive's ability to earn a livelihood in abusiness similar to the business of the Company, but Executive neverthelessbelieves that Executive has received and will receive sufficient considerationand other benefits as provided hereunder to clearly justify such restrictionswhich, in any event (given Executive's education, skills and ability),Executive does not believe would prevent him from otherwise earning a living.

 

(d)           Notwithstanding anything to thecontrary in this Agreement, if the Company either breaches any covenant to payor provide benefits to Executive under Article 2 hereof, whether before or  after the Termination Date, in addition toall other remedies in equity or at law which Executive may otherwise beentitled to pursue, the foregoing noncompetition, nonsolicitation andnondisparagement covenants shall terminate and be of no further force or effect if such breach has notbeen cured by the Company within five (5) calendar days after the date of suchbreach.  The Company understands andagrees that such termination under such circumstances is reasonable and willnot be deemed to be an election of remedies by Executive, and that Executiveshall be entitled to pursue all amounts and benefits owed to him under Article2 thereafter.

** **

**ARTICLE 8**

** **

**remedies**

 

8.1           Remedies.  In the event of the violation or threatenedviolation by Executive of any of the covenants contained in this Agreement, inaddition to any other remedy available in law or in equity, the Company shallhave (i) the right and remedy of specific enforcement, including injunctiverelief, it being acknowledged and agreed that any such violation or threatenedviolation may cause irreparable injury to the Company and that monetary damageswill not provide an adequate remedy, (ii) the right and remedy to withhold anypayments or benefits required to be made or provided to Executive hereunderupon the material and continuing violation by Executive of any provisions ofArticles 5, 6 or 7 hereof, but without limiting Executive's obligations underArticles  5 or 6 hereof, provided thatall such payments shall be promptly paid over to Executive if the arbitratorsreferenced in Article 9 hereof determines that Executive did not violate suchprovisions, and (iii)the right to any and all damages available as a matter oflaw.

 

8.2           Reformation.  In furtherance and not in limitation of theforegoing, should any duration or geographical restriction on businessactivities covered under this Agreement or any other provision of thisAgreement be found by any court of competent jurisdiction to be less than fullyenforceable due to its breadth of restrictiveness or otherwise, Executive andthe Company intend that such court will enforce this Agreement to the fullextent that the court may find permissible by construing such provisions tocover only that duration, extent or activity which may be enforceable.  Executive and the Company acknowledge theuncertainty of the law in this respect and intend that this Agreement will begiven the construction that renders its provisions valid and enforceable to themaximum extent permitted by law.

** **

**ARTICLE 9**

** **

**arbitration**

 

In the event of a dispute between the Company andExecutive regarding either party's failure to comply with the covenants containedin this Agreement, it is the intention of the parties that the dispute shall beresolved as expeditiously as possible, consistent with fairness to bothsides.  Accordingly, any such mattersshall be resolved by binding private arbitration before a singlearbitrator.  Within thirty (30) days ofreceipt of such notice by the opposing party, the parties shall meet in goodfaith to appoint a disinterested arbitrator. In the event the parties cannot agree upon the neutral arbitrator withinten (10) days after their appointment, then the neutral arbitrator shall beappointed by the Chief Judge of Hennepin County (Minnesota) DistrictCourt.  Any arbitration proceedingconducted hereunder shall be in the City of Minneapolis and shall follow theprocedures set forth in the Rules of Commercial Arbitration of the AmericanArbitration Association, and both sides shall cooperate in as expeditious aresolution of the proceeding as is reasonable under the circumstances.  The arbitrator shall apply the law of theState of Minnesota.  The arbitratorshall have the power to enter any relief he or she deems fair and just on anyclaim, including interim and final equitable relief, along with any proceduralorder that is reasonable under the circumstances.  Any award rendered by any such arbitrator, may be filed and ajudgment obtained in any court having jurisdiction over the parties unless therelief granted in the award is delivered within ten (10) days of theaward.  Either party may requestarbitration by written notice to the other party.

** **

**ARTICLE 10**

** **

**miscellaneous**

 

10.1         No Funding of Severance.  Nothing contained in this Agreement orotherwise shall require the Company to segregate, earmark or otherwise setaside any funds or other assets to provide for any payments required to be madeunder Articles 2 or 3 hereof, and the rights of Executive to any benefitshereunder shall be solely those of a general, unsecured creditor of theCompany.

 

10.2         Beneficiaries.  In the event of Executive's death, anyamount or benefit payable or distributable to him pursuant to this Agreementshall be paid to the beneficiary designated by Executive for such purpose inthe last written instrument received by the Company prior to Executive's death,if any, or, if no beneficiary has been designated, to Executive's estate, butsuch designation shall not be deemed to supersede any beneficiary designationunder any benefit plan of the Company.

 

10.3         Governing Law; Jurisdiction.  This Agreement shall be construed,interpreted and enforced according to the statutes, rules of law and courtdecisions of the State of Minnesota without regard to conflict of lawprovisions.  Executive hereby submits tothe jurisdiction of, and waives any venue objections against, the State ofMinnesota and the federal courts of the United States located in such state inrespect of all actions arising out of or in connection with this Agreement, andExecutive consents to the personal jurisdiction of such courts for suchpurposes.

 

10.4         Assignment and Survival.  This Agreement is binding upon the Companyand Executive and their permitted successors and assigns.  The obligations of Articles 5, 6, 7, 8, 9and 10 of this Agreement will survive the termination of Executive's employmentwith the Company.  The services renderedby Executive to the Company under this Agreement are personal in nature and,therefore, Executive may not delegate Executive's duties or obligations underthis Agreement.  The Company may assignits rights and delegate its duties and obligations under this Agreement, withExecutive’s prior written consent (which may given or withheld in Executive’ssole discretion).

 

10.5         No Waiver.  The failure of either the Company orExecutive to object to any conduct or violation of any of the covenants made bythe other under this Agreement will not be deemed a waiver of any rights orremedies.  No waiver of any right orremedy arising under this Agreement will be valid unless set forth in anappropriate writing signed by both the Company and Executive.  This Agreement shall not give Executive anyright to be employed for any specific time or limit the Company's right toterminate Executive's employment at any time, with or without Cause.  This Agreement shall not be deemed an employmentagreement and Executive may terminate his employment with the Company at anytime.

 

10.6         Modification.  This Agreement supersedes and replaces anyand all prior and written understandings, if any, between the parties relatingto the subject matter of this Agreement, including any previous employmentcontract which is hereby revoked.  Theparties agree that this Agreement and the Exhibit attached hereto (a) set forththe entire understanding and agreement between the parties with respect to thesubject matter of this Agreement and (b) is the complete and exclusivestatement of the terms and conditions thereof, and there are no other writtenor oral agreements in regard to the subject matter of this Agreement.  This Agreement shall not be changed or modifiedexcept by a written document signed by the parties hereto.

 

10.7         Unique Nature of Agreement.  The covenants made in, and the rightsconveyed by, this Agreement are of a unique and special nature to each of theparties hereto.  Any violation of thisAgreement by either party may result in immediate and irreparable harm to theother party hereto.  In such event, eachparty acknowledges that this Agreement entitles the other to an injunction ordecree of specific performance from a court of equity in addition to otherrights or remedies which the such party may have at law or in equity.  Each party hereto hereby waives the right toassert the defense that any such breach or violation can be adequatelycompensated in damages and in an action at law.

 

10.8         Severability.  The covenants, provisions, and sections ofthis Agreement are severable.  Subjectto the last sentence of this Section 10.8, if any portion of this Agreement isheld to be unlawful or unenforceable, the same will not affect any otherportion of this Agreement, and the remaining terms and conditions or portionsthereof will remain in full force and effect. Subject to the last sentence of this Section 10.8, this Agreement willbe construed in such case as if such unlawful or unenforceable portion hadnever been contained in this Agreement, in order to effectuate the intentionsof the Company and Executive in executing this Agreement.  If, at any time, any term or provision, orportion thereof, of Articles 2 or 3 is held to be unlawful or unenforceable,the Company agrees to take such actions and to enter into such other agreementsor understandings with or for the benefit of Executive as are necessary, inExecutive’s judgment, to provide Executive with substantially the same benefitsas are set forth in such Articles; if the Company does not do so, for anyreason, then the parties understand that Articles 5,6, 7 and 8 shall be of nofurther force or effect.

 

10.9         Notices.  All notices, demands and othercommunications provided for hereunder shall be in writing and shall be giveneither by personal delivery, via facsimile transmission (receipt telephonicallyconfirmed), by nationally recognized overnight courier (prepaid), or bycertified or registered first class mail, postage prepaid, return receiptrequested, sent to each party at its/his address as set forth below or suchother address or in such other manner as may be designated by such party inwritten notice to each of the other parties. All such notices, demands and communications shall be effective whenpersonally delivered, one (1) business day after delivery to the overnightcourier, upon telephone confirmation of facsimile transmission or upon receiptafter dispatch by mail to the party to whom the same is given or made:

 

 

| If to Executive:    |   | George S. Richards                       |
|---------------------|--------|------------------------------------------|
|                |   | 13916 Emerald Ridge                      |
|                |   | Minnetonka,  MN  55305              |
|                |   |                                     |
| If to the  Company: |   | Provell, Inc.                            |
|                |   | 301 Carlson  Parkway, Suite 201          |
|                |   | Minnetonka, MN   55305              |
|                |   |                                     |
|                |   | Attention:  Chief Financial Officer |

 

IN WITNESS WHEREOF the following parties have executedthe above instrument the day and year first above written.

 
|   | **Provell,  Inc.** |
|--------|--------------------|
|   |               |
|   | By                 |   |
|   | Name               |   |
|   | Its                |   |
|   |               |
|   | **EXECUTIVE:**     |
|   |               |
|   | George S. Richards |
|        |                    |  |  |

 

**exhibit a**

** **

**gross-up paymentcalculation**

 

Pursuant to Article 3 of the Severance and Change ofControl Agreement to which this Exhibit A is attached (the “Agreement”), agross-up payment shall be paid to the Executive by the Company within the timeperiod specified in the Agreement for the amount of excise tax incurred by theExecutive as a result of Internal Revenue Code Section 4999.  The following is an example of the resultintended by Article 4 3 of the Agreement.

Definition of terms:

 

G=           Gross-up payment due,

P=           Amount of the parachute payment,

B=           Base amount,

R=           Aggregate applicable Federal andState (net of Federal benefit) income tax rate,

.2=           20% tax rate imposed by InternalRevenue Code Section 4999

 

Example assumptions:

 

G=           X,

P=           $2,000,000,

B=           $500,000, and

R=           .45

 

Based upon theassumptions listed, the gross-up payment is calculated as follows:

 

G=           (.2P - .2B) / (.8-R)

G=           [(.2($2,000,000) - .2($500,000)] /(.8 - .45)

G=           ($400,000 - $100,000) / .35

G=           $300,000 / .35

G=           $857,143

 

**EXHIBIT B**

** **

LIST OFCOMPETITORS

 

Memberworks, Inc.

 

Cendant’sMembership Services Business Unit, known as Trilegiant

 

Encore MarketingInternational Inc.

 

SignatureMarketing Group, Inc., currently owned by GE Financial Advisors

 

Brand DirectMarketing, Inc.

 

Eubiquity,currently owned by West Teleservices, Inc.

 

Metris Companies,Inc.