Exhibit 10.3


 


EMPLOYMENT
AGREEMENT


 


This EMPLOYMENT AGREEMENT is made as of May 18,
2006 by and between Gary Holland (“Employee”) and Fargo Electronics, Inc.,
a Delaware corporation (the “Company”).


 


WITNESSETH


 


WHEREAS, Employee and the Company are parties
to that certain Employment Agreement dated February 18, 1998, as
amended and restated as of April 15, 1999, and as amended and restated on June 19,
2001 (the “Old Employment Agreement”);


 


WHEREAS, the parties hereto desire to assure
that the Employee’s knowledge and experience will continue to be available to
the Company.


 


WHEREAS, Employee and the Company mutually
desire to terminate the Old Employment Agreement and to enter into this
Employment Agreement;


 


WHEREAS, Employee has previously signed a Non
Compete and Confidentiality Agreement dated May 19, 1997 which is to
remain in effect except as modified herein;


 


NOW THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereby do agree:


 


1.                                       Employment.
Subject to the provisions of Sections 6, 7 and 8, the Company hereby employs
the Employee and the Employee accepts such employment upon the terms and conditions
hereinafter set forth.


 


2.                                       Term
of Employment. The term of employment shall be a period of three (3) years
from the date of this Employment Agreement. This term may be extended for
additional terms of 1 year by the mutual agreement of the Company and Employee.


 


3.                                       Duties.
During the Term of Employment, the Employee (a) shall serve as an employee
and director of the Company with the title and position of President and Chief
Executive Officer and Chairman of the Board of Directors, reporting to the Board
of Directors of the Company, (b) shall have general supervisory
responsibility in such capacity over all aspects of the business of the
Company, as well as such other responsibilities as may be specified from
time to time by the Board of Directors of the Company, consistent with the
Employee’s position and general area of experience and skills, provided that,
in all cases the Employee shall be subject to the oversight and supervision of
the Board of Directors of the Company in the performance of his duties, (c) upon
the request of the Board of Directors of the Company, shall serve as an officer
and/or director of any of the Company’s subsidiaries, and (d) shall render
all services reasonably incident to the foregoing. The Employee hereby accepts
such employment, agrees to serve the Company in the capacities indicated, and
agrees to use his best efforts in, and shall devote his full working time,
attention, skill and energies to, the advancement of the interests of the
Company and its subsidiaries and the performance of his duties and
responsibilities hereunder.


 

















 


4.                                       Salary
and Bonus.


 


(a)                                  During
the Term of Employment, the Company shall pay the Employee a salary at the
annual rate of not less than the previous year’s base salary amount. For the
year of 2006, the base salary payable per annum is $343,500 (the “Base Salary”).
Such Base Salary shall be subject to withholding under applicable law, shall be
pro rated for partial years and shall be payable in periodic installments not
less frequently than monthly in accordance with the Company’s usual practice
for executive officers of the Company as in effect from time to time.


 


(b)                                 For
each calendar year or portion thereof during the Term of Employment (including
any extensions thereof) the Employee shall be eligible to receive bonus
payments in accordance with the Bonus Plan as adopted by the Board of Directors
from time to time (the “Bonus Plan”), subject to the terms and conditions
thereof.


 


5.                                       Benefits.


 


(a)                                  During
the Term of Employment, the Employee shall be entitled to participate in any
and all medical, pension, profit sharing and dental plans, retirement
arrangements and other employment benefits as in effect from time to time for
executive officers of the Company generally. Such participation shall be subject
to (i) the terms of the applicable plan documents (including, as
applicable, provisions granting discretion to the Board of Directors of the
Company or any administrative or other committee provided for therein or
contemplated thereby) and (ii) generally applicable policies of the
Company.


 


(b)                                 Notwithstanding
the foregoing, during the Term of Employment the Company shall provide the
Employee, at the Company’s expense (i) with life insurance from the
Company’s life insurance program in the amount of $500,000, and (ii) with
a car and club dues allowance in the amount of $20,000 annually.


 


(c)                                  The
Company shall promptly reimburse the Employee for all reasonable business
expenses incurred by the Employee during the Term of Employment in accordance
with the Company’s practices for executive officers of the Company, as in
effect from time to time.


 


(d)                                 During
the Term of Employment, the Employee shall receive paid vacation annually in
accordance with the Company’s practices for executive officers, as in effect
from time to time, but in any event not less than four (4) weeks per
calendar year.


 


(e)                                  Compliance
with the provisions of this Section 5 shall in no way create or be deemed
to create any obligation, express or implied, on the part of the Company
or any of its affiliates with respect to the continuation of any particular
benefit or other plan or arrangement maintained by them or their subsidiaries
as of or prior to the date hereof or the creation and maintenance of any
particular benefit or other plan or arrangement at any time after the date
hereof, except as contemplated by Sections 5(b),
5(c) and 5(d), above and by Section 7, below.


 


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6.                                       Termination
of Employment of the Employee Prior to a Change in Control.


 


Prior to the expiration of the
Term of Employment as provided in Section 2 hereof and prior to a Change
in Control (as defined below), this Agreement may or shall (as applicable)
be terminated as follows:


 


(a)                                  At
any time by the mutual consent of
the Employee and the Company.


 


(b)                                 At
any time for “Cause” by the Company upon written notice to the Employee. For
purposes of this Agreement, a termination shall be for “Cause” if:


 


(i)                                     the
Employee shall commit an act of fraud, embezzlement, misappropriation or breach
of fiduciary duty against the Company or any of its subsidiaries, or shall be
convicted by a court of competent jurisdiction of, or shall plead guilty or
nolo contendere to, any felony or any crime involving moral turpitude; or


 


(ii)                                  the
Employee shall commit a breach of any of the covenants, terms or provisions
hereof, which breach has not been remedied within thirty (30) days after
delivery to the Employee by the Board of Directors of the Company of written
notice of the facts constituting the breach; or


 


(iii)                               the
Employee shall commit a breach of any of the covenants, terms or provisions of Section 9
below, which breach has not been remedied within ten (10) days after
delivery to the Employee by the Company of written notice of the facts
constituting the breach; or


 


(iv)                              the
Employee shall have willfully failed to comply with the express instructions
from the Company’s Board of Directors which are consistent with Section 3,
or shall have failed to substantially perform the Employee’s duties
hereunder for a period of thirty (30) days after written notice from the Board
of Directors of the Company.


 


Upon termination for Cause as provided in
this Section 6(b), all obligations of the Company under this Agreement
shall thereupon immediately terminate other than any obligation of the Company
with respect to earned but unpaid Base Salary and benefits contemplated hereby
to the extent then accrued or vested, it being understood that upon any such
termination (1) the Employee shall not be entitled to receive any bonus or
portion thereof from the Company or any of its affiliates to the extent granted
in the discretion of the Company but not then paid with respect to any period
during or after the Term of Employment or (2) any continuation of benefits
except as may be required by law, and (B) the Company shall have any
and all rights and remedies under this Agreement and applicable law. An act or
failure to act will be considered “willful” for this purpose only if done, or
omitted to be done by the Employee in bad faith and without reasonable belief
that it was in, or not opposed to, the best interests of the Company.


 


(c)                                  Upon
the death or upon the permanent disability (as defined below) of the Employee
continuing for a period in excess of one hundred eighty (180) consecutive days.


 


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(i)                                     Upon
any such termination of the Employee’s employment due to death, all obligations
of the Company shall immediately terminate other than any obligation of the
Company with regard to unpaid Base Salary and a pro rated percentage of any
bonus due under the Bonus plan currently in effect for the calendar year where
death occurred.


 


(ii)                                  If
such termination is due to permanent disability, the terms of Section 8
shall apply at the date of the declaration of permanent disability, and the
Company shall still be obligated to pay earned but unpaid Base Salary, a pro
rated percentage of any bonus due under the Bonus Plan currently in effect for
the calendar year when the declaration of disability was made, benefits
contemplated hereby to the extent accrued or vested through the date of
termination, and any long term incentives which have not vested shall vest as
of the date of the declaration of permanent disability. As used herein, the
terms “permanent disability” or “permanently disabled” shall mean the inability
of the Employee, by reason of injury, illness or other similar cause, to perform a
major part of his duties and responsibilities in connection with the
conduct of the business and affairs of the Company, as determined reasonably
and in good faith by the Company.


 


(d)                                 In
the event of voluntary termination by the Employee:


 


(i)                                     At
any time by the Employee upon sixty (60) days’ prior written notice to the
Company for the purpose of accepting another full time position with a
commercial entity. Upon termination by the Employee as provided in this Section 6(d) (i),
all obligations of the Company under this Agreement thereupon immediately shall
terminate other than any obligation of the Company with respect to earned but
unpaid Base Salary and benefits contemplated hereby to the extent accrued or
vested through the date of termination, it being understood that in the event
of such a termination the Employee shall not be entitled to receive any bonus
not then paid from the Company or any of its affiliates with respect to any
period during or after the Term of Employment or any continuation of benefits
except to the extent required by law.


 


(ii)                                  If
the Employee terminates employment for the purposes of retirement, then the
Company shall be obligated to pay earned but unpaid Base Salary, a pro rated
percentage of any bonus due under the Bonus Plan and the payments as described
in Section 8. However, an agreement between the Company and the Employee
for the Employee to retire rather than be terminated without Cause as defined
in 6 (e) shall be treated as if it was a termination without Cause.


 


(e)                                  At
any time without Cause by the Company upon written notice to the Employee. In
the event of termination of the Employee by the Company pursuant to this Section 6(e),
the Company shall (i) continue to make Base Salary payments to the
Employee for a period of two (2) years after the date of termination, (ii) shall
pay to the Employee a pro rated percentage of any bonus due under the Bonus
plan currently in effect for the fiscal year when termination occurred, (iii) vest
all long term incentive stock grants, whether options, restricted stock or
other and (iv) pay a gross up amount equal to any excise or windfall taxes
that Employee may have to pay as a result of the termination with such
amount agreed by the parties


 


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hereto to be
in full satisfaction, compromise and release of any claims arising out of any
termination of the Employee’s employment pursuant to this Section 6(e) or
Section 6(f), and in either case with such amount to be contingent upon
the Employee’s delivery of a general release of any and all claims (other than
those arising under this Agreement) upon termination of employment in a form reasonably
satisfactory to the Company.


 


(f)                                    Prior
to a Change in Control, the Employee shall have the right to terminate his
employment hereunder for “Good Reason (as defined below). The rights and obligations
of the parties shall be as set forth in Section 6(e) in the event of
such termination. For purposes of this Agreement, “Good Reason” means:


 


(i)                                     a
material change in the duties or responsibilities as an executive of the
Company which, in the Employee’s reasonable judgment, is material and adverse
(other than, if applicable, any such change directly attributable to the fact
that the Company is no longer publicly owned); provided, however,
that Good Reason does not include such a change that is remedied by the Company
promptly after receipt of notice of such change is given by the Employee;


 


(ii)                                  a
reduction by the Company in the Employee’s Base Pay, or an adverse change in
the form or timing of the payment thereof, as in effect hereunder or as
thereafter increased; provided, however, that Good Reason does
not include such a reduction that (A) applies to all employees of the
Company and any Successor who constitute the senior management of the Successor
or (B) is a temporary concession on the part of such employees in
response to a financial difficulty;


 


(iii)                               the
failure by the Company to cover the Employee under Benefit Plans that, in the
aggregate, provide substantially similar benefits to the Employee and/or the
Employee’s family and dependents at a substantially similar total cost to the
Employee (e.g., premiums, deductibles, co-pays, out of pocket maximums,
required contributions and the like) relative to the benefits and total costs
under the Benefit Plans in which the Employee (and/or the Employee’s family or
dependents) were participating at any time during the term hereof;


 


(iv)                              the
Company’s requiring the Employee to be based more than thirty (30) miles from
where the Employee’s office is located immediately prior to the date hereof,
except for required travel on the Company’s business; provided, however,
that such required travel shall not include travel that has the effect of
requiring Employee to relocate to, or be based out of, an office during the
regular business week that is located more than thirty (30) miles from where
the Employee’s office is located immediately prior to that date hereof.


 


(v)                                 the
failure by the Company to obtain from any Successor the assent to this
Agreement contemplated by Section 12 of this Agreement; or


 


(vi)                              any
refusal by the Company to continue to allow the Employee to attend to matters
or engage in business and non-profit activities not directly related to the


 


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business of the Company which
the Employee was, with the knowledge of the Board of Directors, attending to or
engaging in prior to the date hereof.


 


The Employee’s continued employment does not constitute consent to, or
waiver of any rights arising in connection with, any circumstances constituting
Good Reason. The Employee’s termination of employment for Good Reason as
defined above will constitute Good Reason for all purposes of this Agreement other
than if the Employee has retired under any applicable benefit plan, policy or
practice of the Company which rights are governed by Section 8.


 


(g)                                 Notwithstanding
termination of this Agreement as provided in this Section 6 or any other
termination of the Employee’s employment with the Company, the Employee’s
obligations under Section 9 hereof shall survive any termination of the Employee’s employment with the Company
at any time and for any reason.


 


7.                                       Benefits
Upon a Change in Control Termination.


 


(a)                                  The
Employee will become entitled to the benefits described in this Section 7
if and only if (i) the Employee terminates the Employee’s employment with
the Company for any reason or (ii) the Company terminates the Employee’s
employment for any reason other than the Employee’s death or Cause, and any of
these terminations occurs within one year of the date of the Change in Control,
or prior to a Change in Control if the Employee’s termination was either a
condition of the Change in Control or was at the request or insistence of a
Person related to the Change in Control.


 


(i)                                     Cash
Payment and Stock Option Vesting. Not more than ten (10) days
following the Date of Termination, or, if later, not more than ten (10) days
following the date of the Change in Control, the Company will make a lump-sum
cash payment to the Employee in an amount equal to (A) 2.5 times the
Employee’s Base Pay, plus (B) fifty percent (50%) of the Employee’s
maximum target bonus plan for the year in which the Change in Control occurs
plus (C) a sum equal to two years of all benefits to be provided to the
Employee under Section 5 other than as provided in Section 7(b) plus
(D) if it is determined that any payment or distribution by Fargo (or any
successor thereto) (the “Payments”) will result in an excise tax imposed by
Code Section 4999 or any comparable state or local law, or any interest or
penalties with respect thereto, Fargo (and any successor thereto) will be
responsible for making an additional cash payment (a “Gross-Up Payment”) to
Employee within ten (10) days after such determination equal to an amount
such that, after payment by Employee of all taxes (including any interest or
penalties imposed with respect to such taxes), including any excise tax,
imposed upon the Gross-Up Payment, Employee would retain an amount of the
Gross-Up Payment equal to the excise tax imposed upon the Payments. Any
restricted stock or stock options held by Employee as of the date hereof will
become fully vested as of the date of the Change in Control.


 


Notwithstanding the provisions
of this paragraph, if, on the Date of Termination, Fargo (or any affiliate
within the meaning of Section 409A of the Code) has stock that is publicly
traded on an established securities market or otherwise (within the meaning of Section 409A
of the Code), and the Executive is a “specified employee” (within the


 


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meaning of Section 409A of
the Code) at the time the payment is to be made to the Executive, then the
payment shall be suspended and not paid until the earlier of six (6) months
following the Date of Termination, or the Employee’s date of death..


 


(b)                                 Welfare
and Other Benefits. During the Continuation Period (as defined below), the
Company will:


 


(i)                                     (A) maintain
group health and dental plan(s) and (B) provide, or arrange to provide, to
the extent such policies or coverages can be obtained on commercial reasonable
terms, the same or equivalent accidental death and dismemberment, short and
long-term disability, life insurance coverages, and all other insurance
policies and health and welfare benefits (other than benefits pursuant to any
cafeteria plan maintained by the Company pursuant to Section 125 of the
Code), which by their terms cover the Employee (and the Employee’s family
members and dependents who were eligible to be covered at any time during the
90-day period immediately prior to the date of the Change in Control for the
period after the Change in Control in which such family members and dependents
would otherwise continue to be covered under the terms of the plan in effect
immediately prior to the Change in Control) under the same terms and at the
same cost to the Employee and the Employee’s family members and dependents as
similarly situated individuals who continue to be employed by the Company
(without regard to any reduction in such benefits that constitutes Good
Reason);


 


For purposes
of this section, the “Continuation Period” is the period beginning on the
Employee’s Date of Termination and ending on the last day of the 30th
month that begins after the Employee’s Date of Termination


 


(c)                                  Indemnification.
Following a Change in Control, the Company will indemnify and advance expenses
to the Employee for damages, costs and expenses (including, without limitation,
judgments, fines, penalties, settlements and reasonable fees and expenses of
the Employee’s counsel) incurred in connection with all matters, events and
transactions relating to the Employee’s service to or status with the Company
or any other corporation, employee benefit plan or other Person for which the
Employee served at the request of the Company to the extent that the Company
would have been required to do so under applicable law, corporate articles,
bylaws or agreements or instruments of any nature with or covering the
Employee, as in effect immediately prior to the Change in Control and to any
further extent as may be determined or agreed upon following the Change in
Control.


 


(d)                                 “Change
in Control” means the occurrence of any of the following on or after May 18,
2006:


 


(i)                                     the
sale, lease, exchange or other transfer, directly or indirectly, of all or
substantially all of the assets of the Company, in one transaction or in a series of
related transactions, to any Person;


 


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(ii)                                  the
approval by the stockholders of the Company of any plan or proposal for the
liquidation or dissolution of the Company;


 


(iii)                               any
Person, other than a “bona fide underwriter,” becomes, after the date of this
Agreement, the “beneficial owner” (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of (i) twenty percent (20%) or
more, but not more than fifty percent (50%), of the combined voting power of
the Company’s outstanding securities ordinarily having the right to vote at
elections of directors, unless the transaction resulting in such ownership has
been approved in advance by the “Continuity Directors” (as defined below) or (ii) more
than fifty percent (50%) of the combined voting power of the Company’s
outstanding securities ordinarily having the right to vote at elections of
directors (regardless of any approval by the Continuity Directors);


 


(iv)                              a
merger or consolidation to which the Company is a party if the stockholders of
the Company immediately prior to the effective date of such merger or
consolidation have, solely on account of ownership of securities of the Company
at such time, “beneficial ownership” (as defined in Rule 13d-3 under the
Exchange Act) immediately following the effective date of such merger or
consolidation of securities of the surviving corporation representing (i) fifty
percent (50%) or more, but not more than eighty percent (80%), of the combined
voting power of the surviving corporation’s then outstanding securities
ordinarily having the right to vote at elections of directors, unless such
merger or consolidation has been approved in advance by the Continuity
Directors, or (ii) less than fifty percent (50%) of the combined voting
power of the surviving corporation’s then outstanding securities ordinarily
having the right to vote at elections of directors (regardless of any approval
by the Continuity Directors); or


 


(v)                                 the
Continuity Directors cease for any reason to constitute at least a majority of
the Board of Directors of the Company.


 


For purposes of the definition of a Change in Control, a “Continuity
Director” means any individual who is a member of the Board of Directors on the
date of this Agreement, while he or she is a member of the Board of Directors,
and any individual who subsequently becomes a member of the Board of Directors
whose election or nomination for election by the Company’s stockholders was
approved by a vote of at least a majority of the directors who are Continuity
Directors (either by a specific vote or by approval of the proxy statement of
the Company in which such individual is named as a nominee for director without
objection to such nomination). For example, if a majority of the seven (7) individuals
constituting the Board of Directors on May 18, 2006, approved a proxy
statement in which two (2) different individuals were nominated to replace
two (2) of the individuals who were members of the Board of Directors on May 18,
2006, the two (2) newly elected directors would join the five (5) remaining
directors who were members of the Board of Directors on May 18, 2006 as
Continuity Directors. Similarly, if a majority of those seven (7) directors
approved a proxy statement in which three (3) different individuals were
nominated to replace three (3) other directors who were members of the
Board of Directors on May 18, 2006, the three (3) newly elected
directors would also become, along with the other four (4) directors,
Continuity Directors. Individuals subsequently joining the Board of Directors
could become Continuity Directors under the principles reflected in this
example. For purposes of the definition of a Change in Control, a “bona fide
underwriter” means


 


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a Person engaged in business as an
underwriter of securities that acquires securities of the Company through such
Person’s participation in good faith in a firm commitment underwriting until
the expiration of forty (40) days after the date of such acquisition.


 


(f)                                    If
any payments and benefits are provided pursuant to this Section 7, they
will be in lieu of the severance benefits described in Section 6 or Section 8
of the Employment Agreement.


 


If, on or after the date of a Change in Control, an Affiliate is sold,
merged, transferred or in any other manner or for any other reason ceases to be
an Affiliate or all or any portion of the business or assets of an Affiliate
are sold, transferred or otherwise disposed of and the acquiror is not the
Company or an Affiliate (a “Disposition”), and the Employee remains or
becomes employed by the acquiror or an “affiliate” of the acquiror (as defined
in this Agreement but substituting “acquiror” for “Company”) in connection with
the Disposition, the Employee will be deemed to have terminated employment on
the effective date of the Disposition for purposes of this Section 7 and
will be entitled to the benefits described in this Section 7 unless, (x)
the acquiror and its affiliates jointly and severally expressly assume and
agree, in a manner that is enforceable by the Employee, to perform the
obligations of this Agreement to the same extent that the Company would be
required to perform if the Disposition had not occurred and (y) the
Successor guarantees, in a manner that is enforceable by the Employee, payment
and performance by the acquiror.


 


8.                                       Benefits
Upon Retirement


 


At the expiration of this
Agreement if not extended under Section 2, or if the Employee is
permanently disabled under the terms of Section 6(c)(ii) or if
Employee voluntarily retires under the terms of Section 6(d), Employee
shall be entitled to the following benefits.


 


(a)                                  For
three years following Employee’s retirement, Employee will receive a
supplemental benefit equal to one third of the average of the previous three
years’ Base Salary and Bonus. For the purposes of this calculation, Bonus
payments will be treated as part of the year for which the Bonus was accrued
not the year that the Bonus was paid. For purposes of this calculation, the
Base Salary and Bonus are calculated on the last three years that Employee was
employed as a full time employee of the Company, and will be a fixed amount,
not a rolling calculation that includes payments after retirement.


 


(b)                                 Employee
will have the right to remain on the Company’s health insurance plan for a
period of three years after retirement at a cost of no more than other
employees are paying for such health insurance. As of the date of this
Agreement, the Company’s medical insurance will allow Employee to be treated as
an employee of the Company for health insurance purposes. If any changes occur
that would prevent Employee from obtaining health insurance under the terms of
this Section 8(b), the Company will pay to Employee an amount equal to the
costs of such insurance on an annual basis for the period of time that Employee
is not able to remain on the Company’s health insurance.


 


(c)                                  Any
stock options or restricted stock that is not vested at the date of Employee’s
retirement shall vest at that date.


 


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(d)                                 Death
of the Employee shall terminate the obligations of the Company under this
Section.


 


(e)                                  Benefits
under Section 8 will not be paid if Employee is collecting benefits under
either Section 6 or Section 7 of this Agreement.


 


Notwithstanding
the provisions of this paragraph, if, on the Date of Termination, Fargo (or any
affiliate within the meaning of Section 409A of the Code) has stock that
is publicly traded on an established securities market or otherwise (within the
meaning of Section 409A of the Code), and the Executive is a “specified
employee” (within the meaning of Section 409A of the Code) at the time the
payment is to be made to the Executive, then the payment shall be suspended and
not paid until the earlier of six (6) months following the Date of
Termination, or the Employee’s date of death. The payment made after this
period shall be a lump sum of the 6 months period and thereafter shall be paid
monthly.


 


9.                                       Confidentiality;
Proprietary Rights.


 


(a)                                  During
any period in which the Employee serves as an employee of the Company, Employee
will comply with the terms and conditions of the Confidentiality and Non
Compete Agreement and the terms hereunder, provided however, that the terms of
the Non Compete shall be void and the terms of non competition as delineated in
this Section 9 shall govern.


 


(b)                                 In
the event that the terms of Section 6 shall be applied, Employee agrees to
a non competition period of two (2) years.


 


(c)                                  In
the event that the terms of Section 7 shall be applied, Employee agrees to
a non competition period of one (1) year.


 


(d)                                 In
the event that the terms of Section 8 shall be applied, Employee agrees to
a non competition period of three (3) years.


 


(e)                                  Non
competition shall mean, without the express written consent of the Company,
directly or indirectly, engage, participate, invest in, be employed by or
assist, whether as owner, part-owner, shareholder, partner, director, officer,
trustee, employee, agent or consultant, or in any other capacity, any person
other than the Company and its affiliates in the Designated Industry (as
hereinafter defined); provided, however, that such restriction
shall immediately terminate in the event that the Company fails to pay the
amounts due to the Employee pursuant to Sections 6, 7 or 8 herein,
respectively.


 


(f)                                    Without
limiting the foregoing, the foregoing covenant shall prohibit the Employee
during the period set forth in 9 (a), (b) or (c) depending upon which
event has precipitated the exercise of one of those clauses, from (i) hiring
or attempting to hire for or on behalf of any Person in the Designated Industry
any officer or employee of the Company or any of its affiliates, (ii) encouraging
for or on behalf of any such Person in the Designated Industry any officer or
employee to terminate his or her relationship or employment with the Company or


 


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any of its
affiliates, (iii) soliciting for or on behalf of any such Person in the
Designated Industry any customer of the Company or any of its affiliates and (iv) diverting
to any such Person in the Designated Industry any customer of the Company or
any of its affiliates; provided,  however, that nothing herein
shall be construed as preventing the Employee from making passive investments
in a person in the Designated Industry if the securities of such Person are
publicly traded and such investment constitutes less than one percent (1%) of
the outstanding shares of capital stock or comparable equity interests of such
person. As of the date of this Agreement, the Employee is not performing any
other duties for, and is not a party to any similar agreement with, any person
competing with the Company or any of its affiliates. For purposes of this
Agreement, the term “Designated Industry” shall mean the development,
production, quality control, marketing, sale and distribution of (a) printers
and systems principally designed for security related to card production, card
production and reproduction (including without limitation identification and
security cards) and (b) any other business in which the Company engages
during the Term of Employment (including any renewals thereof).


 


(g)                                 In
the course of performing services hereunder, on behalf of the Company (for
purposes of this Section 9 including
all predecessors of the Company) and its affiliates, the Employee has had and
from time to time will have access to confidential records, data, customer
lists, trade secrets and other confidential information owned or used in the course of business by the
Company and its affiliates (the “Confidential Information”). The Employee
agrees (a) to hold the Confidential Information in strict confidence, (b) not to disclose the Confidential Information
to any person (other than in the regular business of the Company or its
affiliates), and (c) not to use, directly or indirectly, any of the
Confidential Information for any competitive or commercial purpose other than
on behalf of the Company and its affiliates; provided,  however,
that the limitations set forth above shall not apply to any Confidential
Information which (i) is then generally known to the public; (ii) became
or becomes generally known to the public through no fault of the Employee; or (iii) is
disclosed in accordance with an order of a court of competent jurisdiction or
applicable law. Upon the termination of the Employee’s employment with the
Company for any reason, all Confidential Information (including, without
limitation, all data, memoranda, customer lists, notes, programs and other
papers and items, and reproductions thereof relating to the foregoing matters)
in the Employee’s possession or control, shall be immediately returned to the
Company or the applicable affiliate and remain in its or their possession.


 


(h)                                 The
Employee recognizes that the Company and its affiliates possess a proprietary
interest in all of the information described in Section 9(e) and have
the exclusive right and privilege to use, protect by copyright, patent or
trademark, or otherwise exploit the processes, ideas and concepts described
therein to the exclusion of the Employee, except as otherwise agreed between
the Company and the Employee in writing. The Employee expressly agrees that any
products, inventions, discoveries or improvements made by the Employee or his
agents or affiliates in the course of the Employee’s employment, including any
of the foregoing which is based on or arises out of the information described
in Section 9(f) shall be the property of and inure to the exclusive
benefit of the Company. The Employee further agrees that any and all products,
inventions, discoveries or improvements developed by the Employee (whether or
not able to be protected by copyright, patent or trademark) during the course
of his employment, or involving the use of the time, materials or other
resources of the Company or any of its affiliates, shall be promptly disclosed
to the Company and shall become the exclusive property


 


11

















 


of the
Company, and the Employee shall execute and deliver any and all documents
necessary or appropriate to implement the foregoing.


 


(i)                                     The
Employee agrees, while he is employed by the Company, to offer or otherwise
make known or available to it, as directed by the Board of Directors of the
Company and without additional compensation or consideration, any business
prospects, contracts or other business opportunities that he may discover,
find, develop or otherwise have available to him in the Designated Industry,
and further agrees that any such prospects, contacts or other business
opportunities shall be the property of the Company.


 


(j)                                     The
Employee acknowledges that the provisions of this Section 9 are executed
and delivered concurrently herewith is an integral part of the willingness
of the Company to take on the obligations of this Employment Agreement.


 


10.                                 Specific
Performance; Severability. It is specifically understood and agreed that
any breach of the provisions of Section 9 hereof by the Employee is likely
to result in irreparable injury to the Company and/or its affiliates, that the
remedy at law alone will be an inadequate remedy for such breach and that, in
addition to any other remedy it may have, the Company shall be entitled to enforce the specific performance of this
Agreement by the Employee and to seek both temporary and permanent injunctive
relief (to the extent permitted by law), without the necessity of posting a
bond or proving actual damages. In case any of the provisions contained in this
Agreement shall for any reason be held to be invalid, illegal or unenforceable
in any respect, any such invalidity, illegality or unenforceability shall not
affect any other provision of this Agreement, but this Agreement shall be
construed as if such invalid, illegal or unenforceable provision had been
limited or modified (consistent with its general intent) to the extent
necessary to make it valid, legal and enforceable, or if it shall not be
possible to so limit or modify such invalid, illegal or unenforceable provision
or part of a provision, this Agreement shall be construed as if such
invalid, illegal or unenforceable provision or part of a provision had
never been contained in this Agreement.


 


11.                                 Notices.
All notices, requests, demands and other communications hereunder shall be in
writing and shall be deemed to have been duly given if faxed (with transmission
acknowledgment received), delivered personally or mailed by certified or
registered mail (return receipt requested) as follows:


 


	
   

  	
  To the Company:

  	
  Fargo Electronics, Inc.

  
	
   

  	
   

  	
  6533 Flying Cloud Drive

  
	
   

  	
   

  	
  Eden Prairie, MN 55344

  
	
   

  	
   

  	
   

  
	
   

  	
  To the Employee:

  	
  Gary Holland

  
	
   

  	
   

  	
  c/o Fargo Electronics, Inc.

  
	
   

  	
   

  	
  6533 Flying Cloud Drive

  
	
   

  	
   

  	
  Eden Prairie, MN 55344

  



 


or to such other address or fax number of
which any party may notify the other parties as provided above. Notices
shall be effective as of the date of such delivery, mailing or fax.


 


12

















 


12.                                 Successors.
The Company must seek to have any Successor, by agreement in form and
substance satisfactory to the Employee, assent to the fulfillment by the
Company of the Company’s obligations under this Agreement. Failure of the
Company to obtain such assent at least three (3) business days prior to
the time a Person becomes a Successor (or where the Company does not have at
least three (3) business days’ advance notice that a Person may become
a Successor, within one (1) business day after having notice that such
Person may become or has become a Successor) will constitute Good Reason
for termination by the Employee of the Employee’s employment. The date on which
any such succession becomes effective will be deemed the Date of Termination,
and Notice of Termination will be deemed to have been given on that date. A
Successor has no rights, authority or power with respect to this Agreement
prior to a Change in Control.


 


13.                                 No
Mitigation. The Employee will not be required to mitigate the amount of any
payments or benefits the Company becomes obligated to provide to the Employee
in connection with this Agreement by seeking other employment or otherwise. The
payments or benefits to be provided to the Employee in connection with this
Agreement may not be reduced, offset or subject to recovery by the Company
by any benefits the Employee may receive from other employment or
otherwise.


 


14.                                 No
Setoff. The Company has no right to setoff payments or benefits owed to the
Employee under this Agreement against amounts owed or claimed to be owed by the
Employee to the Company under this Agreement or otherwise.


 


15.                                 Disputes.
If the Employee so elects, any dispute, controversy or claim arising under or
in connection with this Agreement will be settled exclusively by binding
arbitration administered by the American Arbitration Association in
Minneapolis, Minnesota in accordance with the Commercial Arbitration Rules of
the American Arbitration Association then in effect; provided that the Employee
may seek specific performance of the Employee’s right to receive benefits
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement. Judgment may be
entered on the arbitrator’s award in any court having jurisdiction. If any
dispute, controversy or claim for damages arising under or in connection with
this Agreement is settled by arbitration, the Company will pay, or if elected
by the Employee, reimburse, all fees, costs and expenses incurred by the
Employee related to such arbitration unless the arbitrators decide that the
Employee’s claim was frivolous or advanced by the Employee in bad faith. If the
Employee does not elect arbitration, the Employee may pursue all available
legal remedies. The Company will pay, or if elected by the Employee, reimburse
the Employee for, all fees, costs and expenses incurred by the Employee in
connection with any actual, threatened or contemplated litigation relating to
this Agreement to which the Employee is or reasonably expects to become a
party, whether or not initiated by the Employee, if the Employee is successful
in recovering any benefit under this Agreement as a result of such action. The
parties agree that any litigation arising under or in connection with this
Agreement must be brought in a court of competent jurisdiction in the State of
Minnesota, and hereby consent to the exclusive jurisdiction of said courts for
this purpose and agree not to assert that such courts are an inconvenient forum.
The Company will not assert in any dispute or controversy with the Employee
arising under or in connection with this Agreement the Employee’s failure to
exhaust administrative remedies.


 


13

















 


16.                                 Other
Severance Plans. Employee acknowledges that there are no other Severance
Plans that would require payments to Employee other than the terms contained in
this Employment Agreement.


 


17.                                 Late
Payments. Benefits not paid under this Agreement when due will accrue
interest at the rate of 18% per year or the maximum rate permitted under
applicable law.


 


18.                                 Survival.
The respective obligations of, and benefits afforded to, the Company and the
Employee which by their express terms or clear intent survive termination of
the Employee’s employment with the Company or termination of this Agreement, as
the case may be, will survive termination of the Employee’s employment
with the Company or termination of this Agreement, as the case may be, and
will remain in full force and effect according to their terms.


 


19.                                 Miscellaneous.
This Agreement shall be governed by and construed under the laws of the State
of Minnesota, and shall not be amended, modified or discharged in whole or in part except
by an agreement in writing signed by both of the parties hereto. The failure of
either of the parties to require the performance of a term or obligation or to
exercise any right under this Agreement or the waiver of any breach hereunder
shall not prevent subsequent enforcement of such term or obligation or exercise
of such right or the enforcement at any tune of any other right hereunder or be
deemed a waiver of any subsequent breach of the provision so breached, or of
any other breach hereunder. This Agreement shall inure to the benefit of, and
be binding upon and assignable to, successors of the Company by way of merger,
consolidation or sale and may not be assigned by the Employee. This
Agreement supersedes and terminates all prior understandings and agreements
between the parties (or their predecessors) relating to the subject matter
hereof. For purposes of this Agreement, the following terms will have the
meaning set forth below unless the context clearly requires otherwise.


 


(a)                                  “Affiliate”
means (i) any corporation at least a majority of whose outstanding
securities ordinarily having the right to vote at elections of directors is
owned directly or indirectly by the Company or (ii) any other form of
business entity in which the Company, by virtue of a direct or indirect
ownership interest, has the right to elect a majority of the members of such
entity’s governing body.


 


(b)                                 “Benefit
Plan” means any


 


(i)                                     employee
benefit plan as defined in Section 3(3) of ERISA;


 


(ii)                                  cafeteria
plan described in Code Section 125;


 


(iii)                               plan,
policy or practice providing for paid vacation, other paid time off or short-or
long-term profit sharing, bonus or incentive payments or perquisites; or


 


(iv)                              stock
option, stock purchase, restricted stock, phantom stock, stock appreciation
right or other equity-based compensation plan with respect to the securities of
the Company or any Affiliate;


 


14

















 


that is sponsored, maintained or contributed to by the Company for the
benefit of employees (and/or their families and dependents) generally or the Employee
in particular (and/or the Employee’s family and dependents).


 


(c)                                  “Date
of Termination” following a Change in Control (or prior to a Change in
Control if the Employee’s termination was either a condition of the Change in
Control or was at the request or insistence of any Person related to the Change
in Control) means:


 


(i)                                     if
the Employee’s employment is to be terminated by the Employee, the date
specified in the Notice of Termination which in no event may be a date
more than fifteen (15) days after the date on which Notice of Termination is
given unless the Company agrees in writing to a later date;


 


(ii)                                  if
the Employee’s employment is to be terminated by the Company for Cause, the
date specified in the Notice of Termination;


 


(iii)                               if
the Employee’s employment is terminated by reason of the Employee’s death, the
date of the Employee’s death; or


 


(iv)                              if
the Employee’s employment is to be terminated by the Company for any reason
other than Cause or the Employee’s death, the date specified in the Notice of
Termination, which in no event may be a date earlier than fifteen (15)
days after the date on which a Notice of Termination is given, unless the
Employee expressly agrees in writing to an earlier date.


 


(d)                                 “ERISA”
means the Employee Retirement Income Security Act of 1974, as amended. Any
reference to a specific provision of ERISA includes a reference to such
provision as it may be amended from time to time and to any successor
provision.


 


(e)                                  “Exchange
Act” means the Securities Exchange Act of 1934, as amended. Any reference
to a specific provision of the Exchange Act or to any rule or regulation
thereunder includes a reference to such provision as it may be amended
from time to time and to any successor provision.


 


(f)                                    “Notice
of Termination” means a written notice given on or after the date of a
Change in Control (unless the Employee’s termination before the date of the
Change in Control was either a condition of the Change in Control or was at the
request or insistence of any Person related to the Change in Control in which
case the written notice may be given before the date of the Change in
Control) which indicates the specific termination provision in this Agreement
pursuant to which the notice is given. Any purported termination by the Company
or by the Employee on or after the date of a Change in Control (or before the
date of a Change in Control if the Employee’s termination was either a
condition of the Change in Control or was at the request or insistence of any
Person related to the Change in Control) must be communicated by written Notice
of Termination to be effective; provided, that the Employee’s failure to


 


15

















 


provide Notice
of Termination will not limit any of the Employee’s rights under this Agreement
except to the extent the Company demonstrates that it suffered material actual
damages by reason of such failure.


 


(g)                                 “Person”
means any individual, corporation partnership, group, association or other
person,” as such term is used in Section 13(d) or Section 14(d) of
the Exchange Act, other than the Company, any Affiliate or any benefit plan(s)
sponsored by the Company or an Affiliate.


 


(h)                                 “Successor”
means any Person that succeeds to, or has the practical ability to control
(either immediately or solely with the passage of time), the Company’s business
directly, by merger, consolidation or other form of business combination,
or indirectly, by purchase of the Company’s outstanding securities ordinarily
having the right to vote at the election of directors or all or substantially
all of its assets or otherwise.


 


IN WITNESS WHEREOF, the parties have executed
this Agreement under seal as of the date first set forth above.


 


 


	
   

  	
  On Behalf of the Company:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Edward J. Smith

  	
   

  
	
   

  	
   

  	
  Edward J. Smith

  
	
   

  	
   

  	
  Chair, Compensation/HR Committee &

  
	
   

  	
   

  	
  Director

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  On Behalf of Employee:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Gary R. Holland

  	
   

  
	
   

  	
   

  	
  Gary R. Holland

  
					



 


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