**Exhibit 10.1**

 

**EMPLOYMENT AGREEMENT**

 

 

THIS AGREEMENT is entered into effective the1st day of July, 2003, by and between AUSTINS STEAKS & SALOON, INC.(“Company”), and James C. Verney (Executive).

 

WHEREAS, Company is a corporation organizedunder the laws of the State of Delaware, with its principal place of businessin Roanoke, Virginia; and

 

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

 

WHEREAS, Company has offered employment toExecutive, a resident of the State of North Carolina, subject to the executionof this Agreement; and the Company is willing to employ the Executive only ifthe Executive executes this Agreement; and Executive desires to be employedwith Company, on the terms hereinafter set forth effective as of the EffectiveDate.

 

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

 

**1.****                                      Dutiesand Obligations**.  The Company andExecutive agree that Executive shall serve as President and Chief ExecutiveOffice of the Company.  In such capacityhe shall be the principal executive officer of the Company, and shall beresponsible for the day-to-day operation of the Company. Executive shall haveand fulfill all duties and responsibilities as may be determined from time totime by the Board of Directors of the Company.

 

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

 

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

 

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**2.****                                      Compensationand Bonus**.  Executive’s basesalary will be at the rate of $210,000 per annum, for the Initial Contract Termas defined in Section 6 of this Agreement. Thereafter, for any Renewal Term, as defined in Section 6 of thisAgreement, Executive’s base salary will be determined by the Board, but shallnot be less than $210,000 per annum. Executive’s base salary shall be paid in twenty-six (26) equal bi-weeklypayments.

 

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

 

The Performance Target will be established onor before January 1, 2004, by the Compensation Committee of theBoard.  Attainment of 80% , but less than100%, of the Performance Target will result in payment of an amount equal toone-third (1/3) of the Bonus Fund (defined below).  Attainment of 100%, but less than 120%, ofthe Performance Target will result in payment of an amount equal to two-thirds(2/3) of the Bonus Fund.  The attainmentof 120% or more of the Target will result in payment of the entire BonusFund.  Bonus terms for Renewal Yearsshall be determined by the Board.  TheBonus Fund shall be an amount equal to Fifty Percent (50%) of Executive’s thenannual base salary. Under no circumstances shall Executive’s annual bonusexceed an amount equal to Fifty Percent (50%) of Executive’s then annual basesalary.

 

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

 

**3.****                                      Locationof Employment**.  Executive willperform his services under this Agreement at the principal office of theCompany, located in Roanoke, Virginia. The Company shall provide Executive with such office space, secretarialor support staff, and other facilities and services as may be suitable to hisposition and appropriate for the performance of his duties.  During the first year of the Initial ContractTerm, Executive may occasionally work from Executive’s home office inCharlotte, NC.

 

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**4.****                                      Benefits**.  In addition to salary, Executive shall beentitled to participate in benefit plans which Company adopts and offers toemployees, subject to the same terms, conditions and eligibility requirementsas other Company employees, including, without limitation health insurance, andretirement, whether pension or profit sharing, plans.  Executive’s participation under any groupinsurance programs, retirement plans, or other benefit programs, shall besubject to the applicable terms and conditions of the particular plans orprograms.  This paragraph shall not beconstrued as a commitment on the part of the Company to establish, maintain, orcontinue any such plans or programs. Company specifically reserves the right to amend, alter, or terminatesuch plans or programs, as it deems appropriate.

 

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

 

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

 

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

 

**5.****                                      StockOptions**.  The Board of Directorsshall grant to Executive, options to purchase common stock of the Company asfollows:

 

(a) As soon asis practicable following the execution of this Agreement, Options to purchase75,000 shares of common stock of Company. Said Options shall vest as of the last day of the Initial

 

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Contract Term, assuming Executive remainsemployed or his employment has been terminated without cause.  Said Option shall also vest upon a Change ofControl.  Said Options shall be subjectto exercise within 10 years of vesting, or within 90 days after termination ofemployment.  The exercise price for saidOptions shall be the Book Value per share of the common stock as ofMarch 31, 2003, or $0.88 per share.

 

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

 

All options will be subject to a separateoption agreement which will contain standard anti-dilution provisions andappropriate acceleration provisions in connection with (i) the sale of all orsubstantially all of the assets of the Company (ii) the merger of the Companyor (iii) a sale of control of the Company to a non-affiliated third party.

 

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

 

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

 

B.                                     Changein Board of Directors. Either:

 

1.                                       theCurrent Directors (as hereinafter defined) cease for any reason to constituteat least a majority of the members of the Board (for these purposes, a “CurrentDirector” means any

 

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member of the Board as of the date of thisAgreement, and any successor of a Current Director whose election or nominationfor election by the Company̓s stockholders was approved by at least amajority of the current Directors then on the Board); or

 

2.                                       atany meeting of the stockholders of the Company called for the purpose ofelecting directors, a majority of the persons nominated by the Board forelection as directors fail to be elected;

 

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

 

1.                                       aplan of complete liquidation of the Company; or

 

2.                                       anagreement providing for the merger, consolidation or recapitalization of theCompany (i) in which the Company is not the continuing or surviving corporation(other than consolidation or merger with a wholly owned subsidiary of theCompany in which all shares outstanding immediately prior to the effectivenessthereof are changed into or exchanged for the same consideration) or (ii)pursuant to which the shares are converted into cash, securities or otherproperty, except a consolidation, merger, or recapitalization of the Company inwhich the holders of the shares immediately prior to the consolidation, merger,or recapitalization have, directly or indirectly, at least a majority of thecommon stock of the continuing or surviving corporation immediately after suchconsolidation,  merger, orrecapitalization in which the Board immediately prior to the merger orconsolidation would, immediately after the merger , or recapitalization orconsolidation, constitute a majority of the board of directors of the continuingor surviving corporation;

 

D.                                    Saleof Assets. The stockholders of the Company approve an agreement (oragreements) providing for the sale or other disposition (in one transaction ora series of transactions) of all or substantially all of the assets of theCompany.

 

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

 

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Thereafter, the Agreement shall automaticallyrenew for subsequent one year terms (Renewal Terms) unless either partyprovides written notice of termination to the other party more than 30 days inadvance of the beginning of any Renewal Term.

 

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

 

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

 

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

 

C.                                     Automaticallyand immediately should one of the following events occur:

 

1.                                       Death.  Executive dies; or

 

2.                                       Disability.  Executive becomes totally and permanentlydisabled, meaning Executive’s inability for a period of three (3) months, toperform his duties contemplated by this Agreement, such that he does notconstitute a Qualified Individual with a Disability under the terms of theAmericans with Disabilities Act of 1990. Such total and permanent disability shall be determined by the Companybased on medical and other evidence satisfactory to it; or

 

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

 

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

 

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

 

2.                                       Executivehas breached his duty of loyalty to the

 

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Company;

 

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

 

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

 

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

 

2.                                       IfCompany believes Cause exists, as defined herein, a written notice will bedelivered to Executive by the Chairman of the Board or of the CompensationCommittee, that specifically identifies the manner in which the Chairmanbelieves that Executive has given the Company Cause for termination ofExecutive’s employment, and giving Executive an opportunity for Executive,together with Executive’s counsel, to be heard before the Board of Directors ofthe Company.  The meeting of the Board ofDirectors shall not be sooner than fifteen (15) calendar days from the date ofthe written notice.  After grantingExecutive the opportunity to be heard, the Board of Directors of the Companymay then make a finding that, in the good faith opinion of two-thirds of theBoard of Directors (excluding the Executive), Executive acted (or failed to actwhen he should have acted) in a manner constituting Cause as defined herein,and specifying the particulars of that finding. Following the opportunity for the Executive, together with theExecutive’s counsel, to be heard, the Board of Directors may excuse theExecutive from any further Board of Directors’ proceeding where the finding isdiscussed or made.  Pending anopportunity for Executive, together with Executive’s counsel, to be heardbefore the Board of Directors of the Company, Executive may be immediatelyplaced upon an indefinite suspension without pay and shall be required toimmediately leave the Company’s premises. In the event that two-thirds of the Board of Directors (excluding theExecutive), do not find that Executive acted (or failed to act when he shouldhave acted) in a manner constituting Cause as defined herein,

 

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then Executive shall be reimbursed for anycompensation lost during said suspension.

 

In the event Executive’s employment isterminated at any time by mutual written agreement of both parties, voluntarilyterminated by Executive, automatically and immediately terminated uponExecutive’s death or total and permanent disability, or terminated for “Cause”,as defined in this Agreement, then following termination, Executive shall notbe entitled to payment of further compensation (whether salary or bonus) orbenefits of any type (other Executive’s right to “vested” benefits under theCompany’s benefit plans or continuing insurance coverage under the Company’sHealth Benefit Plan pursuant to the Consolidated Omnibus Budget ReconciliationAct (COBRA) at Executive’s sole expense) under this agreement.  In the event Executive’s employment isterminated without “Cause,” as defined in this Agreement, then Executive shallbe entitled to a Severance Benefit as set forth in Section 7, below.  If the Company terminates this Agreementwithout Cause, the Company shall have the right at its option, to requireExecutive to immediately leave the Company’s premises.

 

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

 

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

 

B.                                     Iftermination occurs during a one (1) year renewal period under this Agreement,Executive shall be entitled to a severance payment in an amount equal to one(1) year’s base salary at the rate then in effect.  If the Company terminates this Agreementwithout Cause, the Company shall have the right at its option, to requireExecutive to immediately leave the Company’s premises; provided, that theCompany shall be obligated to pay (as additional severance) Executive’s basesalary during the 30-day notice period.

 

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

 

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

 

D.                                    Inthe event Executive elects continuing insurance coverage under the Company’sHealth Benefit Plan pursuant to the Consolidated Omnibus Budget ReconciliationAct (COBRA) following any Termination Without Cause, then, in addition topayment of salary as set forth above, the Company shall reimburse Executive forall premiums paid by Executive for said continuation coverage for a period ofsix-months, if the Termination Without Cause occurs within or at the expirationthe Initial Contract Term, or for a period of one year, if the TerminationWithout Cause occurs following the Initial Contract Term.

 

**8.****                                      CompanyProperty.**

 

A.                                   ConfidentialInformation.  “ConfidentialInformation” shall mean all financial, advertising, marketing, sales, computersystems, computer software, and any other information relating to the Company’sBusiness, its intellectual property, trade secrets, proprietary information,customers, vendors, distributors, licensors and employees, including, withoutlimitation, any information, knowledge, data, forms, manuals or systemsrelating to:

 

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

 

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

 

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designs, drawings, specifications; pricingand cost information; customer, vendor, licensor and distributor lists anddata;

 

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

 

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

 

B.                                     TradeSecrets.  Confidential Informationshall remain the sole property of Company, and shall be deemed trade secrets asdefined by Virginia law; provided, however, that Confidential Information shallnot include any information known generally to the public (other than as aresult of unauthorized disclosure by the Executive or the Company or any otherpast, present or future employee of Company) or any information of a type nototherwise considered confidential by persons engaged in the same business or abusiness similar to that conducted by the Company or any of its affiliates.

 

C.                                     Restrictionson Use.  During the term ofemployment hereunder and indefinitely thereafter, Executive shall not, withoutthe written consent of the Board of Directors of the Company or a personauthorized thereby, disclose or use (except in the course of his employmenthereunder and in furtherance of the business of the Company or any of itsaffiliates) any such Confidential Information or proprietary data of theCompany or any of its affiliates unless such disclosure is required by theorder of a court of competent jurisdiction or a governmental agency havingauthority to issue such an order.  Upontermination of his employment under this Agreement, Executive shall promptlyreturn to Company any and all copies he may have of any of the materials,Confidential Information, data and other items referred to above, and shall notretain or use any such information.

 

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

 

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

 

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

 

**10.****                               Non-competitionAgreement.**  Executiveacknowledges that Company is engaged in a business involving relationships withfranchisees and customers, the success of which business is in large part dueto the undisturbed continuation of such relationships with customers and thatall goodwill created as a result of any such contact belongs to Company.

 

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

 

In order to further protect the Company’slegitimate business interests which are a product of substantial effort andinvestment by Company, including, without limitation, and the Company’sgoodwill, the Executive agrees that if his employment with the Companyterminates, voluntarily or otherwise, for any reason whatsoever, Executiveshall not, directly or indirectly, for himself or on behalf or in conjunctionwith any other person (including, without limitation, any sole proprietor,general partnership, limited liability company, limited liability partnership,limited partnership, business trust, corporation or other entity) for a periodof one (1) year following the latter of the date of termination of hisemployment, accept an engagement as an independent contractor or employment asan employee with any entity which is defined as a Competitor of the Company, asdefined on Exhibit B attached hereto (even if such engagement or employmentoffer is unsolicited) which involves Executive providing products or servicescomparable to those provided by the Company to its customers.

 

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Executive acknowledges that he has carefullyread and considered the provisions of this agreement and agrees that therestrictions contained in this Section are reasonable and necessary inorder to protect the legitimate interests of the Company and that any breach ofthese covenants by Executive will cause Company irreparable harm for whichthere exists no adequate remedy at law. Executive, therefore, acknowledges that in the event of his violation ofthe provisions of this Section, Company shall be entitled to obtain from anycourt of competent jurisdiction preliminary and/or permanent injunctive reliefarising from such violation, which rights shall be cumulative and in additionto any other rights or remedies to which the Company may be entitled.  Executive is fully aware of the restrictionsthat this agreement places upon Executive’s future employment with someoneother than the Company.

 

**11.****                               PriorAgreements.**  Executive representsto Company (a) that there are no restrictions, agreements or understandingswhatsoever to which Executive is party which would prevent or make unlawful hisexecution or performance of this Agreement or his employment hereunder, (b)that his execution of this Agreement and his employment hereunder shall notconstitute a breach of any contract, agreement or understanding, oral orwritten, to which he is a party or by which he is bound, and (c) that he isfree and able to execute this Agreement and, as to the Effective Date, to beginhis employment with Company.

 

**12.****                               ApplicableLaw.**  The validity andconstruction of this Agreement or any of its provisions shall be governed byand determined in accordance with the laws of the State of Virginia.

 

**13.****                               EntireAgreement.**  This Agreementcontains the entire understanding between the parties and supercedes all otheroral and written agreements or understandings between them relating toExecutive’s employment.  No modificationor addition to this Agreement, or waiver or cancellation of any provision underthis Agreement, shall be valid except by a written agreement signed by bothparties.

 

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

 

**15.****                               Notices.**  Any notice to be delivered under thisAgreement shall be given in writing and delivered, personally, via telefax orsimilar electronic transmission, or by certified mail, postage prepaid, addressedto the Company or to Executive at its or his last known address.  Any such notice shall be deemed given whenactually received by the party to whom the notice is directed.

 

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

 

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

 

**18.          Severability.**  If any portion of this Agreement shall beinvalid or unenforceable, the parties agree that such invalidity orunenforceability shall in no way affect the validity or enforceability of anyother portion of this Agreement.

 

**19.          Survival.**  The provisions of this agreement shallsurvive the termination of Executive’s employment.

 

**20.          Reviewand Execution.** Executive acknowledges that he has read and understands all of the termsof this Agreement, that he is executing the Agreement voluntarily with fullknowledge of its significance, that he has been advised to consult with anattorney prior to signing the Agreement, and that has been offered anopportunity to take a reasonable time to consider the Agreement.

 

 
|   | AUSTINS STEAKS & SALOON, INC. |
|--------|-----------------------------------|
|   |                              |
|   |                              |
|   | By:                               | /s/ Paul C. Schorr, III |   |
|   |                              |   |   |
|   | Its:                              | Chairman |   |
|   |                              |
|   |                              |
|   | JAMES C. VERNEY                   |
|   |                              |
|   |                              |
|   | /s/ James C. Verney               |   |

 

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