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successor, unless such violation is capable of being cured and is not cured withinthirty (30) days after receipt of notice thereof from the Company;(v) Any fraudulent or dishonest action, or failure to act, with respect to thebusiness or affairs of the Company or its successor or breach of the duty of loyaltytoward the Company or its successor, including, without limitation, providing falseor misleading information to the Company or its successor;(vi) Executive’s failure to cooperate, if requested by the Board, with anyinvestigation or inquiry into his or the Company’s (or its successor’s) businesspractices, whether internal or external, including, but not limited to Executive’srefusal to be deposed or to provide testimony at any trial or inquiry; or(vii) Any material breach by Executive of the provisions of Paragraphs 4, 5, or 6 ofthis Agreement, unless such violation is capable of being cured and is not curedwithin thirty (30) days after receipt of notice thereof from the Company.c. “***Code***” means the Internal Revenue Code of 1986, as amended.d. “***Good Reason***” means a termination of Executive’s employment by the Executive for any ofthe following events, provided that Executive shall have delivered a written notice to theCompany or its successor within thirty (30) days of his having actual knowledge of theoccurrence of one of such events, stating that he intends to terminate his employment forGood Reason and specifying the factual basis for such termination, and such event shall nothave been cured by the Company or its successor within thirty (30) days of the receipt ofsuch notice, and further provided that the termination of Executive’s employment occurs nolater than six months (6) months following the initial existence of one of such events:(i) A material diminution in Executive’s Base Salary from that in effect as of theEffective Date;(ii) A material diminution in Executive’s duties, responsibilities or authority fromthat in effect as of the Effective Date; or(iii) A material change in the geographic location of Executive’s principal place ofemployment from that in effect as of the Effective Date.e. “***Severance Event***” means either: (i) the effective date of the termination of Executive’semployment by the Company for any reason other than for Cause, or (ii) the effective date ofthe termination of Executive’s employment for Good Reason. A Severance Event shall notinclude a termination of Executive’s employment as a result of Executive’s death. The term“termination of employment” and other similar terms used in this Agreement shall beconstrued to have the same meaning as is given to the term “separation from service” inSection 409A of the Code.2. **TERM OF AGREEMENT.**This Agreement shall be effective as of the Effective Date and shallcontinue through December 31, 2010. As of December 31, 2010, and on each December 31thereafter, the Agreement shall automatically be extended for one additional year unless, notlater than the preceding June 30, either party shall have given notice that such party doesnot wish to extend the Agreement term.
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3. **SEVERANCE PAYMENTS.**a. Upon the occurrence of a Severance Event, and in consideration of and contingent upon theexecution and delivery by Executive of a mutually agreeable general release of all claimsand expiration of any applicable revocation period in connection therewith, Executive shallbe entitled to a severance payment as follows:(i) Subject to Paragraph 3c below, an amount equal to Executive’s then current BaseSalary; and(ii) In full substitution for Executive’s rights under the Company’s annualincentive bonus plan, a substitute incentive award equal to the average amount ofthe annual incentive award earned and paid to the Executive with respect to thepreceding three (3) fiscal years. Notwithstanding the foregoing, to the extent thatExecutive has not been employed by the Company for at least three (3) years, suchsubstitute incentive award will be equal to the average amount of the annualincentive award earned and paid to the Executive for the fiscal years that have beencompleted during the term of his employment.b. The severance payment shall be made in a lump sum within thirty (30) days afterthe effective date of the termination of employment.c. If applicable, the severance amount provided for in Paragraph 3a(i) above will be offsetby any income protection benefits payable to Executive during the first twelve months of aqualifying disability under the Company’s group short-term and long-term disabilityinsurance plans.d. Notwithstanding the foregoing to the contrary, in no event shall the amount due andpayable hereunder constitute a “Parachute Payment” within the meaning of the Section280G(b)(2) of the Code. In the event that any portion of the severance payment would bedeemed a Parachute Payment, the amount of the severance payment shall be reduced only to theextent necessary to eliminate any such treatment or characterization.e. It is the intent of the parties that payments under this Agreement comply with Section409A of the Code, and, accordingly, to interpret, to the maximum extent permitted, thisAgreement to be in compliance therewith. If the Executive notifies the Company in writing(with specificity as to the reason therefore) that the Executive believes that any provisionof this Agreement (or of any payment of compensation under this Agreement) would cause theExecutive to incur any additional tax or interest under Section 409A of the Code, and theCompany concurs with such belief or the Company (without any obligation whatsoever to do so)independently makes such determination, the parties shall, in good faith, reform suchprovision to try to comply with Section 409A through good faith modifications to the minimumextent reasonably appropriate to conform with Section 409A. To the extent that anyprovision hereof is modified by the parties to try to comply with Section 409Aof the Code,such modification shall be made in good faith and shall, to the maximum extent reasonablypossible, maintain the original intent of the applicable provision without violating theprovisions of Section 409A. Notwithstanding the foregoing, the Company shall not berequired to assume any economic burden in connection with compliance or noncompliance withSection 409A of the Code.
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4. **CONFIDENTIALITY.**a. Executive acknowledges that his position with Company will bring Executive in closecontact with many confidential affairs of the Company and the Parent and its subsidiaries,including, but not limited to, information about costs, profits, financial data, markets,trade secrets, sales, products, key personnel, pricing policies, customer lists, developmentprojects, operational methods, technical processes, plans for future development, businessaffairs and methods and other information not readily available to the public. Inrecognition of the foregoing, Executive covenants and agrees that:(i) Executive will keep secret all material confidential matters of the Company andParent which are not otherwise in the public domain and will not disclose them toanyone outside of the Company or Parent, either during or after the termination ofhis Employment, except with the Company’s or Parent’s written consent and except forsuch disclosure as is necessary in the performance of Executive’s duties or to theextent required by an order of a court having competent jurisdiction or undersubpoena from an appropriate government agency; and(ii) Executive will deliver promptly to the Company on termination of his employmentwith the Company, or at any other time the Company may so request, all memoranda,notes, records, reports and other documents (and all copies thereof)containingconfidential material relating to the Company, which Executive may then possess orhave under his control.5. **INTELLECTUAL PROPERTY**.a. All right, title, and interest in and to all inventions, patent applications, patentsthereon, know-how and trade secret information, and all copyrightable material, copyrights,and copyright applications (collectively, “Intellectual Property”) that Executive conceivesor originates, either individually or jointly with others, and which relate to the businessof the Company, will be the sole and exclusive property of the Company, and Executivehereby irrevocably assigns and conveys the sole and exclusive right, title and interesttherein, free and clear of any liens or other encumbrances. Such Intellectual Property shallinclude, but not be limited to, Intellectual Property that:(i) Is based on any confidential or proprietary information of the Company or of anyvendor, supplier or customer of the Company;(ii) Is related to the actual business of or research and development of theCompany;(iii) Was developed with use of materials, employees, supplies or facilities of theCompany; or(iv) Was funded by the Company.b. Executive agrees to execute promptly any papers and perform promptly any other reasonableacts necessary to assist the Company to perfect all rights, including all IntellectualProperty rights, reserved or conveyed thereto hereunder. Executive agrees to render promptlyaid and assistance to the Company in any interference or litigation pertaining to suchIntellectual Property, and all reasonable expenses therefor incurred by Executive at therequest of the Company will be borne by the Company.
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c. Executive will promptly disclose to the Company all Intellectual Property conceived ororiginated pursuant to his employment.d. Executive warrants that in the event that Executive creates any original materials oruses any proprietary information in rendering services, none of such material shall infringeany copyrights, trade secrets, rights of privacy, or any other rights of others.e. Executive hereby confirms that he understands and agrees that the provisions of thisAgreement requiring assignment of Intellectual Property to the Company do not apply to anyIntellectual Property which qualifies fully under the provisions of California Labor CodeSection 2870 (attached hereto as Exhibit A). Further, Executive agrees that he willpromptly advise the Company in writing of any inventions that he believes meet the criteriain California Labor Code Section 2870.6. **NONSOLICITATION OF EMPLOYEES.**Executive covenants and agrees that during his employment withthe Company and for a period of two (2) years thereafter he will not, directly or indirectly,as a principal, officer, director, shareholder, partner, member, employee, consultant,independent contractor, agent or executive or in any other capacity whatsoever, without theprior written consent of the Company or Parent, solicit or attempt to solicit or encourage anyperson, who is then, or was within the then most recent 6-month period, to the knowledge ofExecutive, an employee, agent, consultant or representative of the Company or Parent, tobecome an employee, agent, representative or consultant of or to Executive or any otherindividual or entity. Notwithstanding the foregoing, the restrictions on solicitation setforth in this Section shall not apply to those persons that are not longer employed by theCompany as a result of the unilateral termination of their employment by the Company.7. **NONSOLICITATION OF CUSTOMERS, SUPPLIERS AND LICENSORS.**Executive covenants and agrees thatafter the termination of his Employment with the Company for any reason, he will not use theCompany’s trade secrets or proprietary information to solicit, on behalf of himself or anyother individual or entity, business with the Company’s customers, licensees, suppliers orlicensors, without the prior written consent of the Company or Parent.8. **ASSIGNMENT**. This Agreement and all of the provisions hereof will be binding upon and inureto the benefit of the Company’s successors and assigns. Neither this Agreement nor any of therights, interests or obligations hereunder may be assigned by Executive.9. **SEVERABILITY**. Whenever possible, each provision of this Agreement will be interpreted insuch manner as to be effective and valid under applicable law, but if any provision of thisAgreement is held to be prohibited by or unenforceable or invalid under applicable law, suchprovision will be ineffective only to the extent of such prohibition or invalidity, withoutinvalidating the remainder of such provision or the remaining provisions of this Agreement. Infurtherance and not in limitation of the foregoing, should the duration or geographical extentof, or business activities covered by, any provision of this Agreement be in excess of thatwhich is valid and enforceable under applicable law, then such provision shall be construed tocover only that duration, extent or activities which may validly and enforceably be covered.Executive acknowledges the uncertainty of the law in this respect and expressly stipulatesthat this Agreement be given the construction which renders its provisions valid andenforceable to the maximum extent (not exceeding its express terms) possible under applicablelaw.
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10. **COMPLETE AGREEMENT.**This Agreement contains the complete agreement between the parties withrespect to the subject matter hereof and supersedes any prior understandings, agreements orrepresentations by or between the parties, written or oral, which may have related to thesubject matter hereof in any way. No person, whether or not an officer, agent, employee orrepresentative of any party, has made or has any authority to make for or on behalf of thatparty any agreement, representation, warranty, statement, promise, arrangement orunderstanding not expressly set forth in this Agreement (“Parole Agreements”). The partiesacknowledge that in entering into this Agreement, they have not relied and will not in any wayrely upon any Parole Agreements.11. **COUNTERPARTS.**This Agreement may be executed in one or more counterparts, any one of whichneed not contain the signatures of more than one party, but all such counterparts takentogether, when delivered, will constitute one and the same instrument.12. **CHOICE OF FORUM AND LAW**. Any and every legal proceeding arising out of or in connection withthis Agreement shall be brought in the appropriate courts of the State of Minnesota, and eachof the parties hereto consents to the exclusive jurisdiction of such courts. The legality,validity, enforceability and interpretation of this Agreement shall be governed by the laws ofthe State of California, without giving effect to the principles of conflict of laws.13. **INJUNCTIVE RELIEF**. Executive agrees that it would be difficult to compensate the Companyfully for damages for any violation of the provisions of Paragraphs 4, 5, 6 and 7 of thisAgreement. Accordingly, Executive specifically agrees that the Company shall be entitled toinjunctive relief to enforce the provisions of such Paragraphs.14. **NO WAIVER**. No term or condition of this Agreement shall be deemed to have been waived, norshall there by any estoppel to enforce any provisions of this Agreement, except by a statementin writing signed by the party against whom enforcement of the waiver or estoppel is sought.Any written waiver shall not be deemed a continuing waiver unless specifically stated, shalloperate only as to the specific term or condition waived and shall not constitute a waiver ofsuch term or condition for the future or as to any act other than that specifically waived.15. **MODIFICATION.**This Agreement may not be altered, modified or amended except by an instrumentin writing signed by Executive and the Company.**IN WITNESS WHEREOF**, the parties hereto have caused this Agreement to be executed as of the dayand year first above written.         **ENCORE SOFTWARE, INC.**   **EXECUTIVE**           By: /s/ Cary L. Deacon Cary L. Deacon,   /s/ Calvin Morrell Calvin Morrell    Chief Executive Officer      
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**Exhibit A****California Labor Code Section 2870**2870. (a) Any provision in an employment agreement which provides that an employee shall assign, oroffer to assign, any of his or her rights in an invention to his or her employer shall not apply toan invention that the employee developed entirely on his or her own time without using theemployer’s equipment, supplies, facilities, or trade secret information except for those inventionsthat either:(1) Relate at the time of conception or reduction to practice of the invention tothe employer’s business, or actual or demonstrably anticipated research ordevelopment of the employer; or(2) Result from any work performed by the employee for the employer.     (b) To the extent a provision in an employment agreement purports to require an employee toassign an invention otherwise excluded from being required to be assigned under subdivision (a),the provision is against the public policy of this state and is unenforceable.
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