Document:

Exhibit 10.1

 

EMPLOYMENT
AGREEMENT

 

This Employment Agreement (this “Agreement”)
is made and entered into as of September 17, 2009, by and between MDI, Inc.,
a Delaware corporation (the “Company”),
and Rod Wallace, an individual (the “Executive”).

 

RECITALS

 

WHEREAS, the Company desires to hire Executive and Executive
desires to become employed by the Company through a Canadian subsidiary to be
formed or another Canadian entity outsourced by the Company for such purpose.
For purposes hereof, the Company shall refer to the Company and its Canadian
subsidiary or other Canadian entity used for such purpose; and

 

WHEREAS, the Company and Executive have determined that it is
in their respective best interests to enter into this Agreement on the terms
and conditions set forth herein.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the premises and the mutual
covenants and promises contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto hereby agree as follows:

 

1.             EMPLOYMENT
TERMS AND DUTIES

 

1.1           Employment.  The Company
hereby employs Executive, and Executive hereby accepts employment by the
Company, upon the terms and conditions set forth in this Agreement.

 

1.2           Duties.  Executive shall serve as Chief Technology
Officer from his home office in Ontario, Canada and shall report directly to
the Chief Executive officer (the “CEO”).  Executive shall have the authority, and
perform the duties customarily associated with his title and office together
with such additional duties of a senior executive nature and commensurate with
his title as may from time to time be assigned by the Chief Executive
Officer.  Executive shall devote his full
working time and efforts to the performance of his duties and the furtherance
of the interests of the Company and shall not be otherwise employed.  Notwithstanding the above, Executive may
serve as a director or trustee of other organizations, or engage in charitable,
civic, and/or governmental activities provided that such service and activities
do not prevent Executive from performing the duties required of Executive under
this Agreement and further provided that Executive obtains written consent for
all such activities from the Company, which consent will not be unreasonably
withheld.  Executive may engage in
personal activities, including, without limitation, personal investments,
provided that such activities do not interfere with Executive’s performance of
duties hereunder and/or the provisions of Executive’s written agreements with
the Company.

 

1.3           Term.  The Term
shall commence on October 1, 2009 (the “Start
Date”) and, unless earlier terminated pursuant to the Agreement,
shall continue until the date that is one (1) year following the Start
Date (the “Initial Term”).  The Term shall be
automatically extended at the end of the Initial Term or any Renewal Term (as
defined below) for an additional term of one (1) year (a “Renewal Term”), unless either the
Company or Executive provides notice to the other party at least thirty (30)
days prior to the termination date of the Initial Term or the applicable
Renewal Term of such party’s desire not to extend the Term. In such event of
non renewal by the Company (“Termination for
Non-Renewal”), the termination payment provisions under section
1.4.6 hereof shall apply in the same manner as a termination without Cause or
for Good Reason.

 

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1.4           Termination

 

1.4.1    Termination Due to Death.  Executive’s employment hereunder shall
terminate immediately upon the death of Executive.

 

1.4.2    Termination Due to Disability. 
Executive’s employment shall be terminable by the Company or Executive
by not less than thirty (30) days’ written notice in the event of Executive’s Disability.  The term “Disability”
shall mean any illness, disability or incapacity of Executive that prevents him
from substantially performing his regular duties for the Company for a period
of three (3) consecutive months or four (4) months, even though not
consecutive, in any twelve (12) month period. 
The determination of the existence of a Disability shall be made by a
physician selected by the Company and Executive; provided that if Executive
disagrees with the determination made by such physician he may, within 15 days
after such determination, appoint a physician for such purpose, and such
physician and a physician appointed by the Company shall jointly select a third
physician (who has no prior knowledge of Executive) to make such determination.  Executive hereby agrees to cooperate with any
physical examinations reasonably required by such physician(s) for the
purpose of such determination.

 

1.4.3    Termination by the Company.  The Company may terminate the employment of
Executive without Cause in accordance with Section 1.3.  The Company may terminate the employment of
the Executive for Cause, provided that the Company, as applicable, shall notify
Executive in writing setting forth in reasonable detail the basis for the
proposed termination and Executive shall have the opportunity to be heard by
the Board of Directors (represented by counsel at Executive’s own expenese)
prior to his employment termination date as set forth in the Notice of
Termination.  The term “Cause” shall mean (i) a breach by Executive
of any of the material terms of this Agreement in each case which breach, if
subject to cure, is not cured within 15 days following notice from the Company
thereof, (ii) the
commission of any act of fraud, embezzlement or dishonesty by the Executive which
was intended to result in substantial gain or personal enrichment of the
Executive at the expense of the Company, (iii) any unauthorized use or
disclosure by the Executive of confidential information or trade secrets of the
Company (or any parent or subsidiary) or any breach of the Executive’s
proprietary information agreement with the Company (or any parent or
subsidiary), (iv) the Executive’s violation of a federal or state law or
regulation applicable to the Company’s business which violation was or is
reasonably likely to be injurious to the Company, (v) any material
dereliction of the Executive’s duties continuing for 15 days after notice
thereof from the Company, or (vi) any other intentional misconduct by such
person adversely affecting the business or affairs of the Company (or any
parent or subsidiary) in a material manner. 
The foregoing definition shall not in any way preclude or restrict the
right of the Company (or any parent or subsidiary) to discharge or dismiss the
Executive in the service of the Company (or any parent or subsidiary) for any
other acts or omissions in accordance with the terms hereof, but such other
acts or omissions shall not be deemed, for purposes of this Agreement, to
constitute grounds for termination for Cause.

 

1.4.4    Termination by the Executive. 
Executive may terminate his employment at any time, for Good Reason or
without Good Reason, upon a Notice of Termination.  Executive may terminate Executive’s
employment for Good Reason; provided, however, that such a termination will not
constitute a termination for Good Reason if the Company remedies the
circumstances underlying the Good Reason determination within fifteen (15)
business days following receipt of notice from Executive.  A termination for “Good Reason”
shall mean (i) Executive’s voluntary resignation following (A) a
change in his position with the Company which materially reduces his duties and
responsibilities or the level of management to which he reports, other than
changes in responsibilities resulting from the Executive’s misconduct which shall
not constitute Good Reason, (B) a reduction in his level of compensation
(including Base Salary, fringe benefits and Yearly Bonus under any
corporate-performance based bonus or incentive programs) by more than ten percent
(10%), other than a reduction which, by resolution of the Board of Directors of
the Company, is applicable to all executive officers of the Company generally
for a period of 

 

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no more than three (3) months, (C) a
relocation of such individual’s place of employment from his home office in
Ontario, provided and only if such change, reduction or relocation is effected
by the Company without the Executive’s written consent, (D) the Company
requires that the Executive work for greater than 182 days per calendar year
outside Canada, without providing sufficient gross-up of compensation to
account for triggered excessive tax liabilities incurred by the Executive or if
such work creates other adverse consequences to the Executive under government
regulation in Ontario and Canada where same can not be satisfied by alternative
compensation, or (E) a breach by the Company of any of the material terms
of this Agreement including non-renewal hereof, in each case which breach is
subject to cure, is not cured within fifteen (15) days following notification
from the Executive.

 

1.4.5    Notice.  The term “Notice of Termination” shall mean at
least 30 days’ written notice of termination of Executive’s employment
hereunder, during which period Executive’s employment and performance of
services will continue; provided, however, that the Company may, upon notice to
Executive and without reducing Executive’s compensation during such period
(including the vesting of any equity), excuse Executive from any or all of his
duties during such period.  The effective
date of the termination of Executive’s employment hereunder shall be the date
on which such 30-day period expires.

 

1.4.6    Termination Payments. 
In the event of termination of the employment of Executive, all
compensation and benefits set forth in Section 1.5 of this Agreement shall
terminate except as specifically provided in this Section 1.4.

 

(i)            Termination for Cause. 
If the Board terminates Executive’s employment for Cause, the Company
shall pay or provide to Executive all accrued but unpaid Base Salary and Prior
Bonus earned or accrued through the date of termination and any benefits
referred to in Section 1.5 below, including accrued but unused vacation
(collectively, the “Accrued Obligations”).

 

(ii)           Effect of Termination Without Cause or for Good Reason. 
In the event that Executive’s employment is terminated by the Company
without Cause, or Executive resigns his employment for Good Reason, then,
subject to Executive’s execution and non-revocation of a release of all
claims mutually acceptable to Executive and Company in a form prepared by the Company and reasonably
acceptable to Executive within ten (10) days of the termination of his
employment (the “Release”), Executive shall be
entitled to the following lump sum payments and employee benefits (but no
others) within ten (10) days of termination:  (A) Executive’s Base Salary for nine (9) months
following the date of termination (or, if applicable, the date the Agreement
expires without renewal for a Renewal Term); (B) a Yearly Bonus, prorated
based on the number of days of Executive’s service during such fiscal year to
the extent the goals established by the Committee applicable to such Bonus are
attained, treating any personal performance criteria applicable to the Bonus as
maximally attained (such prorated Yearly Bonus to be paid at the time that
would have applied had Executive’s employment hereunder continued) (the “Pro Rata Bonus”); (C) payment
in a lump sum of any accrued but unpaid Yearly Bonus for performance in the
fiscal year ended prior to the termination date (any such bonus, a “Prior Bonus”); and (D) the
Accrued Obligations.

 

(iii)          Termination Due to Death. 
In the event of a termination of Executive’s employment as a result of
his death, then Executive’s beneficiaries (or his estate, if there are no
beneficiaries) shall not be entitled to any compensation payments or employee
benefits from the Company except the Accrued Obligations, any Prior Bonus, and
any Pro Rata Bonus.  The payment of such
benefits to Executive’s beneficiaries shall be subject to his personal
representative’s execution (and non-revocation) of the Release within ten (10) days
of Executive’s death.

 

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(iv)          Termination without Good Reason.  In
the event Executive terminates his employment other than for Good Reason, then
Executive shall not be entitled to any payments from the Company except the
Accrued Obligations and any Prior Bonus.

 

(v)           Termination Due to Disability. 
In the event of a termination of Executive’s employment as a result of
his Disability, then Executive shall not be entitled to any payments from the
Company except the Accrued Obligations, any Prior Bonus, and any Pro Rata Bonus.

 

1.5           Compensation and Benefits.

 

1.5.1    Base Salary.  In
consideration of the services rendered to the Company hereunder by Executive
and Executive’s covenants hereunder and in the Company’s Proprietary
Information and Inventions Agreement, the Company shall pay Executive a salary
at the monthly rate of twenty thousand US dollars $20,000 $USD or annually two
hundred and forty thousand US dollars ($240,000 $USD annualized) (the “Base Salary”), less statutory
deductions and withholdings, payable in cash (USD funds) accordance with the
Company’s regular payroll practices, but in no event less frequently than
semi-monthly.  The Company’s Board of
Directors (the “Board of Directors”) will
review the Base Salary at minimum annually, and after any upward (not downward)
change, “Base Salary,” for purposes of
this Agreement, shall mean such changed amount.

 

1.5.2    Yearly Bonus.  Executive
shall be eligible for an annual target bonus of not less than $60,000 in each
calendar year (the “Yearly
Bonus”).  The Yearly Bonus shall be less statutory
deductions and withholdings and payable at the times when other senior
management bonuses are paid.  The Yearly
Bonus shall be based on Executive’s achievement, as determined annually in the
sole discretion of the Board of Directors and shall be pro-rated for partial
achievement, of mutually agreed performance targets identified in writing by
Executive and the Board of Directors. 
The Board of Directors shall review annually the Yearly Bonus amount and
make adjustments thereto; provided, however,
that the Yearly Bonus shall not be less than $60,000.

 

1.5.3    Benefits Package.  In addition to
the Base Salary, Executive shall be eligible to receive such employee benefits
as may be in effect from time to time as are afforded to other executives of
the Company or as mutually agreed by the Company and Executive, which shall
include: medical insurance (including, at minimum, dental and vision insurance)
for Executive, his dependents and beneficiaries, disability insurance
(including long-term care), accidental death and dismemberment insurance and
life insurance in accordance with the terms applicable to Executive, and at the
costs applicable to Executive (subject to any normal increases or decreases
applicable to other participants). The benefits provided under such insurance
coverage shall be maintained at substantially comparable levels during the
Term.

 

1.5.4    Vacation.  Executive
shall be entitled to four (4) weeks’ paid vacation each year. In addition,
the Executive shall be entitled to such other holidays as may be in effect from
time to time as are afforded to other executives of the Company or as mutually
agreed to by the Company and the Executive.

 

1.5.5    Business Expenses.  The Company
shall, upon receipt from Executive of proper expense statements, reimburse
Executive for all authorized, ordinary and necessary out-of-pocket expenses
actually and reasonably incurred by Executive in connection with the
performance of his services pursuant to this Agreement hereunder in accordance
with the Company’s expense reimbursement policy as in effect from time to time.

 

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1.5.6    Immigration Access.  The Company will assist the Executive in
obtaining any relevant immigration authorization so as to permit the Executive
to travel to the Company’s head office.

 

1.6           Stock Option.

 

1.6.1    At the first meeting of the Board of Directors after
your acceptance of employment, you will be granted an option to purchase up to
a number of shares of the Company’s common stock (the “Option”)
equal to 1.25% of the Company’s issued and outstanding common stock as of the
Start Date.  These option and the option
shares will be subject to the provisions of the Company’s 2002 Stock Incentive
Plan, as amended, a copy of which has been provided to the Executive.  The option shares initially will be unvested
and will vest over two years according to the following vesting schedule:
Executive shall acquire a vested interest in, and the Company’s repurchase
right will accordingly lapse with respect to, the option shares over a two year
period, with 33% of such option shares vesting immediately upon the Start Date
and the remaining option shares vesting in a series of successive equal monthly
installments upon completion of each of the next 24 months of service
thereafter. The option strike price will be determined by the Board of
Directors at the meeting at which your options are approved.  The Board of Directors may consider granting
you additional options based on performance criteria to be determined by the
Board of Directors in its sole discretion. Notwithstanding anything to the
contrary contained herein, upon termination of Executive’s employment without
Cause (including pursuant to Termination for Non-Renewal) or for Good Reason,
Executive’s unvested time based options granted, if any, shall vest in full as
of the date of such termination.

 

1.6.2    Following Executive’s termination of employment for
any reason other than Cause, death or Disability, Executive shall have nine
months following his termination date to exercise any vested options whether
granted hereunder or in the future if such termination date occurs on or before
the first anniversary of the Closing Date, and if such termination date occurs
after the second anniversary of the Start Date, the Executive shall have 18
months following his termination date to exercise any options granted hereunder
or in the future.  Upon Executive’s death
or Disability, Executive (or his estate or beneficiary, as the case may be)
shall have 12 months following Executive’s employment termination date to
options whether granted hereunder or on the future.

 

1.6.3    The Executive shall be entitled to participate
commensurate with other executives of the Company in such other benefit plan,
whether equity plans such as deferred stock units, restricted stock units,
pension contribution or otherwise as the Board may approve and declare from
time to time and where appropriate acceleration shall be granted to the
Executive in accordance with the acceleration terms set out in this Section.

 

1.6.4    Notwithstanding the foregoing, in the event of a
Change in Control, all of the unvested Option shares shall vest on an
accelerated basis concurrently with the consummation of such Change in
Control.  “Change
in Control” shall mean a change in ownership or control of the
Company effected through any of the following transactions:

 

(i)            a merger, consolidation or other
reorganization approved by the Company’s stockholders, unless securities
representing more than fifty percent (50%) of the total combined voting power
of the voting securities of the successor corporation are immediately
thereafter beneficially owned, directly or indirectly and in substantially the
same proportion, by the persons who beneficially owned the Company’s
outstanding voting securities immediately prior to such transaction, or

 

(ii)           a stockholder-approved sale, transfer or
other disposition of all or substantially all of the Company’s assets in
liquidation or dissolution of the Company, or

 

5

 

(iii)          the
acquisition, directly or indirectly by any person or related group of persons
(other than the Company or a person that directly or indirectly controls, is
controlled by, or is under common control with, the Company), of beneficial
ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act
of 1934, as amended (the “Exchange Act”))
of securities possessing more than fifty percent (50%) of the total combined
voting power of the Company’s outstanding securities pursuant to a stock
purchase transaction or a tender or exchange offer made directly to the Company’s
stockholders (except that the sale by the Company of shares of its capital
stock to investors in bona fide capital raising transactions shall not be
deemed to be a Change in Control for this purpose).

 

In no event shall any public offering of the Company’s securities be
deemed to constitute a Change in Control.

 

2.             PROTECTION
OF COMPANY’S PROPRIETARY INFORMATION AND INVENTIONS.

 

This Agreement, and Executive’s employment hereunder,
is contingent upon Executive’s execution of the Company’s Proprietary
Information and Inventions Agreement, attached hereto as Exhibit A
and incorporated herein by this reference, before Executive begins working for
the Company.  The Proprietary Information
and Inventions Agreement survives the termination of this Agreement and/or the
Executive’s employment with the Company.

 

3.             REPRESENTATIONS
AND WARRANTIES BY EXECUTIVE

 

Executive represents and warrants to the Company that (i) this
Agreement is valid and binding upon and enforceable against him in accordance
with its terms, (ii) Executive is not bound by or subject to any
contractual or other obligation that would be violated by his execution or
performance of this Agreement, including, but not limited to, any
non-competition agreement presently in effect, and (iii) Executive is not
subject to any pending or, to Executive’s knowledge, threatened claim, action,
judgment, order, or investigation that could adversely affect his ability to
perform his obligations under this Agreement or the business reputation of the
Company.  Executive has not entered into,
and agrees that he will not enter into, any agreement either written or oral in
conflict herewith.

 

4.             MISCELLANEOUS

 

4.1           Notices. All
notices, requests, and other communications hereunder must be in writing and
will be deemed to have been duly given only if delivered personally against
written receipt or mailed (postage prepaid by certified or registered mail,
return receipt requested) or by overnight courier to the parties at the
following addresses:

 

If to the Executive, to:

 

Rod Wallace

1127 Perth Road

RR#1, Station Main

Perth ON K7H 3C3

Canada

Email: rodwallace@yahoo.ca

 

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If to the Company, to:

 

MDI, Inc.

835 Proton Rd.

San Antonio, TX 78258

Attn: Chief Executive
Officer

Fax:

Email:

 

All such notices, requests and other communications
will (i) if delivered personally to the address as provided in this Section 4.1,
be deemed given upon delivery, and (ii) if delivered by mail or overnight
courier in the manner described above to the address as provided in this Section 4.1,
be deemed given upon receipt.  Any party
from time to time may change its address or other information for the purpose
of notices to that party by giving written notice specifying such change to the
other parties hereto.

 

4.2           Entire Agreement.  This
Agreement, and the attached Exhibit A, supersede all prior
discussions and agreements among the parties with respect to the subject matter
hereof and contain the sole and entire agreement between the parties hereto
with respect thereto.

 

4.3           Survival.   The respective rights and
obligations of the parties that require performance following expiration or
termination of this Agreement, including but not limited to Sections 4.1,
and 4.4 through 4.11, shall survive the expiration or termination
of this Agreement and/or the Executive’s employment with the Company.

 

4.4           Waiver.  Any term or condition of this Agreement may
be waived at any time by the party that is entitled to the benefit thereof, but
no such waiver shall be effective unless set forth in a written instrument duly
executed by or on behalf of the party waiving such term or condition.  No waiver by any party hereto of any term or
condition of this Agreement, in any one or more instances, shall be deemed to
be or construed as a waiver of the same or any other term or condition of this
Agreement on any future occasion.  All
remedies, either under this Agreement or by law or otherwise afforded, will be
cumulative and not alternative.

 

4.5           Amendment. 
This
Agreement may be amended, supplemented, or modified only by a written
instrument duly executed by or on behalf of each party hereto.

 

4.6           Recovery of Attorney’s Fees. 
In the
event of any litigation arising from or relating to this Agreement, the
prevailing party in such litigation proceedings shall be entitled to recover,
from the non-prevailing party, the prevailing party’s reasonable costs and attorney’s
fees, in addition to all other legal or equitable remedies to which it may
otherwise be entitled.

 

4.7           No Third Party Beneficiary.  The terms and
provisions of this Agreement are intended solely for the benefit of each party
hereto and the Company’s successors and assigns, and it is not the intention of
the parties to confer third-party beneficiary rights upon any other person.

 

4.8           No Assignment; Binding Effect.  This Agreement
shall inure to the benefit of any successors or assigns of the Company.  Executive shall not be entitled to assign his
obligations under this Agreement.

 

4.9           Headings.  The headings used in this Agreement have been
inserted for convenience of reference only and do not define or limit the
provisions hereof.

 

4.10         Severability.  The Company
and Executive intend all provisions of this Agreement to be enforced to the
fullest extent permitted by law. Accordingly, if a court of competent 

 

7

 

jurisdiction determines that the scope and/or
operation of any provision of this Agreement is too broad to be enforced as
written, the Company and Executive intend that the court should reform such
provision to such narrower scope and/or operation as it determines to be
enforceable.  If, however, any provision
of this Agreement is held to be illegal, invalid, or unenforceable under
present or future law, and not subject to reformation, then (i) such
provision shall be fully severable, (ii) this Agreement shall be construed
and enforced as if such provision was never a part of this Agreement, and (iii) the
remaining provisions of this Agreement shall remain in full force and effect
and shall not be affected by illegal, invalid, or unenforceable provisions or
by their severance.

 

4.11         Governing Law. 
THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF TEXAS APPLICABLE TO CONTRACTS EXECUTED AND PERFORMED IN SUCH STATE
WITHOUT GIVING EFFECT TO CONFLICTS OF LAWS PRINCIPLES.

 

4.12         Jurisdiction.  With respect
to any suit, action, or other proceeding arising from (or relating to) this
Agreement, the Company and Executive hereby irrevocably agree to the exclusive
personal jurisdiction and venue of the United States District Court for the
Western District of Texas (and any Texas State Court within Travis County,
Texas).

 

4.13         Counterparts.  This Agreement
may be executed in any number of counterparts, each of which will be deemed an
original, but all of which together will constitute one and the same
instrument.

 

 

[SIGNATURE PAGE TO EMPLOYMENT
AGREEMENT FOLLOWS]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be executed as of the date first written above.

 

 

	
   

  	
  “COMPANY”

  
	
   

  	
   

  
	
   

  	
  MDI, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John Linton

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
  John Linton

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  “EXECUTIVE”

  
	
   

  	
   

  
	
   

  	
  ROD WALLACE

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Rod Wallace

  
	
   

  	
  Executive’s Signature

  

 

 

EXHIBIT A:          Proprietary
Information and Inventions Agreement

 

 

[SIGNATURE PAGE TO
EMPLOYMENT AGREEMENT]

 

9Exhibit 10.2

 

EMPLOYMENT
AGREEMENT

 

This Employment Agreement (this “Agreement”)
is made and entered into as of September 14, 2009, by and between MDI, Inc.,
a Delaware corporation (the “Company”),
and Lori Jones, an individual (the “Executive”).

 

RECITALS

 

WHEREAS, the Company desires to hire Executive and Executive
desires to become employed by the Company; and

 

WHEREAS, the Company and Executive have determined that it is
in their respective best interests to enter into this Agreement on the terms
and conditions set forth herein.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the premises and the mutual
covenants and promises contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto hereby agree as follows:

 

1.             EMPLOYMENT
TERMS AND DUTIES

 

1.1           Employment.  The Company,
subject to Board ratification, hereby employs Executive, and Executive hereby
accepts employment by the Company, upon the terms and conditions set forth in
this Agreement.

 

1.2           Duties.  Executive shall serve as Chief Financial Officer
and shall report directly to the Chief Executive officer (the “CEO”) or President as directed by
the Board of Directors.  Executive shall
have the authority, and perform the duties customarily associated with her
title and office together with such additional duties of a senior executive
nature and commensurate with her title as may from time to time be assigned by
the Chief Executive Officer.  Executive
shall devote her full working time and efforts to the performance of her duties
and the furtherance of the interests of the Company and shall not be otherwise
employed; however, for a period of ninety days from the effective date of this
Agreement, Executive may deliver consulting services to certain entities in
order to ensure a smooth transition pursuant to existing client relationships
between Executive and those certain entities, provided delivery of such
services shall not interfere with the performance of her duties pursuant to
this Agreement.  Notwithstanding the
above, Executive may serve as a director or trustee of other organizations, or
engage in charitable, civic, and/or governmental activities provided that such
service and activities do not prevent Executive from performing the duties
required of Executive under this Agreement and further provided that Executive
obtains written consent for all such activities from the Company, which consent
will not be unreasonably withheld.  Executive
may engage in personal activities, including, without limitation, personal
investments, provided that such activities do not interfere with Executive’s
performance of duties hereunder and/or the provisions of Executive’s written
agreements with the Company.

 

1.3           Term.  The Term
shall commence on September 14, 2009 (the “Start
Date”) and, unless earlier terminated pursuant to the Agreement,
shall continue until the date that is one (1) year following the Start
Date (the “Initial Term”).  The Term shall be
automatically extended at the end of the Initial Term or any Renewal Term (as
defined below) for an additional term of one (1) year (a “Renewal Term”), unless either the
Company or Executive provides notice to the other party at least thirty (30)
days prior to the termination date of the Initial Term or the applicable
Renewal Term of such party’s desire not to extend the Term. In such event of
non renewal by the Company (“Termination for
Non-Renewal”), 

 

1

 

the termination payment provisions under section 1.4.6
hereof shall apply in the same manner as a termination without Cause or for
Good Reason.

 

1.4           Termination

 

1.4.1    Termination Due to Death.  Executive’s employment hereunder shall
terminate immediately upon the death of Executive.

 

1.4.2    Termination Due to Disability. 
Executive’s employment shall be terminable by the Company or Executive
by not less than thirty (30) days’ written notice in the event of Executive’s
Disability.  The term “Disability” shall mean any illness,
disability or incapacity of Executive that prevents him from substantially
performing her regular duties for the Company for a period of three (3) consecutive
months or four (4) months, even though not consecutive, in any twelve (12)
month period.  The determination of the
existence of a Disability shall be made by a physician selected by the Company
and Executive; provided that if Executive disagrees with the determination made
by such physician she may, within 15 days after such determination, appoint a
physician for such purpose, and such physician and a physician appointed by the
Company shall jointly select a third physician (who has no prior knowledge of
Executive) to make such determination. 
Executive hereby agrees to cooperate with any physical examinations
reasonably required by such physician(s) for the purpose of such
determination.

 

1.4.3    Termination by the Company.  The Company may terminate the employment of
Executive without Cause in accordance with Section 1.3.  The Company may terminate the employment of the
Executive for Cause, provided that the Company, as applicable, shall notify
Executive in writing setting forth in reasonable detail the basis for the
proposed termination and Executive shall have the opportunity to be heard by
the Board of Directors (represented by counsel at Executive’s own expense)
prior to her employment termination date as set forth in the Notice of
Termination.  The term “Cause” shall mean (i) a breach by
Executive of any of the material terms of this Agreement in each case which breach,
if subject to cure, is not cured within 15 days following notice from the
Company thereof, (ii) the
commission of any act of fraud, embezzlement or dishonesty by the Executive
which was intended to result in substantial gain or personal enrichment of the
Executive at the expense of the Company, (iii) any unauthorized use or
disclosure by the Executive of confidential information or trade secrets of the
Company (or any parent or subsidiary) or any breach of the Executive’s
proprietary information agreement with the Company (or any parent or
subsidiary), (iv) the Executive’s violation of a federal or state law or
regulation applicable to the Company’s business which violation was or is
reasonably likely to be injurious to the Company, (v) any material dereliction
of the Executive’s duties continuing for 15 days after notice thereof from the
Company, or (vi) any other intentional misconduct by such person adversely
affecting the business or affairs of the Company (or any parent or subsidiary)
in a material manner.  The foregoing
definition shall not in any way preclude or restrict the right of the Company
(or any parent or subsidiary) to discharge or dismiss the Executive in the
service of the Company (or any parent or subsidiary) for any other acts or omissions
in accordance with the terms hereof, but such other acts or omissions shall not
be deemed, for purposes of this Agreement, to constitute grounds for
termination for Cause.

 

1.4.4    Termination by the Executive. 
Executive may terminate her employment at any time, for Good Reason or
without Good Reason, upon a Notice of Termination.  Executive may terminate Executive’s
employment for Good Reason; provided, however, that such a termination will not
constitute a termination for Good Reason if the Company remedies the
circumstances underlying the Good Reason determination within fifteen (15)
business days following receipt of notice from Executive.  A termination for “Good Reason”
shall mean (i) Executive’s voluntary resignation following (A) a
change in her position with the Company which materially reduces her duties and
responsibilities or the level of management to which she reports, other than
changes in responsibilities resulting from the Executive’s misconduct which shall
not constitute Good Reason, (B) a reduction in her level of compensation
(including 

 

2

 

Base Salary, fringe benefits and Yearly Bonus under
any corporate-performance based bonus or incentive programs) by more than ten
percent (10%), other than a reduction which, by resolution of the Board of
Directors of the Company, is applicable to all executive officers of the
Company generally for a period of no more than three (3) months, (C) a
relocation of such individual’s place of employment from the San Antonio
corporate office. provided and only if such change, reduction or relocation is
effected by the Company without the Executive’s written consent, , or (D) a
breach by the Company of any of the material terms of this Agreement including
non-renewal hereof, in each case which breach is subject to cure, is not cured
within fifteen (15) days following notification from the Executive.

 

1.4.5    Notice.  The term “Notice of Termination” shall mean at
least 30 days’ written notice of termination of Executive’s employment
hereunder, during which period Executive’s employment and performance of
services will continue; provided, however, that the Company may, upon notice to
Executive and without reducing Executive’s compensation during such period
(including the vesting of any equity), excuse Executive from any or all of her
duties during such period.  The effective
date of the termination of Executive’s employment hereunder shall be the date
on which such 30-day period expires.

 

1.4.6    Termination Payments. 
In the event of termination of the employment of Executive, all
compensation and benefits set forth in Section 1.5 of this Agreement shall
terminate except as specifically provided in this Section 1.4.

 

(i)            Termination for Cause. 
If the Board terminates Executive’s employment for Cause, the Company
shall pay or provide to Executive all accrued but unpaid Base Salary or Prior Bonus
earned or accrued through the date of termination and any benefits referred to
in Section 1.5 below, including accrued but unused vacation (collectively,
the “Accrued Obligations”).

 

(ii)           Effect of Termination Without Cause or for Good Reason. 
In the event that Executive’s employment is terminated by the Company
without Cause, or Executive resigns her employment for Good Reason, then,
subject to Executive’s execution and non-revocation of a release of all
claims mutually acceptable to Executive and Company in a form prepared by the Company and reasonably
acceptable to Executive within ten (10) days of the termination of her
employment (the “Release”), Executive shall be
entitled to the following lump sum payments and employee benefits (but no
others) within ten (10) days of termination:  (A) Executive’s Base Salary for six (6) months
following the date of termination (or, if applicable, the date the Agreement
expires without renewal for a Renewal Term); (B) a Yearly Bonus, prorated
based on the number of days of Executive’s service during such fiscal year to
the extent the goals established by the Committee applicable to such Bonus are
attained, treating any personal performance criteria applicable to the Bonus as
maximally attained (such prorated Yearly Bonus to be paid at the time that
would have applied had Executive’s employment hereunder continued) (the “Pro Rata Bonus”); (C) payment
in a lump sum of any accrued but unpaid Yearly Bonus for performance in the
fiscal year ended prior to the termination date (any such bonus, a “Prior Bonus”); and (D) the
Accrued Obligations.

 

(iii)          Termination Due to Death. 
In the event of a termination of Executive’s employment as a result of her
death, then Executive’s beneficiaries (or her estate, if there are no
beneficiaries) shall not be entitled to any compensation payments or employee
benefits from the Company except the Accrued Obligations, any Prior Bonus, and
any Pro Rata Bonus.  The payment of such
benefits to Executive’s beneficiaries shall be subject to her personal
representative’s execution (and non-revocation) of the Release within ten (10) days
of Executive’s death.

 

3

 

(iv)          Termination without Good Reason. 
In the event Executive terminates her employment other than for Good
Reason, then Executive shall not be entitled to any payments from the Company
except the Accrued Obligations and any Prior Bonus.

 

1.5           Compensation and Benefits.

 

1.5.1    Base Salary.  In
consideration of the services rendered to the Company hereunder by Executive
and Executive’s covenants hereunder and in the Company’s Proprietary
Information and Inventions Agreement, the Company shall pay Executive a salary
at the monthly rate of twenty thousand US dollars $17,917 $USD or annually two
hundred and fifteen thousand US dollars ($215,000 $USD annualized) (the “Base Salary”), less statutory
deductions and withholdings, payable in cash (USD funds) accordance with the
Company’s regular payroll practices, but in no event less frequently than
semi-monthly.  The Company’s Board of
Directors (the “Board of Directors”) will
review the Base Salary at minimum annually, and after any upward (not downward)
change, “Base Salary,” for purposes of
this Agreement, shall mean such changed amount.

 

1.5.2    Yearly Bonus.  Executive
shall be eligible for an annual target bonus of not less than $60,000 in each
calendar year (the “Yearly
Bonus”).  The Yearly Bonus shall be less statutory
deductions and withholdings and payable at the times when other senior
management bonuses are paid.  The Yearly
Bonus shall be based on Executive’s achievement, as determined annually in the
sole discretion of the Board of Directors and shall be pro-rated for partial
achievement, of mutually agreed performance targets identified in writing by
Executive and the Board of Directors. 
The Board of Directors shall review annually the Yearly Bonus amount and
make adjustments thereto; provided, however,
that the target Yearly Bonus target shall not be less than $40,000.

 

1.5.3    Benefits Package.  In addition to
the Base Salary, Executive shall be eligible to receive such employee benefits
as may be in effect from time to time as are afforded to other executives of
the Company or as mutually agreed by the Company and Executive, which shall
include: medical insurance (including, at minimum, dental and vision insurance)
for Executive, her dependents and beneficiaries, disability insurance
(including long-term care), accidental death and dismemberment insurance and
life insurance in accordance with the terms applicable to Executive, and at the
costs applicable to Executive (subject to any normal increases or decreases
applicable to other participants). The benefits provided under such insurance
coverage shall be maintained at substantially comparable levels during the
Term.

 

1.5.4    Vacation.  Executive
shall be entitled to four (4) weeks’ paid vacation each year. In addition,
the Executive shall be entitled to such other holidays as may be in effect from
time to time as are afforded to other executives of the Company or as mutually
agreed to by the Company and the Executive.

 

1.5.5    Business Expenses.  The Company
shall, upon receipt from Executive of The Company shall, upon receipt from
Executive of proper expense statements, for all authorized, ordinary and
necessary out-of-pocket expenses actually and reasonably incurred by Executive
in connection with the performance of her services pursuant to this Agreement
hereunder in accordance with the Company’s expense reimbursement policy as in
effect from time to time.

 

1.6           Stock Option.

 

1.6.1    At the first meeting of the Board of
Directors after Executive’s acceptance of employment, Executive will be granted
an option to purchase up to a number of shares of the Company’s common stock
(the “Option”) equal to 1.25% of
the Company’s issued and outstanding common stock as of 

 

4

 

the Start Date. 
These option and the option shares will be subject to the provisions of
the Company’s 2002 Stock Incentive Plan, as amended, a copy of which has been
provided to the Executive.  The option
shares initially will be unvested and will vest over three years according to
the following vesting schedule: Executive shall acquire a vested interest in,
and the Company’s repurchase right will accordingly lapse with respect to, the
option shares over a two year period, with 10% of such option shares vesting
immediately upon the Start Date and the remaining option shares vesting in a
series of successive equal monthly installments upon completion of each of the
next 36 months of service thereafter. The option strike price will be
determined by the Board of Directors at the meeting at which Executive’s options
are approved.  The Board of Directors may
consider granting Executive additional options based on performance criteria to
be determined by the Board of Directors in its sole discretion. Notwithstanding
anything to the contrary contained herein, upon termination of Executive’s
employment without Cause (including pursuant to Termination for Non-Renewal) or
for Good Reason, Executive’s unvested time based options granted, if any, shall
vest in full as of the date of such termination.

 

1.6.2    Following Executive’s termination of
employment for any reason other than Cause, death or Disability, Executive
shall have nine months following her termination date to exercise any vested
options whether granted hereunder or in the future if such termination date
occurs on or before the first anniversary of the Closing Date, and if such
termination date occurs after the second anniversary of the Start Date, the
Executive shall have 18 months following her termination date to exercise any
options granted hereunder or in the future. 
Upon Executive’s death or Disability, Executive (or her estate or
beneficiary, as the case may be) shall have 12 months following Executive’s
employment termination date to options whether granted hereunder or on the
future.

 

1.6.3    The Executive shall be entitled to participate
commensurate with other executives of the Company in such other benefit plan,
whether equity plans such as deferred stock units, restricted stock units,
pension contribution or otherwise as the Board may approve and declare from
time to time and where appropriate acceleration shall be granted to the
Executive in accordance with the acceleration terms set out in this Section.

 

1.6.4    Notwithstanding the foregoing, in the event of a Change
in Control, all of the unvested Option shares shall vest on an accelerated
basis concurrently with the consummation of such Change in Control.  “Change in Control”
shall mean a change in ownership or control of the Company effected through any
of the following transactions:

 

(i)            a merger, consolidation or other
reorganization approved by the Company’s stockholders, unless securities
representing more than fifty percent (50%) of the total combined voting power
of the voting securities of the successor corporation are immediately
thereafter beneficially owned, directly or indirectly and in substantially the
same proportion, by the persons who beneficially owned the Company’s
outstanding voting securities immediately prior to such transaction, or

 

(ii)           a stockholder-approved sale, transfer or
other disposition of all or substantially all of the Company’s assets in
liquidation or dissolution of the Company, or

 

(iii)          the
acquisition, directly or indirectly by any person or related group of persons
(other than the Company or a person that directly or indirectly controls, is
controlled by, or is under common control with, the Company), of beneficial
ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act
of 1934, as amended (the “Exchange Act”))
of securities possessing more than fifty percent (50%) of the total combined
voting power of the Company’s outstanding securities pursuant to a stock
purchase transaction or a tender or exchange offer made directly to the Company’s
stockholders (except that the sale by the Company of shares of its capital
stock to 

 

5

 

investors
in bona fide capital raising transactions shall not be deemed to be a Change in
Control for this purpose).

 

In no event shall any public offering of the Company’s securities be
deemed to constitute a Change in Control.

 

2.             PROTECTION
OF COMPANY’S PROPRIETARY INFORMATION AND INVENTIONS.

 

This Agreement, and Executive’s employment hereunder,
is contingent upon Executive’s execution of the Company’s Proprietary
Information and Inventions Agreement, attached hereto as Exhibit A
and incorporated herein by this reference, before Executive begins working for
the Company.  The Proprietary Information
and Inventions Agreement survives the termination of this Agreement and/or the
Executive’s employment with the Company.

 

3.             REPRESENTATIONS
AND WARRANTIES BY EXECUTIVE

 

Executive represents and warrants to the Company that (i) this
Agreement is valid and binding upon and enforceable against him in accordance
with its terms, (ii) Executive is not bound by or subject to any
contractual or other obligation that would be violated by her execution or
performance of this Agreement, including, but not limited to, any
non-competition agreement presently in effect, and (iii) Executive is not
subject to any pending or, to Executive’s knowledge, threatened claim, action,
judgment, order, or investigation that could adversely affect her ability to
perform her obligations under this Agreement or the business reputation of the
Company.  Executive agrees that she will
not enter into, any agreement either written or oral in conflict herewith.

 

4.             MISCELLANEOUS

 

4.1           Notices. All
notices, requests, and other communications hereunder must be in writing and
will be deemed to have been duly given only if delivered personally against
written receipt or mailed (postage prepaid by certified or registered mail,
return receipt requested) or by overnight courier to the parties at the
following addresses:

 

If to the Executive, to:

 

Lori Jones

1034 La Tierra

San Antonio, TX 78258

Email: loriaj@satx.rr.com

 

If to the Company, to:

MDI, Inc.

835 Proton Rd.

San Antonio, TX 78258

Attn: Chief Executive Officer

Fax:

Email:

 

All such notices, requests and other communications
will (i) if delivered personally to the address as provided in this Section 4.1,
be deemed given upon delivery, and (ii) if delivered by mail or overnight
courier in the manner described above to the address as provided in this Section 4.1,
be deemed given 

 

6

 

upon receipt. 
Any party from time to time may change its address or other information
for the purpose of notices to that party by giving written notice specifying
such change to the other parties hereto.

 

4.2           Entire Agreement.  This
Agreement, and the attached Exhibit A, supersede all prior
discussions and agreements among the parties with respect to the subject matter
hereof and contain the sole and entire agreement between the parties hereto
with respect thereto.

 

4.3           Survival.   The respective rights and
obligations of the parties that require performance following expiration or
termination of this Agreement, including but not limited to Sections 4.1,
and 4.4 through 4.11, shall survive the expiration or termination
of this Agreement and/or the Executive’s employment with the Company.

 

4.4           Waiver.  Any term or condition of this Agreement may
be waived at any time by the party that is entitled to the benefit thereof, but
no such waiver shall be effective unless set forth in a written instrument duly
executed by or on behalf of the party waiving such term or condition.  No waiver by any party hereto of any term or
condition of this Agreement, in any one or more instances, shall be deemed to
be or construed as a waiver of the same or any other term or condition of this
Agreement on any future occasion.  All
remedies, either under this Agreement or by law or otherwise afforded, will be
cumulative and not alternative.

 

4.5           Amendment. 
This
Agreement may be amended, supplemented, or modified only by a written
instrument duly executed by or on behalf of each party hereto.

 

4.6           Recovery of Attorney’s Fees. 
In the
event of any litigation arising from or relating to this Agreement, the
prevailing party in such litigation proceedings shall be entitled to recover,
from the non-prevailing party, the prevailing party’s reasonable costs and
attorney’s fees, in addition to all other legal or equitable remedies to which
it may otherwise be entitled.

 

4.7           No Third Party Beneficiary.  The terms and
provisions of this Agreement are intended solely for the benefit of each party
hereto and the Company’s successors and assigns, and it is not the intention of
the parties to confer third-party beneficiary rights upon any other person.

 

4.8           No Assignment; Binding Effect.  This Agreement
shall inure to the benefit of any successors or assigns of the Company.  Executive shall not be entitled to assign her
obligations under this Agreement.

 

4.9           Headings.  The headings used in this Agreement have been
inserted for convenience of reference only and do not define or limit the
provisions hereof.

 

4.10         Severability.  The Company
and Executive intend all provisions of this Agreement to be enforced to the
fullest extent permitted by law. Accordingly, if a court of competent
jurisdiction determines that the scope and/or operation of any provision of
this Agreement is too broad to be enforced as written, the Company and
Executive intend that the court should reform such provision to such narrower
scope and/or operation as it determines to be enforceable.  If, however, any provision of this Agreement
is held to be illegal, invalid, or unenforceable under present or future law,
and not subject to reformation, then (i) such provision shall be fully
severable, (ii) this Agreement shall be construed and enforced as if such
provision was never a part of this Agreement, and (iii) the remaining
provisions of this Agreement shall remain in full force and effect and shall
not be affected by illegal, invalid, or unenforceable provisions or by their
severance.

 

4.11         Governing Law. 
THIS
AGREEMENT SHALL BE GOVERNED BY AND 

 

7

 

CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS APPLICABLE TO CONTRACTS EXECUTED AND PERFORMED IN SUCH STATE WITHOUT
GIVING EFFECT TO CONFLICTS OF LAWS PRINCIPLES.

 

4.12         Jurisdiction.  With respect
to any suit, action, or other proceeding arising from (or relating to) this
Agreement, the Company and Executive hereby irrevocably agree to the exclusive
personal jurisdiction and venue of the United States District Court for the
Western District of Texas (and any Texas State Court within Travis County,
Texas).

 

4.13         Counterparts.  This Agreement
may be executed in any number of counterparts, each of which will be deemed an
original, but all of which together will constitute one and the same
instrument.

 

 

[SIGNATURE PAGE TO EMPLOYMENT
AGREEMENT FOLLOWS]

 

8

 

IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be executed as of the date first written above.

 

 

	
   

  	
  “COMPANY”

  
	
   

  	
   

  
	
   

  	
  MDI, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John Linton

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
  John Linton

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  “EXECUTIVE”

  
	
   

  	
   

  
	
   

  	
  LORI JONES

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Lori Jones

  
	
   

  	
  Executive’s Signature

  

 

 

EXHIBIT A:          Proprietary
Information and Inventions Agreement

 

 

[SIGNATURE PAGE TO
EMPLOYMENT AGREEMENT]

 

9

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