Document:

APPENDIX A
 

 

CERTIFICATE OF DESIGNATIONS,

 

PREFERENCES AND RIGHTS OF

 

SERIES A CONVERTIBLE PREFERRED STOCK OF

 

SOMERSET INTERNATIONAL GROUP, INC.

 

PURSUANT TO SECTION 151 OF THE DELAWARE

 

GENERAL CORPORATION LAW

 

Somerset International Group, Inc., a corporation organized and existing under and by virtue of the laws of the State of Delaware (hereinafter the “Corporation”), DOES HEREBY CERTIFY:

 

Pursuant to authority expressly granted and vested in the Board of Directors of the Corporation by the provisions of the Corporation’s Certificate of Incorporation, the Board of Directors adopted the following resolution on June 30, 2004 (i) authorizing a series of the Corporation’s previously authorized preferred stock, par value $.001 per share, and (ii) providing for the designations, preferences and relative, participating, optional or other rights, and the qualifications, limitations or restrictions thereof, of Three Million and Four (3,000,004) shares of Series A Redeemable Convertible Preferred Stock of the Corporation, as follows:

 

RESOLVED:  That pursuant to the authority vested in the Board of Directors of the Corporation by the Corporation’s Certificate of Incorporation (the “Certificate of Incorporation”), a series of Preferred Stock of the Corporation be, and it hereby is, created out of the authorized but unissued shares of the capital stock of the Corporation, such series to be designated Series A Redeemable Convertible Preferred Stock (the “Series A Preferred Stock”), to consist of Three Million and Four (3,000,004) shares, par value $.001 per share, which shall have the following preferences, powers, designations and other special rights;

 

1. Voting. Unless required by law, no holder of a share of Series A Preferred Stock of record shall be entitled to vote at any meeting of the shareholders or by consent given in lieu of a meeting of the shareholders with respect to any matters presented to the stockholders of the Corporation for their action or consideration.     

 

2. Dividends.  Holders of shares of Series A Preferred Stock are entitled to receive, out of the assets of the Corporation legally available for the payment of dividends, dividends payable in cash. Dividends shall accrue at a rate equal to (a) at the rate of eight cents ($.08) per share per annum. Accrued dividends shall be payable on each of the First Redemption Date and the Second Redemption Date defined in Section 5.1 below or on any Conditional Redemption Date defined in Section 5.2 below. Dividends upon the Series A Convertible Preferred Stock are cumulative and accrue from the date of original issue. Dividends shall cease to accrue upon the 

 

 

Conversion Date with respect to any shares of Series A Preferred Stock converted pursuant to Section 4 hereof, and all dividends accrued on such shares prior to the Conversion Date shall be payable at the times specified in the third sentence of this Section 2. No cash dividend may be declared and paid or set apart for payment upon the Corporation’s Common Stock until any accrued dividend on any outstanding shares of Series A Preferred Stock has been fully paid or declared and set apart for payment. 

 

3. Liquidation.  Upon the liquidation, dissolution and winding up of the Corporation, the holders of the Series A Preferred Stock shall be entitled to receive in cash out of the assets of the Corporation, whether from capital or from earnings available for distribution to its stockholders, before any amount shall be paid to the holders of common stock, the sum of One Dollar ($1.00) per share, plus any accrued and unpaid dividends under Section 2. 

 

4. Conversion. The holders of shares of Series A Preferred Stock shall have the right to convert each share of Series A Preferred Stock into that number of fully-paid and nonassessable shares of Common Stock at the Conversion Rate on the terms set forth in this Section 4.

 

4.1       Conversion Rate and Other Definitions. The number of shares of Common Stock issuable upon conversion of each share of Series A Preferred Stock shall be determined according to the following formula (the “Conversion Rate”):

 

	
            Conversion Amount
 
	
            Conversion Price
 	
             

 

For purposes of this Certificate of Designations, the following terms shall have the following meanings:

 

 “Conversion Amount” means, as to each share of Series A Preferred Stock, One Dollar ($1.00). 

 

 “Conversion Price” means One Dollar ($1.00), as adjusted from time to time in accordance with Section 4.5 below.

 

4.2       Conversion Notice. The Holder of a share of Series A Preferred Stock may exercise its conversion right by giving a written conversion notice in the form of Exhibit A hereto (the “Conversion Notice”) (x) by facsimile to the Corporation’s transfer agent for its Common Stock, as designated by the Corporation from time to time (the “Transfer Agent”), confirmed by a telephone call or (y) by overnight delivery service, with a copy by facsimile to the Company and to its counsel, as designated by the Corporation from time to time. If such conversion will result in the conversion of all of such Holder’s Series
A Preferred Stock, the Holder shall also surrender the certificate for the Series A Preferred Stock to the Corporation at its principal office (or such other office or agency of the Corporation may designate by notice in writing to the Holder) at any time during its usual business hours on the date set forth in the Conversion Notice.

 

4.3       Issuance of Certificates; Time Conversion Effected.   Promptly, but in no event more than three (3) Trading Days, after the receipt of the Conversion Notice referred to in 

 

 

Subsection 3(c) and surrender of the Series A Preferred Stock certificate (if required), the  Corporation shall cause to be issued and delivered, to the Holder, registered in such name or names as the Holder may direct, a certificate or certificates for the number of whole shares of Common Stock into which the Series A Preferred Stock has been converted. In the alternative, if the Corporation’s Transfer Agent is a participant in the electronic book transfer program, the Transfer Agent shall credit such aggregate number of shares of Common Stock to which the Holder shall be entitled to the Holder’s or its designee’s balance account with The Depository Trust Corporation. Such conversion shall be deemed to have been effected, and the “Conversion Date” shall be deemed to have occurred, on the date on which such Conversion Notice shall have
been received by the Corporation and at the time specified stated in such Conversion Notice, which must be during the calendar day of such notice. The rights of the Holder of the Series A Preferred Stock shall cease, and the person or persons in whose name or names any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the shares represented thereby, on the Conversion Date. Issuance of shares of Common Stock issuable upon conversion that are requested to be registered in a name other than that of the registered Holder shall be subject to compliance with all applicable federal and state securities laws.

 

4.4       Fractional Shares. The Corporation shall not, nor shall it cause the Transfer Agent to, issue any fraction of a share of Common Stock upon any conversion. All shares of Common Stock (including fractions thereof) issuable upon conversion of shares of Series A Preferred Stock by the Holder shall be aggregated for purposes of determining whether the conversion would result in the issuance of a fraction of a share of Common Stock. If, after such aggregation, the issuance would result in the issuance of a fraction of a share of Common Stock, the Corporation shall round, or cause the Transfer Agent to round, such fraction of a share of Common Stock up to the nearest whole share.

 

4.5       Adjustment to Conversion Price. In order to prevent dilution of the rights granted under the Series A Preferred Stock, the Conversion Price will be subject to adjustment from time to time as provided in this Subsection 4.5.

 

4.5.1    Adjustment of Conversion Price upon Subdivision or Combination of Common Stock. If the Corporation at any time subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision will be proportionately reduced. If the Corporation at any time combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such combination will be proportionately increased.

 

4.5.2    Reorganization, Reclassification, Consolidation, Merger or Sale. Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Corporation’s assets to another Person (as defined below) or other transaction which is effected in such a way that holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock is referred to herein as an “Organic Change.”  Prior to the consummation of any Organic Change, the Corporation will make appropriate provision (in form and substance 

 

 

reasonably satisfactory to the Holder) to insure that the Holder will thereafter have the right to acquire and receive in lieu of or in addition to (as the case may be) the shares of Common Stock otherwise acquirable and receivable upon the conversion of this Series A Preferred Stock, such shares of stock, securities or assets as would have been issued or payable in such Organic Change with respect to or in exchange for the number of shares of Common Stock that would have been acquirable and receivable had this Series A Preferred Stock been converted into shares of Common Stock immediately prior to such Organic Change (without taking into account any limitations or restrictions on the timing or amount of conversions). In any such case, the Corporation will make appropriate provision (in form and substance reasonably satisfactory to the Holder) with respect to the Holder’s rights and interests to insure
that the provisions of this Section 4.5 will thereafter be applicable to the Series A Preferred Stock (including, in the case of any such consolidation, merger or sale in which the successor entity or purchasing entity is other than the Corporation, an immediate adjustment of the Conversion Price in accordance with Subsection 4.5.1 using the value for the Common Stock reflected by the terms of such consolidation, merger or sale, if the value so reflected is less than the Conversion Price in effect immediately prior to such consolidation, merger or sale). The Corporation will not effect any such consolidation, merger or sale, unless prior to the consummation thereof, the successor entity (if other than the Corporation) resulting from consolidation or merger or the entity purchasing such assets assumes, by written instrument, the obligation to deliver to each holder of Series A Preferred Stock such shares of stock, securities or assets as, in accordance with the foregoing provisions,
such holder may be entitled to acquire. 

 

4.6       No Reissuance of Series A Preferred Stock. Shares of Series A Preferred Stock that are converted into shares of Common Stock as provided herein shall not be reissued.

 

	
            5.
 	
            Redemption of Series A Preferred Stock.
 

 

5.1        Scheduled Redemption.  On January 15, 2006 (the “First Redemption Date”) the Corporation shall redeem 50% of the shares of Series A Preferred Stock then held by each Registered Holder. On July 15, 2007 (the “Second Redemption Date”), the Corporation shall redeem all shares of Series A Preferred Stock then outstanding. 

 

5.2       Conditional Redemption.  In the event that any of the Redemption Conditions itemized below occurs and is continuing, and the Holders of a majority of the outstanding Series A Preferred Stock send to the Corporation a written demand for redemption, then the Corporation shall immediately redeem all of the outstanding Series A Preferred Stock.  The date on which the Corporation redeems shares pursuant to this Section 5.2 is the “Conditional Redemption Date.”  The following are the “Redemption Conditions:”

 

5.2.1          The Corporation shall default in making the full payment due to the Holders on any Redemption Date identified in Section 5.1, and the default shall continue for a period of ten (10) days; or

 

5.2.2          Secure System, Inc. (“Secure”) shall default in making any payment due to the holders of the Profit Participation Certificates issued with the Series A Preferred Stock, and such default shall continue for a period of ten (10) days after written notice of default is given to the Corporation; or 

 

 

 

 

5.2.3          Any of the representations or warranties made by the Corporation in the Agreement and Plan of Merger (the “Merger Agreement”) pursuant to which the Series A Preferred Stock was issued, or in any agreement, certificate or financial or other written statements heretofore or hereafter furnished by the Corporation in connection with the execution and closing of the Merger Agreement shall be false or misleading in any material respect at the time made; or 

 

5.2.4          The Corporation shall default in complying with any covenant in this Certificate of Designations or in the Merger Agreement or in a Stock Pledge and Escrow Agreement given for the benefit of the Holders of the Series a Preferred Stock (the “Stock Pledge Agreement”), and such default shall continue for a period of thirty (30) days after written notice of the default has been given to the Corporation; or

 

5.2.5      Secure shall make any payment to the Corporation or to any affiliate of the Corporation or person associated with the Corporation, whether as a dividend, loan, payment in compensation or otherwise, except for payments for services rendered, or for goods sold and delivered for an amount not greater than would be paid for such goods to a third party vendor as evidenced by contemporaneous market price information; or

 

5.2.6          Secure shall issue any capital stock or securities or other instruments convertible into capital stock or shall grant to any person the right to purchase or otherwise acquire its capital stock; or

 

5.2.7          A default or an event of default shall have occurred and be continuing for more than thirty (30) days with respect to any Funded Debt in excess of $50,000 in the aggregate owed by the Corporation or by Secure. For purposes hereof, “Funded Debt” means all (a) indebtedness for borrowed money or for the deferred purchase price of property or services (other than trade liabilities and accrued expenses incurred in the ordinary course of business and payable in accordance with customary practices), whether on open account or evidenced by a note, bond, debenture or similar instrument or otherwise, (b) obligations under capital leases, (c) reimbursement
obligations for letters of credit, banker’s acceptances or other credit accommodations, (d) contingent obligations and (e) obligations secured by any lien on the Corporation’s property or Secure’s, even if the Corporation or Secure, as applicable, has not assumed such obligations; or

 

5.2.8          Either the Corporation or Secure shall (A) admit in writing its inability to pay its debts generally as they mature; (B) make an assignment for the benefit of creditors or commence proceedings for its dissolution; or (C) apply for or consent to the appointment of a trustee, liquidator or receiver for its or for a substantial part of its property or business; or

 

5.2.9          A trustee, liquidator or receiver shall be appointed for either the Corporation or Secure or for a substantial part of its property or business without its consent and shall not be discharged within sixty (60) days after such appointment; or

 

 

 

 

5.2.10  Any money judgment, writ or warrant of attachment, or similar process in excess of One Hundred Thousand ($100,000) Dollars in the aggregate shall be entered or filed against the Corporation or Secure or any of its properties or other assets and shall remain unpaid, unvacated, unbonded or unstayed for a period of sixty (60) days or in any event later than five (5) days prior to the date of any proposed sale thereunder; or

 

5.2.11  Bankruptcy, reorganization, insolvency or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Corporation or Secure and, if instituted against the Corporation or Secure, shall not be dismissed within sixty (60) days after such institution or the Corporation or Secure shall by any action or answer approve of, consent to, or acquiesce in any such proceedings or admit the material allegations of, or default in answering a petition filed in any such proceeding; or

 

5.3       Redemption Price. The “Redemption Price,” in the event of either a Scheduled Redemption pursuant to Section 5.1 or a Conditional Redemption pursuant to Section 5.2, shall be One Dollar ($1.00) for each share of Series A Preferred Stock redeemed. 

 

5.4       Payment of Redemption Price. Payment of the Redemption Price and dividends accrued pursuant to Section 2 hereof shall be made by delivery of a personal check to the Holder at the address of the Holder appearing on the Stock Register required to be maintained under Section 10 hereof, or at such other address as designated by the Holder in writing to the Corporation.

 

5.5.  Event of Default.   Except in the event of a violation of Sections 5.2.5 or 5.2.6, in the event that the holders of a majority of the outstanding Series A Preferred Stock send a written demand for redemption under Section 5.2 as a result of any of the occurrence of any of the conditions specified in Section 5.2, and in the further event that the Corporation shall fail to pay the applicable Redemption Price within 15 days after the Corporation’s obligation to make payment accrues, then each Holder of the then outstanding shares of Series A Preferred Stock shall be entitled to declare an “Event of Default” and receive a return of some or all of the Holder’s former shares of the capital stock of  Secure in exchange for a surrender of all of the Holder’s unconverted and unredeemed
Series A Preferred Shares, as set forth in more detail in the Stock Pledge and Escrow Agreement. In the event of a violation of Sections 5.2.5 or 5.2.6, any Holder may declare an “Event of Default” without the necessity of a vote of the majority of the outstanding Series A Preferred Stock.

 

6. Vote to Change the Terms of or Issue Series A Preferred Stock. The affirmative vote at a meeting duly called for such purpose, or the written consent without a meeting, of the holders of not less than fifty-one percent (51%) of the then outstanding shares of Series A Preferred Stock shall be required for (i) any change to  the Corporation’s Articles of Incorporation that would amend, alter, change or repeal any of the preferences, limitations or relative rights of the Series A Preferred Stock, or (ii) any issuance of additional shares of Series A Preferred Stock.

 

	
            7.
 	
            Notices. In case at any time:
 

 

 

 

 

 (a)       the Corporation shall declare any dividend upon its Common Stock payable in cash or stock or make any other pro rata distribution to the holders of its Common Stock; or 

 

 (b)       the Corporation shall offer for subscription pro rata to the holders of its Common Stock any additional shares of stock of any class or other rights; or 

 

	
            (c)
 	
            there shall be any Organic Change;
 

 

then, in any one or more of such cases, the Corporation shall give, by first class mail, postage prepaid, or by facsimile or by recognized overnight delivery service to non-U.S. residents, addressed to the Registered Holders of the Series A Preferred Stock at the address of each such Holder as shown on the books of the Corporation, (i) at least twenty (20) Trading Days’ prior written notice of the date on which the books of the Corporation shall close or a record shall be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such Organic Change and (ii) in the case of any such Organic Change, at least twenty (20) Trading Days’ prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause (i) shall also specify, in the case of any such dividend, distribution or subscription rights, the
date on which the holders of Common Stock shall be entitled thereto, and such notice in accordance with clause (ii) shall also specify the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such Organic Change.

 

8.         Board Observer. Until each share of Series A Preferred Stock is redeemed or converted, as provided herein, the Holders of the Series A Preferred Stock shall be entitled to nominate (by majority in interest of the Holders) one person to attend each meeting of the Corporation’s Board of Directors as an observer (the “Observer”). The initial Observer shall be Gregory Lawson, who may designate Stephen Roman to act as Observer in his place from time to time.

 

9.         Record Owner. The Corporation may deem the person in whose name shares of Series A Preferred Stock shall be registered upon the registry books of the Corporation to be, and may treat him as, the absolute owner of the Series A Preferred Stock for the purposes of conversion or redemption and for all other purposes, and the Corporation shall not be affected by any notice to the contrary. All such payments and such conversion shall be valid and effective to satisfy and discharge the liabilities arising under this Certificate of Designations to the extent of the sum or sums so paid or the conversion so made.

 

10.         Register. The Corporation shall maintain a transfer agent, which may be the transfer agent for the Common Stock or the Corporation itself, for the registration of the Series A Preferred Stock. Upon any transfer of shares of Series A Preferred Stock in accordance with the provisions hereof, the Corporation shall register or cause the transfer agent to register such transfer on the Stock Register.

 

 

 

 

11.         Document References. This Certificate of Designations contains references to the terms of the following documents which materially impact the rights of holders of Series A Preferred Stock:     

	
            Merger Agreement
 	
             

	
            Stock Pledge and Escrow Agreement
 
	
            Profit Participation Certificate
 	
             

			

 

True and accurate copies of the above documents are maintained at the offices of the Corporation located at 90 Washington Valley Road, Bedminster, NJ 07921, and are available for inspection during normal business hours. A copy of each document will be provided, upon written request, to the holder of any Series A Preferred Stock.

 

IN WITNESS WHEREOF, John X. Adiletta, Chief Executive Officer of the Corporation, under penalties of perjury, does hereby declare and certify that this is the act and deed of the Corporation and the facts stated herein are true and accordingly has signed this Certificate of Designations as of this 30th  day of June, 2004.

 

	
            _______________________________
 
	
            John X. Adiletta, CEO
 	
             

 

 

 

EXHIBIT A

SOMERSET INTERNATIONAL GROUP, INC.

CONVERSION NOTICE

 

Reference is made to the Certificate of Designations, Preferences and Rights of Series A Convertible Redeemable Preferred Stock dated June 30, 2004 (the “Certificate of Designations”), of Somerset International Group, Inc., a Delaware corporation (the “Company”). In accordance with and pursuant to the Certificate of Designations, the undersigned hereby elects to convert the number of shares of Series A Preferred Stock, par value $0.001 per share (the “Preferred Shares”) indicated below into shares of Common Stock, par value $0.001 per share (the “Common Stock”), of the Company, by tendering the stock certificate(s)
representing the Preferred Shares specified below as of the date specified below.

 

	
            Date of Conversion:
 	
            __________________________________
 

 

	
            Number of Preferred Shares to be converted:  
 

 

Please confirm the following information:

 

	
            Conversion Price:
 	
             

	
            Number of shares of Common Stock
 
	
            to be issued:
 	
             

			

 

Please issue the Common Stock into which the Preferred Shares are being converted and, if applicable, any check drawn on an account of the Company in the following name and to the following address:

 

	
            Issue to:
 	
             

	
            Facsimile Number:
 	
             

	
            Authorization:
 	
             

	
             
	
            By:  
 	
             

	
             
	
            Title:  
 
						

 

Applicable only if the Transfer Agent is a participant in the electronic book entry transfer program:

	
            Account Number:
 	
             

	
             
	
            (if electronic book entry transfer):
 	
             

	
            Transaction Code Number
 	
             

	
             
	
            (if electronic book entry transfer):
 	
             

	
            Participant Code:
 
					

 

THIS NOTICE MUST BE DELIVERED TO THE TRANSFER AGENT:

American Stock Transfer & Trust Company is 59 Maiden 

Lane, New York, NY  10038. Phone 212-936-5100. Fax 718-236-4588.

WITH AN ADDITIONAL COPY TO BE MAILED TO THE COMPANYEMPLOYMENT AGREEMENT

 

THIS AGREEMENT is made as of January 6, 2004, between Somerset International Group, Inc., a New Jersey corporation (the “Corporation”), and John X. Adiletta (the “Employee”).

Introduction

The Corporation wishes to retain the services of the Employee and the Employee wishes to be employed by the Corporation. The Employee has detailed knowledge of various aspects of the Corporation’s business and is in possession of proprietary and confidential information concerning the business. The disclosure of such information or the engaging in competitive activities would cause substantial harm to the Corporation.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1.            Employment. The Employee currently is employed by the Corporation and the Employee hereby accepts his continued employment upon the terms and conditions hereinafter set forth.

2.            Term. Unless earlier terminated in accordance with the terms hereof, the term of this Agreement shall be for the period commencing as of the date hereof and ending five years from that date; provided, however, that on the anniversary date of each year thereafter, this Agreement shall automatically be extended for successive one-year periods unless the Corporation or the Employee shall have given the other written notice of its intention to terminate this Agreement at least six (6) months prior to the anniversary date of any such year. Such notice by the Corporation to terminate this Agreement shall be deemed a termination without cause under Section 12
hereof. Any failure by the Corporation or the Employee to give timely notice of termination shall cause the term of employment of the Employee to be automatically renewed hereunder for an additional one-year period.

3.            Duties. The Employee shall serve as President and Chief Executive Officer of the Corporation, in which capacities he shall be responsible for directing the day-to-day operations and strategy of the Corporation and its subsidiaries and such other duties consistent with such position as the Board of Directors of the Corporation (the “Board”) shall determine from time to time. In addition, in the event Employee does not possess the right as a shareholder to appoint a Director, Employee shall serve as a Director of the Corporation. Without limiting the foregoing, the Employee shall consult with the Board with respect to determining the Corporation’s business strategies. The Employee shall
receive no additional compensation for any services rendered as a Director in the event he is simultaneously employed by the Corporation and serving as a director of the Corporation or any of its subsidiaries.

	
             
  	
            4.
 	
            Compensation.
 

(a)          For all services rendered by the Employee pursuant to this Agreement, during the term of this Agreement the Corporation shall pay the Employee a salary at the annual 

 

693345.1

 

 

rate of $250,000,  (which amount shall automatically increase to $300,000 when and if the Corporation’s run rate revenues, based on the trailing six months annualized, exceed $25,000,000), which salary shall be cumulatively increased by no less than 10% upon each anniversary date of this Agreement. The Board in its sole discretion may further increase said salary from time to time. Payments hereunder shall be made at the same frequency as payments made to other employees of the Corporation. In exercising such discretion, the Board of Directors shall, not less than once each year, assess the Employee’s performance relative to performance criteria discussed by the Board with the Employee and adopted by the Board at the beginning of such year.

At any time, at the sole discretion of the Board, the Corporation may grant to the Employee a bonus in such amount and in such form, as it deems appropriate. In addition, the Employee will earn a bonus as follows:  five percent (5%) of the EBITDA ( earnings before interest, depreciation, and amortization) based on the audited consolidated results of the Company. This bonus shall be payable within thirty days (30) after the audit has been completed.

Additionally, in exchange for the Employee’s assistance arranging the Corporation’s organization and financing, the Corporation shall pay the Employee, at the closing of the financing, in cash, a transaction fee of $75,000.

5.            Full Time; Best Efforts. During the term of this Agreement, the Employee shall use his best efforts to promote the interests of the Corporation and shall devote his full time and efforts to its business and affairs. The Employee shall not engage in any other activity that could reasonably be expected to interfere with the performance of his duties, responsibilities and services hereunder.

6.            Expenses. The Employee is authorized to incur reasonable expenses for promoting the business of the Corporation, including expenses for entertainment, travel and similar items. The Corporation will reimburse the Employee for appropriate expenses upon the Employee’s presentation of an itemized account of such expenditures. The Corporation shall at all times retain access to the records maintained by Employee relative to reimbursable expenses. In recognition of Employee’s need for an automobile for business purposes, the Corporation will provide Employee with an automobile allowance equal to $1,500.00 per month and a mobile phone allowance of $175.00 per month.

7.            Restrictive Covenants. During the term of this Agreement and for a period of one (1) year after the termination of Employee’s employment with the Corporation pursuant to the terms of this Agreement, regardless of the reason for such termination, the Employee will not, directly or indirectly, individually or as a consultant to, or as an officer, director, employee, equity owner or agent of, or otherwise participate in the ownership or operation of any business providing similar products and services as the Corporation in the geographical areas served by the Corporation and its subsidiaries at the time of such termination, but nothing contained herein shall be deemed to prohibit the Employee from investing in any company engaged in such business,
the stock of which is available in a public securities market; provided, however, that the Employee shall not own in excess of 5% of the total issued and outstanding stock of such company.

 

 

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693345.1

 

       

       

       

 

 

During the term of this Agreement and for a period of one (1) year after the termination of such employment, regardless of the reason for such termination, the Employee will not, directly or indirectly, solicit or endeavor to entice away from the Corporation or any of its subsidiaries, or otherwise materially interfere with the business relationship of the Corporation or any subsidiary with, (i) any person who is employed by or associated with the Corporation or any subsidiary or (ii) any person or entity who is, or was within a one (1) year period immediately preceding termination, a customer or client of, supplier to or other party having material business relations with the Corporation or any subsidiary.

The Employee acknowledges that a breach of any of the covenants contained in this paragraph 7 would result in irreparable injury to the Corporation for which there may be no adequate remedy at law and that, in the event of an actual or threatened breach by the Employee of the provisions of this paragraph 7, the Corporation shall be entitled to pursue and obtain injunctive relief restraining the Employee from doing any act prohibited hereunder. Nothing contained herein shall be construed as prohibiting the Corporation from pursuing any other remedies available to it for such breach or threatened breach, including the recovery of any monetary damages to which it would be entitled under the law. In the event that any provision of this paragraph 7 is held to be unenforceable as a result of it being too broad, either in terms of time or geographical extent, the Employee agrees that the court
can adapt and limit this paragraph 7 so as to make the provisions hereof enforceable to the fullest extent permissible.

8.            Disclosure of Information. The Employee recognizes and acknowledges that the Corporation’s trade secrets and all other confidential and proprietary information of a business, financial or other nature, including without limitation, lists of the Corporation’s actual and prospective customers, as they exist from time to time (collectively, the “Confidential Information”), are a valuable and unique asset of the Corporation and therefore agrees that he will not, either during or after the term of his employment, disclose any Confidential Information concerning the Corporation and/or its subsidiaries, to any person, firm, corporation, association or other entity, for any reason
whatsoever, unless previously authorized to do so by the Corporation’s Board. It is understood that the term “Confidential Information” shall not include any information that has entered or enters the public domain through no fault of the Employee. The Employee shall not make any use whatsoever, directly or indirectly, of the Confidential Information, except as required in connection with the performance of his duties for the Corporation. For the purpose of enforcing this provision, the Corporation may resort to any remedy available to it under the law.

9.            Medical and Vacation Benefits. The Employee shall be entitled to receive medical (including disability) and vacation benefits at the expense of the Corporation, consistent with those generally available to any other officer or employee of the Corporation. In the event that the Company does not have a defined medical plan in effect, the Employee will be entitled to an allowance of $1100.00 per month.

	
             
  	
            10.
 	
            Disability and Death.
 

(a)          In the event that Employee is absent from employment by reason of illness or other incapacity by which Employee is unable to perform the essential functions of his 

 

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693345.1

 

position for more than six (6) consecutive months during the term of this Agreement, the Corporation may at its option terminate this Agreement. If the Corporation elects not to terminate, the Corporation shall be obligated to continue to pay the Employee compensation hereunder.

(b)          If the Employee dies during the term of this Agreement, the Corporation shall pay to the Employee’s estate in a lump sum within 30 days after the date of death an amount equal to 50% of the Employee’s annual salary rate then payable to the Employee pursuant to paragraph 4 of this Agreement.

11.          Insurance. For so long as the Employee remains employed by the Corporation, the Corporation shall either (a) at its cost and expense maintain term life insurance on the Employee’s life in the amount of $1,000,000 so long as such amount is obtainable, or (b) upon Employee’s presentation of proof of such expenditure, reimburse Employee for the cost and expense of such life insurance obtained by Employee. Employee shall have the right to designate the beneficiary of such insurance. The Employee shall cooperate with the Corporation in maintaining such insurance policy and obtaining any key man life insurance that the Corporation may elect to obtain for its own benefit.

12.          Termination. The Corporation shall have the right, on written notice to the Employee, by action of its Board to terminate the Employee’s employment immediately at any time for cause or without cause. For purposes of this Agreement, “cause” shall mean (i) conviction of a crime involving dishonesty or (ii) willfully engaging in conduct materially injurious to the Corporation or (iii) the material breach of this Agreement or any other agreement between the Employee and the Corporation, which material breach has not been cured by Employee within ten days after
Employee’s receipt of written notice from the Corporation of such material breach. In the event of termination of employment by the Corporation pursuant to this paragraph 12 without cause, the Corporation shall (x) continue for a period equal to the greater of (x) the balance of the original term of this Agreement or (y) one year (a) pay to Employee his salary at the then annual rate and (b) provide to Employee the benefits under paragraphs 4, 9 and 11 of this Agreement and (y) within 1 month of termination pay to the Employee an amount equal to the bonus or other incentives paid to the Employee in the preceding year under this Agreement. Employee shall not be required to mitigate the amount of any payment provided for in this paragraph 12 by seeking other employment or otherwise, nor shall the
amount of any payment or benefit provided for in this paragraph 12 be reduced by any compensation earned by Employee as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by Employee to the Corporation or otherwise. In the event of termination of this Agreement for any other reason (including death or disability), the Corporation shall have no further obligation to make any payments or provide any benefits hereunder (except, where applicable, the payments required under paragraph 10 or under paragraph 12A below.

In the event of termination of the Employee’s employment by the Corporation in the first year of this Agreement pursuant to paragraph 12 of the Employment Agreement without cause, the Corporation shall pay as additional severance to Employee, no later than the thirtieth day following the effective date of termination, the greater of an amount equal to 150% of the 

 

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maximum allowable bonus payable to the Employee pursuant to Section 4(b) of the Employment Agreement or $150,000. 

	
             
 	
            12A.
 	
            Change in Control.
 

(a)          In the event that (i) the duties and responsibilities of Employee are at any time significantly changed (by diminution, increase or other significant alteration) from the duties and responsibilities presently exercised by him or (ii) there is a “Change in Control” (as hereinafter defined) of the Corporation, Employee may at his election, at any time within one year after either of such events, terminate this Agreement with 60 days prior written notice and Employee shall be entitled to the following compensation, in lieu of the other compensation and bonuses provided herein:

	
             
 	
            (A)
 	
            In lieu of any further salary and bonus payments to Employee for periods subsequent to the termination, the Corporation shall pay as severance pay to Employee, no later than the thirtieth day following the effective date of termination, (x) a lump-sum severance payment equal to 200% of Employee’s annual salary rate in effect as of the termination, or if greater, such rate in effect immediately prior to the Change in Control of the Corporation and (y) an amount equal to 200% of any bonus received by him for the previous year.
 

	
             
 	
            (B)
 	
            For an eighteen (18) month period after such termination, the Corporation shall arrange to provide Employee with life, disability, and accident and group health insurance benefits substantially similar to those that Employee was receiving immediately prior to the termination
 

(b)          Employee shall not be required to mitigate the amount of any payment provided for in this paragraph 12A by seeking other employment or otherwise.

(c)          For purposes of this Agreement, a “Change in Control” shall be deemed to have occurred if (i) any “person” or group of  “persons” (as the term “person” is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934) (other than persons (A) holding equity interests or (B) with whom the Corporation has entered into definitive agreements regarding the purchase of equity interests, as of the first day of the term date of this Agreement and their affiliates, and other than the Employee) becomes the beneficial owner, directly or indirectly, of securities of the Corporation representing 50% or more of the combined voting power of the then outstanding securities of the Corporation; (ii) during
any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors, and any new director whose election or nomination was approved by the directors in office who either were directors at the beginning of the period or whose election or nomination was previously so approved, cease for any reason to constitute at least a majority thereof; or (iii) the stockholders of the Corporation approve a merger or consolidation of the Corporation with any other entity, other than a merger or consolidation which would result in the voting securities of the 

 

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Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the Corporation or such surviving entity outstanding immediately after such merger or consolidation

13.          Enforceability, etc. This Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision hereof shall be prohibited or invalid under any such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating or nullifying the remainder of such provision or any other provisions of this Agreement. If any one or more of the provisions contained in this Agreement shall for any reason be held to be excessively broad as to duration, geographical scope, activity or subject, such provisions shall be construed by limiting and reducing it so as to be enforceable to the maximum extent permitted by applicable law.

14.          Arbitration. Any and all claims arising from, or relating to, this Agreement, its interpretation, or its alleged breach or enforcement, shall be resolved by binding arbitration according to the rules of the American Arbitration Association (“AAA”) for commercial disputes then in effect, and with submission to the AAA. The arbitration shall occur in New York, New York and the parties waive any objection to this choice of alternative dispute resolution, procedures or venue. The parties shall agree upon the arbitrator or, if no agreement can be reached within ten (10) days after either party requests in writing the appointment of an arbitrator, the arbitrator shall be appointed upon petition by either party
to the presiding civil judge of the applicable jurisdiction. Any arbitration hereunder shall be completed within one hundred and twenty (120) days after appointment of an arbitrator. The arbitrator selected to resolve the dispute shall be authorized to award reasonable attorneys’ fees and costs to the prevailing party in the arbitration, and to include such sum in the final arbitration award. The arbitration award may be confirmed as a judgment in any court having jurisdiction of the subject matter and parties.

15.          Notices. Any notice or other communication given pursuant to this Agreement shall be in writing and shall be personally delivered, sent by overnight courier or express mail, or mailed by first class certified or registered mail, postage prepaid, return receipt requested to the parties at their respective addresses set forth on the signature page hereof, or to such other address as the parties shall have designated by notice to the other parties.

16.          Waiver. The waiver by either party of a breach of any provision of this Agreement by the other shall not operate or be construed as a waiver of any subsequent breach.

17.          Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the Corporation, its successors and assigns, and the Employee, his heirs and legal representatives.

18.          Entire Agreement. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof. It may be changed only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought. This Agreement shall be construed in accordance with and 

 

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governed by the laws of the State of New Jersey without giving effect to principles of conflicts of laws. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement.

 

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

 

 

	
             
 	
            Somerset International Group, Inc.
 

 

 

	
             
 	
            /s/ Paul Patrizio                                      
 
	
             
 	
            Paul Patrizio
 	
             

	
             
 	
            Chairman
 	
             

				

 

 

	
             
 	
            /s/ John X. Adiletta                              
 
	
             
 	
            John X. Adiletta
 	
             

	
             
 	
            Employee
 	
             

				

 

Address:

	
             
 	
            51 Boulderwood Drive
 	
             

	
             
 	
            Bernardsville, NJ 07924
 

 

 

 

7

 

693345.1

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