Document:

EXHIBIT 10.1

 

EMPLOYMENT AGREEMENT

 

This Employment Agreement (“Agreement”),
dated as of September 2, 2008 (“Effective Date”)
by and between GlobalSCAPE, Inc., a Delaware corporation (“Employer” or the “Company”), and
James R. Morris (“Employee”).

 

R E C I T A L S:

 

WHEREAS, Employer desires to employ Employee as its President and Chief
Executive Officer;

 

WHEREAS, the Employer considers the maintenance of a sound management
team, including Employee, essential to protecting and enhancing its best
interests and those of its stockholders.

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, the parties hereto agree as follows:

 

Section 1.              Employment.  Employer hereby employs Employee, and
Employee hereby accepts employment, upon the terms and subject to the terms and
conditions of this Agreement.  Unless
otherwise consented to by Board of Directors, Employee’s principal place of
employment shall be at the Company’s headquarters in San Antonio, Texas.

 

Section 2.              Duties.  During the Term (as defined below), Employee
shall be employed as President and Chief Executive Officer of Employer.  Employee shall report to the Chairman of the
Board of Directors of Employer.  Employee
agrees to diligently and honestly exercise his business judgment in the
discharge of the duties as are customary to this position as those duties are
determined from time to time by the Board of Directors of the Employer (the “Board”) and to fully comply with all laws and regulations
pertaining to the performance of this Agreement, all ethical rules, Employer’s
Code of Business Conduct & Ethics for Members of the Board of
Directors and Executive Officers as well as any and all of policies, procedures
and instructions of the Company including, but not limited to, the provisions
of Section 304 of the Sarbanes-Oxley Act of 2002.  Employee agrees to devote his full work time
and best efforts to the performance of the duties as an employee of Employer; provided, however, that Employee shall not be precluded from engaging
in non-profit activities (such as serving on the boards of trade and industry
associations, or religious, charitable or other community organizations), as
long as such activities do not unreasonably interfere with Employee’s duties
and responsibilities as President and Chief Executive Officer of Employer. 
Employee will not, during the Term, directly or indirectly, engage in
any other business, either as an employee, employer, consultant, principal,
officer, director, advisor, or in any other capacity, either with or without
compensation, without the prior written consent of the Employer.  Employee shall also comply with all
reasonable rules and regulations and policies now in effect or as
subsequently modified, governing the conduct of Employer’s employees, including
policies relating to insider trading and reporting obligations intended to
comply with the Securities Exchange Act of 1933.

 

 

Section 3.              Term.  The term of employment of Employee hereunder
shall be two (2) years from the date hereof (the “Term”).  This Agreement may be terminated prior to the
end of the Term pursuant to Section 6
below.

 

Section 4.              Compensation
and Benefits.  In
consideration for the services of Employee hereunder, Employer shall compensate
Employee as follows:

 

(a)           Base Salary.  Until
the termination of Employee’s employment hereunder (but subject to any
severance or other payment to which Employee may be entitled pursuant to this
Agreement or otherwise following termination of his employment), Employer shall
pay Employee a base salary of $200,000 annually (the “Base Salary”),
payable in accordance with the regular payroll practices of Employer for
executives, less such deductions or amounts as are required to be deducted or
withheld by applicable laws or regulations and less such other deductions or
amounts, if any, as are authorized in writing by Employee.  Such Base Salary shall be reviewed at least
annually by the Compensation Committee of the Board (the “Committee”),
and may be increased in the sole discretion of the Committee, but not decreased
(any increased amount thereupon being the Base Salary hereunder).

 

(b)           Incentive Compensation. 
For each fiscal year of the Company which ends during the Term,
beginning with the fiscal year ending December 31, 2009, Employee shall be
eligible to receive an annual cash bonus of up to 40% of the Base Salary (the “Annual Bonus”), as recommended and approved by the
Committee, if the Company and Employee, as applicable, achieve the performance
targets set by the Committee and communicated to the Employee.  Incentive Compensation shall be paid (i) in
accordance with, and subject to those terms and conditions of, the Company’s
annual incentive compensation plan which are administrative or which are
required for compliance with Section 162(m) of the Internal Revenue
Code of 1986 (the “Code”);
provided that nothing in the Company’s plan shall apply adversely with respect
to Employee to the extent inconsistent with the express terms of this
Agreement; and (ii) in no event later than the 15th day of the third month
following the end of the taxable year (of the Company or Employee, whichever is
later) in which the performance targets have been achieved.   Employee shall be required to repay any after-tax
portion of Annual Bonus received in respect of any year in which there is an
accounting restatement due to the material noncompliance of the Company with
any financial reporting requirement under the securities laws as a result of
misconduct.

 

(c)           Sign-On Bonus.  Within
one week of execution and delivery of this Agreement in lieu of an Annual Bonus
for the fiscal year ending December 31, 2008, the Company shall pay
Employee a one-time bonus of $50,000, less such deductions or amounts as are
required to be deducted or withheld by applicable laws or regulations.

 

(d)           Stock Option Plan. 
Employee shall be granted options to purchase 300,000 shares of common
stock, par value $0.001 per share, of Employer (“Stock
Options”), under the GlobalSCAPE, Inc. 2000 Stock Option Plan
(the “Plan”) and pursuant to the terms of the
Stock Option Agreement in substantially the form used by Employer in connection
with the grant of stock options to their officers and executives, a copy of
which is attached as Exhibit A hereto.  The per share exercise price under the Stock
Option shall equal the price established pursuant to the Plan.

 

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(e)           Paid Time Off. 
Employee shall be entitled to vacation and other paid time off in
accordance with Employer’s policies for officers and executives, as they may be
modified from time to time during Employee’s employment hereunder, provided
that Employee will have no less than fifteen (15) days of paid vacation during
each year of this Agreement, six (6) days of paid sick leave, and three (3) days
of personal leave during each one year term accruing bi-weekly.  Additionally, Employer agrees that 10 days of
paid vacation shall be deemed accrued as of the Effective Date of this
Agreement.  Vacation and personal days
shall be scheduled in advance and must be taken at such time or times as
approved by the Board.

 

(f)            Group Insurance and Other Benefits.  Employee shall be entitled to receive the
same benefits Employer makes generally available to their officers and
executives, including, without limitation, participation in Employer’s group
health, life and disability programs, and Employee’s entitlement to and
participation in such benefits programs shall be at the same rates which are
available to Employer’s other executives and officers. .

 

(g)           Savings Plans.  Employee
shall be entitled to participate in Employer’s 401(k) plan, or other
retirement or savings plans as are made available to Employer’s other
executives and officers and on the same terms which are available to Employer’s
other executives and officers.

 

Section 5.              Expenses.  Employer will reimburse Employee for expenses
related to the performance of his duties in accordance with its reimbursement
policies for executives and officers in effect from time to time.

 

Section 6.              Defined
Terms Relating to Termination. 
The following capitalized terms used in this Agreement shall have the
meanings set forth in this Section 6:

 

(a)           Change in Control. 
For purposes of this Agreement, a “Change in Control”
shall be deemed to have occurred if (a) any “person” or “group” (as such
terms are used in Section 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended, (the “Exchange Act”))
is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the
Exchange Act as in effect on the date hereof, except that a person shall be
deemed to be the “beneficial owner” of all shares that any such person has the
right to acquire pursuant to any agreement or arrangement or upon exercise of
conversion rights, warrants, options or otherwise, without regard to the sixty
day period referred to in such Rule), directly or indirectly, of securities
representing 50% or more of the combined voting power of Employer’s then
outstanding securities; provided, however, that if Thomas W. Brown and/or David
Mann acquire, directly or indirectly, securities representing 50% or more of
the combined voting power of Employer’s then outstanding securities it shall
not be deemed a Change in Control, (b) any person or group (other than
Thomas W. Brown or David Mann or entities controlled by either) shall make a
tender offer or an exchange offer for 50% or more of the combined voting power
of Employer’s then outstanding securities, (c) at any time during any
period of two consecutive years (not including any period prior to the
execution of this Agreement), individuals who at the beginning of such period
constituted the board of directors of Employer and any new directors, whose
election by the board of directors of Employer or nomination for election by
Employer’s stockholders was approved by a vote of at least two-thirds (2/3) of
Employer’s directors then still in office who either were Employer’s directors
at the beginning of the period or whose election 

 

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or nomination for election was previously so approved (“Current Directors”), cease for any reason to constitute a
majority thereof, (d) Employer shall consolidate, merge or exchange
securities with any other entity and the stockholders of Employer immediately
before the effective time of such transaction do not beneficially own,
immediately after the effective time of such transaction, shares or other
equity interests entitling such stockholders to a majority of all votes
(without consideration of the rights of any class of stock or other equity
interests entitled to elect directors by a separate class vote) to which all
stockholders of the corporation or owners of the equity interests of any other
entity issuing cash or securities in the consolidation, merger or share
exchange would be entitled for the purpose of electing directors or where the
Current Directors immediately after the effective time of the consolidation,
merger or share exchange would not constitute a majority of the board of
directors or similar governing body of the corporation or other entity issuing
cash or securities in the consolidation, merger or share exchange, or (e) any
person or group acquires all or substantially all of Employer’s assets.

 

Notwithstanding the foregoing, however, a Change in Control shall not
be deemed to occur merely by reason of (1) an acquisition of Employer’s securities
by, or any consolidation, merger or exchange of securities with, any entity
that, immediately prior to such acquisition, consolidation, merger or exchange
of securities, was a “subsidiary,” as such term is defined below.  For these purposes, the term “subsidiary”
means (i) any corporation, limited liability company or other entity of
which 80% of the capital stock or other equity interests of such entity is
owned, directly or indirectly, by Employer and (ii) any unincorporated
entity in respect of which Employer has, directly or indirectly, an equivalent
degree of ownership or (2) an acquisition of Company securities by Thomas
W. Brown or David Mann.

 

(b)           Disability.  For
purposes hereof, “Disability”
shall be deemed to exist if Employee (A) meets the definition of either “totally
disabled” or “total disability” (or terms with like meaning) under the terms of
the Company’s long-term disability benefit program, and (B) is suffering
from any medical or mental condition that in the Board’s reasonable opinion
would prevent him from carrying out his normal duties. Any refusal to submit to
a reasonable medical examination by an independent physician to determine whether
Employee is so totally disabled shall be deemed to constitute conclusive
evidence of his disability. The determination of such physician made in writing
to the Company and to Employee shall be final and conclusive for all purposes
of this Agreement.  Termination by the
Company or by Employee of his employment based on “Disability” shall be deemed
to have occurred if, within thirty (30) days after written Notice of
Termination (as hereinafter defined) is given, Employee shall not have returned
to the full-time performance of his duties.

 

(c)           Retirement. 
Termination by the Company or Employee of his employment based on “Retirement” shall mean termination in accordance with the
Company’s retirement policy, generally applicable to its salaried employees or
in accordance with any retirement arrangement established with Employee’s
consent.

 

(d)           Cause.  Termination by
the Company of Employee’s employment for “Cause” shall
mean termination upon:

 

(i)            the continued
failure by Employee to substantially perform his duties with the Company (other
than any such failure resulting from his incapacity due to 

 

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Disability or any such actual or anticipated failure resulting from
termination by Employee for Good Reason) after a written demand for substantial
performance is delivered to Employee by the Board, which demand specifically
identifies the manner in which the Board believes that Employee has not
substantially performed his duties;

 

(ii)           Employee engages in
conduct which is demonstrably and materially injurious to the Company or any of
its affiliates, monetarily or otherwise;

 

(iii)          Employee commits
fraud, bribery, embezzlement or other material dishonesty with respect to the
business of the Company or any of its affiliates, or the Company discovers that
Employee has committed any such act in the past with respect to a previous
employer;

 

(iv)          Employee is indicted
for any felony or any criminal act involving moral turpitude, or the Company
discovers that Employee has been convicted of any such act in the past;

 

(v)           Employee commits a
breach of any of the covenants, representations, terms or provisions of this
Agreement;

 

(vi)          Employee violates
any instructions or policies of the Company with respect to the operation of
its business or affairs; or

 

(vii)         Employee uses
illegal drugs.

 

(e)           Good Reason.  For
purposes of this Agreement, “Good Reason”
shall mean, without Employee’s express written consent:

 

(i)            the material
failure by the Company, without Employee’s consent, to pay to Employee any
portion of his current compensation within ten (10) days of the date any
such compensation payment is due; or

 

(ii)           Employer commits a
material breach of any of the covenants, representations, terms or provisions
hereof, and such breach is not cured within thirty (30) days after written
notice thereof to the Company, which notice shall identify in reasonable detail
the nature of the breach and gives Company an opportunity to respond,
excluding, however, failure to pay salary within ten (10) days as further
provided in subsection (i) above;

 

(iii)          any material
diminution of Employee’s title, function, duties, authority or responsibilities
(including reporting requirements); or

 

(iv)          a reduction in
Employee’s salary as in effect on the date of this Agreement or as may be
increased from time to time; or

 

(v)           a material reduction
in the benefits that are in effect from time to time for Employee; or

 

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(vi)          a relocation of the
Employee’s principal place of employment to a location which is beyond a 50
mile radius from San Antonio, Texas.

 

Employee must provide notice to the Company within 90 days of the
initial existence of the condition giving rise to “Good Reason”.  Upon the receipt of such notice, the Company
shall have 30 days to remedy the condition giving rise to “Good Reason”.

 

(f)            Notice of Termination. 
Any purported termination of Employee’s employment by the Company or by
Employee shall be communicated by written notice to the other party hereto in
accordance with Section 15(a) hereof
(“Notice of Termination”).  Such Notice of Termination shall indicate the
specific termination provision in this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of Employee’s employment under the provisions so
indicated.

 

(g)           Date of Termination, Etc. 
“Date of Termination” shall mean (i) if
Employee’s employment is terminated for Disability, thirty (30) days after Notice
of Termination is given (provided that Employee shall not have returned to the
full-time performance of his duties during such thirty (30) day period), or (ii) if
Employee’s employment is terminated for Cause or by Employee for Good Reason or
for any other reason (other than Disability), the date specified in the Notice
of Termination as the date on which it is reasonably anticipated that no
further services would be performed by Employee for the Company, as an employee
or independent contractor (which, in the case of a termination by Employee for
Good Reason, shall not be less than two (2) weeks nor more than two (2) months
from the date such Notice of Termination is given).

 

Section 7.              Compensation
Upon Termination or During Disability.

 

(a)           Upon
termination of Employee’s employment or during a period of Disability, Employee
shall be entitled to the following benefits:

 

(i)            During any period that Employee fails to perform his
full-time duties with the Company as a result of his Disability, Employee shall
continue to receive his Base Salary at the rate in effect at the commencement
of any such period, together with all compensation payable to Employee under
the Company’s disability plan or other plan during such period, until this
Agreement is terminated as a result of his Disability. Thereafter, Employee
shall be provided with disability benefits that shall be no less than the
benefits that Employee would have been entitled to pursuant to the Company’s
long-term disability plan as in effect immediately prior to a Change in
Control.

 

(ii)           If Employee’s employment shall be terminated by the
Company for Cause or by Employee other than for Good Reason, Disability, death
or Retirement, the Company shall pay Employee his full Base Salary through the
Date of Termination at the rate in effect at the time Notice of Termination is
given unpaid and properly documented expense reimbursements incurred in
accordance with Employer’s policies prior to termination, and compensation for
accrued, and unused vacation as of the Date of Termination and any amounts to
be paid to him pursuant to the Company’s retirement 

 

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and other benefits plans then in effect (“Accrued Amounts”), and the Company shall have no further
obligations to Employee under this Agreement.

 

(iii)          If Employee’s employment shall be terminated by the Company
or by Employee for Retirement or by reason of Employee’s death, Employee’s
benefits shall be determined in accordance with the Company’s retirement,
benefit and insurance programs then in effect.

 

(iv)          If Employee’s employment by the Company shall be terminated
by the Company other than for Cause and other than because of Employee’s death,
Disability or Retirement or by Employee for Good Reason then, effective as of
the Date of Termination, in lieu of any severance benefits which he otherwise
would be eligible to receive under the Company’s severance plan or policy as in
effect immediately prior to the Change in Control, Employee shall be entitled
to the benefits (“Severance Benefits”)
provided below:

 

(A)          The
Company shall pay Employee Accrued Amounts through the Date of Termination at
the rate in effect at the time the Notice of Termination is given (excluding
any severance benefits under the Company’s severance plan or policy); and

 

(B)           The
Company shall pay Employee, in addition to all Accrued Amounts, (i) if
prior to a Change in Control, Employee’s then current Base Salary for the
period commencing on the Date of Termination and ending upon the earlier of (1) the
last date of the Term, and (2) six (6) months after the Date of
Termination; and (ii) if after a Change in Control, Employee’s then
current Base Salary for a period commencing on the Date of Termination and
ending one (1) year after the Date of Termination.

 

(b)           Notwithstanding
any other provision of this Agreement, if any amount payable hereunder would,
individually or together with any other amounts paid or payable, constitute an “excess
parachute payment,” within the meaning of Section 280G of the Internal
Revenue Code of 1986 and any applicable regulations thereunder (the “Code”) which would require the payment by Employee of the
excise tax imposed by Section 4999 of the Code or any interest or penalty
(such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the “Excise Tax”),
then he shall be entitled to receive an additional payment (the “Gross-Up Payment”) in an amount such that after the payment
by Employee of all taxes (including any interest or penalties imposed with
respect to such taxes) including, without limitation, any income taxes (and any
interest and penalties with respect thereto) and the Excise Tax imposed upon
the Gross-Up Payment, Employee shall retain an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the total payments to be received by
Employee pursuant to this Agreement.  The
determination of whether the Gross-Up Payment shall be paid shall be made by a
nationally recognized accounting firm selected by Employee and such
determination shall be binding upon him and the Company for purposes of this
Agreement.  The costs and expenses of
such accounting firm shall be paid by the Company.

 

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(c)           Except
as specifically provided in this Section 7,
Employee shall not be required to mitigate the amount of any payment provided
for in this Section 7
by seeking other employment or otherwise, nor shall the amount of any payment
or benefit provided for in this Section 7
be reduced by any compensation earned by him as the result of employment by
another employer or by retirement benefits after the Date of Termination, or
otherwise.

 

(d)           In
the event that any payments under this Section 7 or elsewhere in this Agreement are
determined to be subject to Section 409A of the Code, and Employee is a “specified
employee” as defined in Section 409A(a)(2)(B)(i) of the Code and
Treasury Regulation §1.409A-1(i), no such payments shall be made prior to the
date that is six (6) months following the Date of Termination.

 

(e)           (i) 
Employee acknowledges and agrees that (A) Employee is solely responsible
for all obligations arising as a result of the tax consequences associated with
payments under this Agreement including, without limitation, any taxes,
interest or penalties associated with Section 409A of the Code, (B) Employee
is not relying upon any written or oral statement or representation the
Company, any of its Affiliates, or any of their respective employees,
directors, officers, attorneys or agents (collectively, the “Company Parties”) regarding the tax effects associated with
the execution of the this Agreement and the payment under this Agreement, and (C) in
deciding to enter into this Agreement, Employee is relying on his or her own
judgment and the judgment of the professionals of his or her choice with whom
Employee has consulted.  Employee hereby
releases, acquits and forever discharges the Company Parties from all actions,
causes of actions, suits, debts, obligations, liabilities, claims, damages,
losses, costs and expenses of any nature whatsoever, known or unknown, on
account of, arising out of, or in any way related to the tax effects associated
with the execution of this Agreement and any payment under the Agreement.

 

(ii)           Employee
must execute a full release of all claims within 60 days following termination
of employment in order to be eligible for Severance Benefits.  Without limiting the remedies available to
the Company for breach by Employee of Section 8,
Section 9, Section 10, , Section 11, or Section 12, if
Employee violates the provisions of such Sections after the termination of
Employee’s employment with the Company in a manner reasonably determined by the
Board to be injurious to the Company or any of its affiliates, then Employee
will forfeit the right to any payments under this Section 7 which are unpaid at the time such
violation occurs.

 

Section 8.              Inventions; Assignment.

 

(a)           Inventions Defined. 
All rights to discoveries, inventions, improvements, designs and innovations
(including all data and records pertaining thereto) that relate to the business
of Employer, including its Affiliates (as defined below), whether or not able
to be patented, copyrighted or reduced to writing, that Employee may discover,
invent or originate during the term of his employment hereunder, and for a
period of six months thereafter, either alone or with others and whether or not
during working hours or by the use of the facilities of Employer (“Inventions”), shall be the exclusive property of
Employer.  Employee shall promptly
disclose all Inventions to Employer, shall execute at the request of Employer
any assignments or other documents Employer may reasonably deem necessary to
protect or perfect its rights therein, and 

 

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shall assist Employer, at Employer’s expense, in obtaining, defending
and enforcing Employer’s rights therein. 
Employee hereby appoints Employer as his attorney in fact to execute on
his behalf any assignments or other documents deemed necessary by Employer to
protect or perfect its rights to any Inventions.

 

(b)           Covenant to Assign and Cooperate.  Without limiting the generality of the
foregoing, Employee shall assign and transfer to Employer the worldwide right,
title and interest of Employee in the Inventions.  Employee agrees that Employer may apply for
and receive patent rights (including Letters Patent in the United States) for
the Inventions in Employer’s name in such countries as may be determined solely
by Employer.  Employee shall provide to
Employer all facts known to Employee and reasonably requested by Employer
relating to the Inventions, and shall cooperate with Employer’s reasonable
requests in connection with vesting title to the Inventions and related patents
exclusively in Employer and in connection with obtaining, maintaining and
protecting Employer’s exclusive patent rights in the Inventions.

 

(c)           Successors and Assigns. 
Employee’s obligations under this Section 8 shall inure to the benefit of
Employer, its Affiliates (as defined below) and their respective successors and
assigns and shall survive the expiration of the term of this Agreement for such
time as may be necessary to protect the proprietary rights of Employer and its
affiliates in the Inventions.  When used
herein, “Affiliate” shall mean an entity which,
directly or indirectly, alone or together with others, controls, is controlled
by or is under common control with, Employer.

 

Section 9.              Confidential
Information.

 

(a)           Acknowledgment of Proprietary Interest.  Employee acknowledges the proprietary
interest of Employer and its Affiliates in all Confidential Information (as
defined below).  Employee agrees that all
Confidential Information learned by Employee during his employment with
Employer or otherwise, whether developed by Employee alone or in conjunction
with others or otherwise, is and shall remain the exclusive property of
Employer.  Employee further acknowledges
and agrees that his disclosure of any Confidential Information will result in
irreparable injury and damage to Employer.

 

(b)           Confidential Information Defined.  “Confidential Information”
means all trade secrets, copyrightable works, confidential or proprietary
information of Employer or its Affiliates, including without limitation, (i) information
derived from reports, investigations, experiments, research and work in
progress, (ii) methods of operation, (iii) market data, (iv) proprietary
computer programs and codes, (v) drawings, designs, plans and proposals, (vi) marketing
and sales programs, (vii) the identities of clients or customers, (viii) historical
financial information and financial projections, (ix) pricing formulae and
policies, (x) all other concepts, ideas, materials and information
prepared or performed for or by Employer and (xi) all information related to
the business, services, products, purchases or sales of Employer or any of its
customers, other than (A) information that is publicly available, and (B) information
that becomes available to Employee after the termination of his employment with
Employer from a third party source not bound by a confidentiality agreement
with Employer with respect to such information.

 

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(c)           Covenant Not To Divulge Confidential Information.  Employer is entitled to prevent the
disclosure of Confidential Information. 
As a portion of the consideration for the employment of Employee and for
the compensation being paid to Employee by Employer, Employee agrees at all
times during the term of his employment hereunder and thereafter to hold in
strict confidence and not to disclose to any person, firm or corporation, other
than to persons engaged by Employer to further the business of Employer or as
necessary to perform Employee’s duties as an employee of Employer and for the
sole benefit of Employer or its Affiliates, and not to use except in the
pursuit of the business of Employer, the Confidential Information, without the
prior written consent of Employer.

 

(d)           Return of Materials at Termination.  In the event of any termination or cessation
of his employment with Employer for any reason, Employee shall promptly deliver
to Employer all documents, data and other information derived from or otherwise
pertaining to Confidential Information. 
Employee shall not take or retain any documents or other information, or
any reproduction or excerpt thereof, containing any Confidential Information.

 

Section 10.            Non-Solicitation.

 

(a)           Solicitation of Employees. 
During Employee’s employment with Employer and for a period of twelve
(12) months after termination of such employment at any time and for any reason
(the “Restriction Period”), and regardless of
whether any payments are made to Employee under this Agreement as a result of
such termination, Employee shall not solicit, participate in or promote the
solicitation of any person who was employed by Employer or any of its
Affiliates at the time of Employee’s termination of employment with Employer to
leave the employ of Employer or any of its affiliates, or, on behalf of himself
or any other person, hire, employ or engage any such person; provided, however,
that Employee or an entity for which Employee works shall not be precluded from
generally advertising for employees or from hiring any employees who have not been
solicited by Employee, directly or indirectly, in violation of this Section 10(b).

 

(b)           Solicitation of Clients, Customers, Etc.  During the Restriction Period, and regardless
of whether any payments are made to Employee under this Agreement as a result of
termination of his Employment, Employee shall not, directly or indirectly,
solicit any person who, at the time of termination of Employee’s employment
with Employer, was a client, customer, vendor, consultant or agent of Employer
or its Affiliates and with whom Employee had contact on behalf of Employer
during such period, to discontinue business, in whole or in part, with Employer
or its Affiliates; provided, however,
that the foregoing shall not prohibit Employee from soliciting such clients,
customers, vendors, consultants or agents to do business with any entity or
person as long as such solicitation does not include an express or implied
solicitation to discontinue business, in whole or in part, with Employer or its
Affiliates.

 

Section 11.            Non-Compete.

 

(a)           Competition During
Employment.  Employee agrees
that during the term of his employment with Employer, he will not, directly or
indirectly, compete with Employer or its Affiliates in any way, and that he
will not act as an officer, director, employee, consultant, shareholder,
partner, equity owner, lender, guarantor or agent of any entity which is
engaged in 

 

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any business in competition with, the
businesses in which Employer and its Affiliates are engaged as of the date
hereof or in which Employer or its Affiliates become engaged during the term of
his employment; provided, however, that this Section 11(a) shall
not prohibit Employee or any of his Affiliates from: (i) purchasing or
holding an aggregate equity interest of up to 1%, so long as Employee and his
Affiliates combined do not purchase or hold an aggregate equity interest of
more than 5%, in any business in competition with Employer and its
Affiliates.  Furthermore, Employee agrees
that during the term of his employment, he will undertake no planning for the
organization of any business activity competitive with the work he performs as
an employee of Employer and Employee will not combine or conspire with any
other employees of Employer and its Affiliates for the purpose of the
organization of any such competitive business activity.

 

(b)           Competition Following Employment.  In order to protect Employer against the
unauthorized use or the disclosure of any Confidential Information of Employer
and its Affiliates presently known or hereafter obtained by Employee during his
employment under this Agreement, Employee agrees that for a period of twelve
(12) months after the termination or cessation of his employment with Employer
at any time and for any reason, and regardless of whether any payments are made
to Employee under this Agreement as a result of such termination (but subject
to the provisions of Section 12
hereof), Employee shall not, directly or indirectly, for himself or on behalf
of any other corporation, person, firm, partnership, association, or any other
entity (whether as an individual, agent, servant, employee, employer, officer,
director, shareholder, investor, principal, consultant or in any other
capacity), engage or participate in any business which engages in competition
with the businesses being conducted by Employer or any of its Affiliates during
the Term anywhere in any state in the United States or in any foreign country
where Employer or any of its Affiliates distributes software or performs
services related to the distribution of software, or any other business in
which Employer or any of its Affiliates was actively engaged at the time of
termination of Employee’s employment with Employer; provided, however, that
this provision shall not prohibit Employee or any of his Affiliates from (i) purchasing
or holding an aggregate equity interest of up to 1%, so long as Employee and
his Affiliates combined do not purchase or hold an aggregate equity interest of
more than 5%, in any business in competition with Employer, or (ii) serving
as an officer, employee or consultant to any entity or business which operates
through multiple Affiliates or business divisions, as long as Employee is
serving as an officer, employee or consultant to an Affiliate or business
division which is not engaged in competition with Employer or any of its
Affiliates.

 

Section 12.            Non-Disparagement.
During Employee’s employment with Employer and thereafter, Employee agrees not
to make any statement or take any action which disparages, defames, or places
in a negative light Employer, Affiliates, or its or their reputation, goodwill,
commercial interests or past and present officers, directors and employees.

 

Section 13.            Effect
of Termination; Actions Upon Termination.  The Company shall pay Employee when due any
and all previously earned, but as yet unpaid, salary and reimbursement of
business expenses submitted in accordance with the Company’s policy as in
effect. The provisions of Section 10
and Section 11
shall terminate and be of no further force and effect in the event (i) Employee’s
employment is terminated by Employer without Cause or by Employee for Good
Reason, and (ii) Employer fails to timely pay Employee the Severance 

 

11

 

Benefits and/or any other amounts due pursuant to Section 7. 
Upon termination of employment hereunder, Employee shall immediately
resign as an officer and/or director of Company and of any Affiliates,
including any joint ventures.

 

Section 14.            Arbitration.  Without limiting either party’s right to seek
equitable remedies under Section 15(c) below
or otherwise, Employer and Employee agree that any dispute or controversy
arising under or in connection with this Agreement shall be settled by arbitration.  Arbitration under this Agreement shall be
governed by the Federal Arbitration Act and proceed in San Antonio, Texas, in
accordance with the rules of the American Arbitration Association (“AAA”).  Arbitration
will be conducted before a panel of three neutral arbitrators selected from an
AAA list of proposed arbitrators with business law experience.  Either party may take any legal action needed
to protect any right pending completion of the arbitration.  The arbitrator will determine whether an issue
is arbitrable and will give effect to applicable statutes of limitation.  The arbitrator has the discretion to decide,
upon documents only or with a hearing, any motion to dismiss for failure to
state a claim or any motion for summary judgment.  Discovery shall be governed by the Federal Rules of
Civil Procedure and the Federal Rules of Evidence.  All information developed by the arbitration
or litigation shall be held in confidence subject to such protective orders, as
the arbitrator deems useful to ensure complete confidentiality. The decision of
the arbitrator shall be final and binding on all parties to this Agreement (and
any third party beneficiaries of this Agreement), and judgment thereon may be
entered in any court having jurisdiction over the parties.  All costs of the arbitration proceeding or
litigation to enforce the arbitration award shall be paid by the party against
whom the arbitrator decides.  The
arbitrator shall have no right to award punitive, consequential, exemplary or
analogous damages.

 

Section 15.            General.

 

(a)           Notices.  All notices and other communications
hereunder shall be in writing or by written telecommunication, and shall be
deemed to have been duly given if delivered personally or if mailed by
certified mail, return receipt requested or by written telecommunication, to
the relevant address set forth below, or to such other address as the recipient
of such notice or communication shall have specified to the other party in
accordance with this Section 15(a):

 

If to Employer, to:

 

GlobalSCAPE, Inc.

4500 Lockhill Selma Road, Suite 150

San Antonio, Texas  78249

Attention:  Chairman of the Board

 

with copy to:

 

Jackson Walker L.L.P.

112 E. Pecan Street, Suite 2400

San Antonio, Texas 78205

Attention:  Steven R. Jacobs

 

12

 

If to Employee, to Employee’s last known address appearing on Employer’s
records.

 

(b)           Withholding.  All payments required to be made to
Employee by Employer under this Agreement shall be subject to the withholding of
such amounts, if any, relating to federal, state and local taxes as may be
required by law.

 

(c)           Equitable Remedies. 
Each of the parties hereto acknowledges and agrees that upon any breach
by Employee of his obligations under any of Section 8, Section 9, Section 10, Section 11, or Section 12 Employer shall suffer immediate,
substantial and irreparable injury and shall have no adequate remedy at
law.  Accordingly, in event of such
breach, Employer shall be entitled, in addition other remedies and without
showing actual damages, to specific performance and other appropriate
injunctive and equitable relief.

 

(d)           Severability.  If any provision of this Agreement
is held to be illegal, invalid or unenforceable, such provision shall be fully
severable, and this Agreement shall be construed and enforced as if such
illegal, invalid or unenforceable provision never comprised a part hereof, and
the remaining provisions hereof shall remain in full force and effect and shall
not be affected by the illegal, invalid or unenforceable provision or by its
severance.  Furthermore, in lieu of such
illegal, invalid or unenforceable provision, there shall be added automatically
as part of this Agreement a provision as similar in its terms to such illegal,
invalid or unenforceable provision as may be possible and be legal, valid and
enforceable.

 

(e)           Waivers.  No delay or omission by either party in
exercising any right, power or privilege hereunder shall impair such right,
power or privilege, nor shall any single or partial exercise of any such right,
power or privilege preclude any further exercise thereof or the exercise of any
other right, power or privilege.

 

(f)            Counterparts.  This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original, and all of
which together shall constitute one and the same instrument.

 

(g)           Captions.  The captions in this Agreement are for
convenience of reference only and shall not limit or otherwise affect any of
the terms or provisions hereof.

 

(h)           Interpretation of Agreement.  This Agreement shall
be construed according to its fair meaning and not for or against either
party.  Use of the words “herein,” “hereof,”
“hereto,” “hereunder” and the like in this Agreement refer to this Agreement
only as a whole and not to any particular section or subsection of this
Agreement, unless otherwise noted.  The
masculine gender shall be deemed to denote the feminine or neuter genders, the
singular to denote the plural, and the plural to denote the singular, where the
context so permits.

 

(i)            Binding Agreement; Assignment.  This Agreement
shall be binding upon and inure to the benefit of the parties and shall be
enforceable by the heirs, legal representatives, personal representatives and
permitted assigns of Employee and the successors and assigns of Employer.  The Affiliates of Employer shall be
considered third party beneficiaries of this Agreement with respect to any
services provided by Employee to them and in connection with Employee’s
covenants in Section 8,
Section 9, Section 10, Section 11, and Section 12 hereof to 

 

13

 

the extent such covenants apply with respect to such Affiliates.  Employer may assign this Agreement to a
successor entity through a merger, consolidation or sale of all or
substantially all of the assets; provided that in the event of any such
assignment, Employer shall remain liable for all of its obligations hereunder
and shall be liable for all obligations of all such assignees hereunder.  If Employee dies while any amounts would
still be payable to him hereunder, such amounts shall be paid to Employee’s
estate.  This Agreement is not otherwise
assignable by Employee.

 

(j)            Entire Agreement.  This Agreement contains the
entire understanding of the parties relating to the subject matter hereof, and
supersedes all prior agreements and understandings relating to such subject
matter, and may not be amended except by a written instrument hereafter signed
by each of the parties hereto.

 

(k)           Governing Law.  This Agreement and the performance
hereof shall be construed and governed in accordance with the laws of the State
of Texas, without regard to its choice of law principles.

 

(l)            Employee Representations. 
Employee represents and certifies to Employer that he: (i) has
received a copy of this Agreement for review and study and has had ample time
to review it before signing; (ii) has read this Agreement carefully; (iii) has
been given a fair opportunity to discuss and negotiate the terms of this
Agreement; (iv) understands its provisions; (v) has had the
opportunity to consult his attorney; and (vi) enters into this Agreement
knowingly and voluntarily.  Employee also
represents that he will not make any unauthorized use of any Confidential
Information or intellectual property of any third party in the performance of
his duties under this Agreement and that Employee is under no obligation to any
prior employer or other entity that would preclude or interfere with the full
and good faith performance of Employee’s obligations hereunder.

 

[REMAINDER
OF PAGE INTENTIONALLY BLANK]

 

14

 

	
  EXECUTED as of the date first above written.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  GLOBALSCAPE,
  INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Thomas
  W. Brown

  
	
   

  	
  Name:

  	
  Thomas W.
  Brown

  
	
   

  	
  Title:

  	
  Chairman

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ James R.
  Morris

  
	
   

  	
  James R.
  Morris

  	
   

  
						

 

15Exhibit 10.1

 

EMPLOYMENT AGREEMENT

 

This EMPLOYMENT AGREEMENT (this “Agreement”), dated August 22,
2008, is entered into by and between CREDO Petroleum Corporation, a Colorado
corporation (the “Company”), and Timothy J. Pownell, an individual (the “Employee”),
to be effective as of September 8, 2008 (the “Effective Date”).

 

WHEREAS, Employee and the Company desire to
enter into an agreement providing for the employment of Employee as President
and Chief Operating Officer of the Company;

 

NOW, THEREFORE, the Company and Employee
hereby agree as follows:

 

1.                                       Employment.   The Company hereby employs Employee, and
Employee hereby accepts employment with the Company, on the terms and
conditions set forth in this Agreement.

 

2.                                       Term.  The term of Employee’s employment under this
Agreement (the “Term”) will commence on the Effective Date and end on December 31,
2010; provided, however, that on January 1,
2011 and on each succeeding anniversary thereafter, the Term will be
automatically extended by an additional year, unless 30 days prior to any such
succeeding anniversary either Employee or the Company has given the other
written notice to the contrary (which notice is not rescinded before such
anniversary date) or this Agreement has otherwise been terminated as provided
in this Agreement.

 

3.                                       Positions
and Duties.

 

(a)                                  During
the Term, Employee shall have the title of President and Chief Operating
Officer of the Company and such duties and responsibilities as are assigned to
him by the Board of Directors of the Company (the “Board”).

 

(b)                                 Employee
shall devote his exclusive professional time, energy, and attention to the
affairs and operations of the Company, and shall use his best efforts to carry
out his responsibilities under this Agreement faithfully and efficiently; provided, however, that nothing contained
herein shall preclude Employee from (i) investing Employee’s personal
assets in such form or manner as will not require Employee’s services in any
capacity in the operations and affairs of the businesses in which such
investments are made, except as precluded in Section 6(b), or (ii) participating
in charitable or other not-for-profit activities as long as such activities do
not interfere with Employee’s work for the Company.

 

4.                                       Compensation.  During the Term:

 

(a)                                  Salary.  Employee shall initially be paid an aggregate
annual base salary of $250,000 per year (the “Base Salary”).  The Board shall review the Base Salary from
time to time and may, in its sole discretion, increase but not decrease
it.  The Base Salary shall be payable in
accordance with the Company’s normal business practices.

 

 

(b)                                 Bonuses.

 

(i)                                     Signing
Bonus.  Employee shall be entitled to
a signing bonus of $50,000, which shall be payable in full upon the execution
and delivery of this Agreement.

 

(ii)                                  Guaranteed
Bonus.  Employee shall receive an
annual cash bonus of $50,000 for each of the years ending December 31,
2009 and 2010 if Employee remains in the employment of the Company on December 31
of the relevant year (a “Guaranteed Bonus”).

 

(iii)                               Initial
Annual Incentive Bonuses.  For the
years ended December 31, 2009 and 2010, Employee will also be eligible to
receive, at the discretion of the Board, an annual incentive bonus (an “Initial
Annual Incentive Bonus”) based on performance goals to be established from
time to time by the Board.  An Initial Annual Incentive Bonus
award of $50,000 or less shall be paid in cash. 
In the event of an Initial Annual Incentive Bonus award greater than
$50,000, $50,000 shall be paid in cash and the remainder in the form of stock
options, 50% of which shall vest on the first anniversary of the date of grant
and the remainder of which shall vest on the second anniversary of the date of
grant.

 

(iv)                              Subsequent
Annual Incentive Bonuses.  For each
year subsequent to December 31, 2010, Employee will be eligible to
receive, at the discretion of the Board, an annual incentive bonus (a “Subsequent
Annual Incentive Bonus”) based on performance goals to be established from
time to time by the Board.  The form
of a Subsequent Annual Incentive Bonus shall be determined by the Board; provided, however, that Employee shall
have the option to receive up to 50% of a Subsequent Annual Incentive Bonus in
cash and the remainder in the form of stock options, 50% of which shall vest on
the first anniversary of the date of grant and the remainder of which shall
vest on the second anniversary of the date of grant.  Notwithstanding the foregoing, Employee may
elect to receive all of a Subsequent Annual Incentive Bonus in the form of
stock options, in which case 50% of those stock options will vest immediately,
and the remaining 50% will vest ratably over two years as described in the
preceding sentence.

 

(v)                                 Bonus
Payments.  Each Guaranteed Bonus,
Initial Annual Incentive Bonus and Subsequent Annual Incentive Bonus, or
portion thereof, that is payable in cash shall be paid in accordance with the
Company’s normal business practices, but no later than March 15 of the
calendar year following the year in which the bonus accrues.

 

(c)                                  Stock
Options.  On the Effective Date, the
Company shall grant to Employee incentive stock options to acquire a number of
shares of the Company’s common stock equal to (i) $500,000 divided by (ii) the
closing trading price of the Company’s common stock on the Effective Date.  One-third of such options shall vest on each
of the first, second and third anniversaries of the Effective Date.

 

(d)                                 Stock
Option Terms.

 

(i)                                     Value.  For the purposes of this Agreement, the
dollar value of stock options granted hereunder shall be determined in good
faith by the Board in a manner consistent with the Company’s determination of
such value for financial reporting purposes.

 

 

(ii)                                  Exercise
Price.  The exercise price of the
options granted pursuant to Section 4(c) shall be equal to the
average of the daily volume-weighted average of the trading prices of the
Company’s common stock for the six months preceding the date hereof, as
reported by NASDAQ; provided, however,
that in no event will such exercise price be less than the “Fair Market Value”
of the underlying shares, as that term is defined in the Company’s 2007 Stock
Option Plan (as the same may be amended from time to time, the “Stock Option
Plan”).  Except as otherwise set
forth in the relevant option or other equity incentive plan, the exercise price
of all other options granted hereunder shall be the closing trading price of
the Company’s common stock on the date of grant on the principal exchange on
which such stock is traded.

 

(iii)                               Plan.  The stock options issuable pursuant to this
Agreement shall be issued under and subject to the terms of the Stock Option
Plan, including a customary award agreement as contemplated by the Stock Option
Plan, or such other plan or plans as may be adopted from time to time by the
Company.

 

(e)                                  Other
Benefits.  During the Term, (i) Employee shall be entitled to
participate in the Company’s 401(k) plan subject to plan entry
requirements, (ii) Employee and/or Employee’s family, as the case may be,
shall be eligible to participate in, and shall receive all benefits under, to
the extent provided by the Company, medical, prescription and dental plans, (iii) Employee
shall be provided $500,000 of term life insurance in the name of Employee and (iv) Employee
shall be entitled to be reimbursed for customary club dues not to exceed
$10,000 per calendar year.

 

(f)                                    Expenses
and Allowances.   Employee is
authorized, in carrying out his responsibilities and duties under this
Agreement, to incur reasonable business expenses for the benefit of the
Company, all of types and at levels determined in good faith to be consistent
with his duties as President and Chief Operating Officer of the Company.  All such expenses will either be paid
directly by the Company or the Company shall promptly reimburse Employee for
expenditures upon the submission, from time to time, of itemized accountings
for such expenditures.

 

(g)                                 Vacation.  Employee shall be entitled to four weeks paid
vacation per year, which shall accrue and be subject to the terms of the
Company’s vacation policy, as the same may be amended from time to time.

 

5.                                       Termination.

 

(a)                                  Certain
Definitions.  For the purposes of
this Section 5, the following terms shall be assigned the following
meanings:

 

(i)                                     “Accrued
Obligations” means all accrued Base Salary and Guaranteed Bonus amounts as
in effect at the time of termination, accrued vacation pay or other benefits
and reasonable and necessary business expenses incurred by Employee in
connection with his duties, as contemplated by Sections 4(a), (d) and (e),
in each case to the extent unpaid as of the date of termination and less
applicable deductions and withholdings.

 

(ii)                                  “Cause”
shall mean (i) serious, willful dishonesty toward, fraud upon, or
deliberate injury or attempted deliberate injury to, the Company, (ii) final
conviction for a felony

 

 

or crime
involving moral turpitude, (iii) willful refusal or willful failure to
follow the lawful directions of the Board or (iv) gross violation of the
Company’s or its successor’s established policies and procedures.

 

(iii)                               “Disability”
means a physical or mental impairment which renders Employee unable to perform
the essential functions of his position for a period expected to last at least
60 days, even with reasonable accommodation which does not impose an undue
hardship on the Company.  The
Company reserves the right, in good faith, to make the determination of
disability under this Agreement based upon information supplied by Employee
and/or his medical personnel, as well as information from medical personnel (or
others) selected by the Company or its insurers.

 

(iv)                              “Good
Reason” shall mean the occurrence of any of the following conditions,
provided that Employee gives the Company written notice of such condition
within thirty (30) days of its occurrence, and the Company fails to remedy the
condition within thirty (30) days of its receipt of notice:

 

(1)                                  material
diminution by the Company of Employee’s authority, duties or responsibilities,
which change would cause Employee’s position to become one of less
responsibility, importance or scope;

 

(2)                                  material
reduction by the Company of the Base Salary, as it may be increased from time
to time;

 

(3)                                  the
Company or its successor requiring Employee to be based anywhere other than
within thirty miles of the Company’s principal office location or in or near
Houston, Texas, except for required business travel to an extent substantially
consistent with Employee’s business travel requirements; or

 

(4)                                  any
other action or inaction that constitutes a material breach by the Company of this
Agreement.

 

(b)                                 Death
or Disability.  Employee’s employment shall terminate automatically
upon Employee’s death.  If the Company determines in good faith that the
Disability of Employee has occurred, it may give to Employee written notice of
its intention to terminate Employee’s employment.  In such event, Employee’s
employment with the Company shall terminate effective on the 30th day after
receipt of such notice by Employee unless, within the 30 days after such
receipt, Employee has returned to full-time performance of his duties.  Following termination pursuant to this Section 5(b),
the Company’s only obligation to Employee shall be to pay to Employee, in a
lump sum, an amount equal to the Accrued Obligations, plus payment to the
Executive or his estate or beneficiary, as applicable, of any amounts due
pursuant to the terms of any applicable welfare benefit plans.

 

(c)                                  Termination
for Cause or Without Good Reason. 
This Agreement may be terminated at any time by the Company for Cause or
by Employee without Good Reason.  In the
case of termination by the Company for Cause, Employee shall be given written
notice by the Board of the intention to terminate him for Cause, such notice (i) to
state in reasonable detail the act(s) or failure(s) to act that constitute
the grounds on which the proposed termination for Cause

 

 

is based and (ii) to
be given within six months of the date the Board has reasonable notice of why
the act(s) or failure(s) to act constitute grounds for termination
for Cause.  Employee shall be entitled to
a hearing before the Board, provided he requests such hearing within ten
calendar days of receiving the written notice from the Board, and such hearing
shall take place within 10 calendar days of Employee’s request.  If, within five calendar days following such
hearing, Employee is furnished written notice by the Board confirming that, in
its reasonable judgment, grounds for Cause on the basis of the original notice
exist, he shall thereupon be terminated for Cause.  In the case of termination by Employee
without Good Reason, the termination shall be effective thirty (30) days after
Employee notifies the Company of such termination.  Following termination pursuant to this Section 5(c),
the Company’s only obligation to Employee shall be to pay to Employee, in a
lump sum, an amount equal to the Accrued Obligations.

 

(d)                                 Termination
Without Cause or for Good Reason. 
This Agreement may be terminated at any time by the Company without
Cause or by Employee with Good Reason. 
In each case, such termination shall be effective thirty (30) days
following delivery of notice to the non-terminating party.  In the event of a termination pursuant to
this Section 5(d), the Company shall pay Employee, (i) in a lump sum,
the Accrued Obligations and (ii) in twelve equal monthly installments, the
Base Salary in effect at the time of termination, unless the termination occurs
on or prior to December 31, 2009, in which case the amount payable under
this Section 5(d)(ii) shall be 50% of the Base Salary in effect at
the time of termination payable in six equal monthly installments.

 

(e)                                  Termination
Upon a Change of Control.  In the
event of a termination upon a “Change of Control,” as that term is defined in
the Company’s Key Employee Retention Plan (the “Employee Retention Plan”),
Employee shall be entitled to the benefits provided under Section 4 the
Employee Retention Plan, but based on a minimum of 12 years of service.

 

(f)                                    Continued
Benefits.  If Employee’s employment
is terminated pursuant to Sections 5(b), 5(d) and 5(e), Employee and/or
Employee’s dependents, as applicable, shall be entitled to continue any
participation Employee had immediately prior to termination in each of the
Company’s welfare benefit plans as provided in Section 4 of the Employee
Retention Plan, but based on a minimum of 12 years of service.

 

6.                                       Confidentiality;
Non-Competition; Non-Solicitation.

 

Proprietary
Information.  As of the Effective Date, a
fiduciary relationship of confidence and trust is established between Employee
and the Company as to all “Proprietary Information” (as defined below) then
existing and subsequently created or developed by or for the Company, including
but not limited to, information created or developed by Employee during his
employment or association with the Company. 
Use and disclosure of the Proprietary Information shall be governed by
Employee’s duties to the Company under applicable law and by the terms and
conditions of this Agreement.  Employee
shall use Proprietary Information only for the benefit of the Company and for
no other purpose whatsoever.  Except in
the performance of his duties for the benefit of the Company, Employee shall
not disclose to any person or entity or use any Proprietary Information, in any
form.  Employee agrees and acknowledges that
all of the Proprietary Information, in any form, and copies and extracts
thereof, is and shall remain the sole and exclusive property of the Company,
and Employee shall, on request, assign such information of Employee’s
origination to the Company and/or return to the Company the originals and all

 

 

copies of all
Proprietary Information provided to or acquired by Employee in connection with
his employment or association with the Company, and shall return to the Company
all files, correspondence and/or other communications received, maintained
and/or originated by Employee during the course of such employment or
association.  For the purposes of this
Agreement, the term “Proprietary Information” shall mean all information
which provides an actual or perceived competitive or technological advantage to
the Company relating to the Company or its business, including, but not limited
to, the Calliope Gas Recovery System and Tractor Seal technologies and related
intellectual property; provided, however, that
Proprietary Information shall not include any information which was in Employee’s
possession prior to the date hereof, as evidenced by bona fide written, dated
documents, or any information which is or becomes generally known to the public
through no fault of Employee or others owing duties of trust and
confidentiality to the Company.  Employee
acknowledges that Proprietary Information may include information relating to
applications and unknown uses of the Proprietary Information, and that, while
certain information described above is excluded from the definition of
Proprietary Information, the new uses and unknown applications of any public
information recognized by Employee also constitute Proprietary
Information.  Furthermore, all new uses
and unknown applications of the Proprietary Information which become apparent
to Employee after the Effective Date shall be deemed Proprietary
Information.  Notwithstanding any other
provision of this Agreement and any termination of this Agreement, Proprietary
Information shall remain such until excluded pursuant to the proviso above.

 

Non-Competition.  Except as may otherwise be approved in
advance by the Board, during the Term and for a period of eighteen months after
the termination of his employment, Employee shall not compete, directly or
indirectly, with the Company.  Without
limiting the generality of the foregoing, Employee shall not:

 

enter into or engage in any
business which competes with the business of the Company within ten miles of
any geographic, or in any technologic, area where the Company is active as of
the date of termination; or

 

promote or assist, financially
or otherwise, any person, firm, association, partnership, corporation, or any
other entity engaged in any business that competes with the business of the
Company within ten miles of any geographic, or in any technologic, area where
the Company is active as of the date of termination.

 

For the purposes of this
Agreement, the Company will be considered active in a geographic area where (A) as
of the date of termination, it possesses an interest in one or more oil and gas
properties (including producing, non-producing, leasehold and mineral
interests), or is attempting or intends to lease, purchase or otherwise acquire
an interest in one or more such properties (including through a farmout or
other arrangement) or (B) it has, within the preceding three years,
generated or invested in one or more prospects through the acquisition,
reprocessing or interpretation of seismic data. 
Without limiting the generality of the foregoing, Employee understands,
acknowledges and agrees that he will be competing if he engages in any or all
of the activities set forth in this Section 6(b) directly as
an individual for his own account, or indirectly as a partner, joint venturer,
employee, agent, salesman, consultant, officer and/or director of any firm,
association, corporation, or other entity, or as a stockholder of any
corporation in which he owns, directly or indirectly, individually or in the
aggregate, more than one percent (1%) of the outstanding stock.

 

 

Non-Solicitation.  During the Term and for a period of eighteen
months after the termination of Employee’s employment either by the Company for
Cause or by Employee without Good Reason, Employee shall not directly or
indirectly solicit or induce or attempt to solicit or induce any employee(s),
agent(s) or consultant(s) of the Company to terminate their
employment, representation or other association with the Company.

 

Reasonableness
of Restrictions.  Employee agrees that the
covenants set forth in Sections 6(b) and 6(c) are reasonable
with respect to their duration and scope.  In the event that any of the
provisions of Sections 6(b) and 6(c) shall be declared by a
court of competent jurisdiction to exceed the maximum restrictiveness such
court deems enforceable, such provision shall be deemed to be replaced herein
by the maximum restriction deemed enforceable by such court.

 

7.                                       Injunctive
Relief.  The parties hereto agree that the Company would suffer
irreparable harm from a breach by Employee of any of the covenants or
agreements contained herein, for which there is no adequate remedy at
law.  Therefore, in the event of the actual or threatened breach by
Employee of any of the provisions of this Agreement, the Company, or its
respective successors or assigns, may, in addition and supplementary to other
rights and remedies existing in their favor, apply to any court of law or
equity of competent jurisdiction for specific performance, injunctive or other
relief in order to enforce compliance with, or prevent any violation of, the
provisions hereof, and that, in the event of such a breach or threat thereof,
the Company shall be entitled to obtain a temporary restraining order and/or a
preliminary or permanent injunction restraining Employee from engaging in
activities prohibited hereby or such other relief as may be required to
specifically enforce any of the covenants contained herein.

 

8.                                       Governing
Law; Venue.  This Agreement and the legal relations hereby created between
the parties hereto shall be governed by and construed under and in accordance
with the internal laws of the State of Colorado, without regard to conflicts of
laws principles thereof.  Any actions
under or with respect to this Agreement shall be filed only in the state or
federal courts located in the State of Colorado and the parties consent to the
jurisdiction and venue of solely such courts.

 

9.                                       Taxes.

 

(a)                                  Except
as otherwise provided in Section 11, and to the extent specifically
provided in Section 10, Employee shall be solely liable for Employee’s tax
consequences of compensation and benefits payable under this Agreement,
including any consequences of the application of Section 409A of the Code.

 

(b)                                 In
order to comply with all applicable federal or state income tax laws or
regulations, the Company may withhold from any payments made under this
Agreement all applicable federal, state, city or other applicable taxes.

 

 

10.                                 Section 409A
Savings Clause.

 

(a)                                  It
is the intention of the parties that compensation or benefits payable under
this Agreement not be subject to the additional tax imposed pursuant to Section 409A
of the Code.  To the extent such potential payments or benefits could
become subject to such Section, the parties shall cooperate to amend this
Agreement with the goal of giving Employee the economic benefits described
herein in a manner that does not result in such tax being imposed.

 

(b)                                 Notwithstanding
anything in this Agreement to the contrary, if on the date of termination of
Employee’s employment with the Company,

 

(i)                                     Employee
would not have a separation from service within the meaning of Section 409A
of the Code and the Treasury Regulations thereunder (“Separation From
Service”), and as a result of such termination of employment would receive
any payment that, absent the application of this Section 10(b)(i), would
be subject to additional tax imposed pursuant to Section 409A of the Code,
then such payment shall instead be payable on the date that is the earliest of (A) Employee’s
Separation From Service, (B) the date Employee becomes disabled (within
the meaning of Section 409A(a)(2)(C) of the Code), (C) Employee’s
death, or (D) such other date as will not result in such payment being
subject to such additional tax; and if

 

(ii)                                  Employee
is a specified employee within the meaning of Section 409A(a)(2)(B)(i) of
the Code and would receive any payment sooner than six months after
Employee’s separation from service that, absent the application of this Section 10(b)(ii),
would be subject to additional tax imposed pursuant to Section 409A of the
Code as a result of such status as a specified employee, then such payment
shall instead be payable on the date that is the earliest of (A) six months
after Employee’s Separation From Service, (B) Employee’s death, or (C) such
other date as will not result in such payment being subject to such additional
tax.

 

11.                                 Limitation
of Payments to Employee. 
Notwithstanding any other provision of this Agreement, in the event that
any payment (or portion thereof) to be made hereunder to Employee would
constitute a “parachute payment” for purposes of Section 280G(b)(2) of
the Code, such payment (or portion thereof) shall be reduced so that the
remaining portion of such payment (if any) does not constitute a parachute
payment.  In the event that more than one payment (or portion thereof)
would constitute a parachute payment, the preceding sentence shall be applied
to such payments in the order designated by Employee until none of the
remaining payments (or portions thereof) constitute parachute payments. 
If Employee does not designate the order in which such payments shall be
reduced, each payment (or portion thereof) shall be reduced in the order in
which it is payable starting with the payment payable last in time, and then
the payment payable next to last in time, and so forth until none of the
remaining payments (or portions thereof) constitute parachute payments.

 

12.                                 Entire
Agreement.  This Agreement constitutes and contains the entire
agreement and final understanding concerning Employee’s employment with the
Company and the other subject matters addressed herein between the
parties.  It is intended by the parties as a complete and exclusive
statement of the terms of their agreement.  It supersedes and replaces all
prior negotiations and all agreements proposed or otherwise, whether written or
oral, concerning the subject matter hereof.  Any representation, promise
or agreement not specifically included in this Agreement shall not be binding
upon or enforceable against either party.  This is a fully integrated
agreement.

 

 

13.                                 Amendment
and Waiver.  The provisions of this Agreement may be amended or waived
only with the prior written consent of the Board (or a person expressly
authorized thereby) and Employee, and no course of conduct or failure or delay
in enforcing the provisions of this Agreement shall affect the validity,
binding effect or enforceability of this Agreement.

 

14.                                 Miscellaneous.

 

(a)                                  Binding
Effect.  This Agreement will be
binding upon and shall inure to the benefit of both Employee and the Company
and their respective successors, heirs and legal representatives, but neither
this Agreement nor any rights under this Agreement may be assigned by Employee
or the Company without the written consent of the other, and any assignment in
violation of the foregoing shall be void.

 

(b)                                 Notices.  Any notice required or permitted to be given
under this Agreement is to be in writing and either given by personal delivery
or deemed to be delivered three days after deposited, postage pre-paid, in the
U.S. certified or registered mail, return receipt requested, addressed as
follows:

 

	
  If to the Company:

  	
   

  	
  CREDO Petroleum Corporation

  1801 Broadway, Suite 900

  Denver, Colorado 80202

  Attn:

  
	
   

  	
   

  	
   

  
	
  If to Employee:

  	
   

  	
  Timothy J. Pownell

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

or at such other address as is
specified in written notice given in the manner required in this Agreement.

 

(c)                                  Headings. 
The section and other headings contained in this Agreement are for the
convenience of the parties only and are not intended to be a part hereof or to
affect the meaning or interpretation hereof

 

(d)                                 Construction. 
Each party has cooperated in the drafting and preparation of this
Agreement.  Hence, in any construction to be made of this Agreement, the
same shall not be construed against any party on the basis that the party was
the drafter.

 

(e)                                  Severability. 
If any provision of this Agreement or the application thereof is held invalid,
the invalidity shall not affect other provisions or applications of the Agreement
which can be given effect without the invalid provisions or applications and to
this end the provisions of this Agreement are declared to be severable.

 

(f)                                    Counterparts. 
This Agreement may be executed in counterparts, each of which shall be deemed
an original and all of which together shall constitute one and the same
instrument.

 

 

This
Employment Agreement has been executed by the parties on the date and year
first above written.

 

 

	
   

  	
  CREDO PETROLEUM CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Timothy J. Pownell, individually

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