Document:

virnetx_10q-ex1001.htm

Exhibit 10.1

 

 

	 	McKOOL SMITH	 
	 	A PROFESSIONAL CORPORATION ▪ ATTORNEYS	 
	Douglas A. Cawley 	300 Crescent Court, Suite 1500 	Telephone: (214) 978-4000
	 	Dallas, Texas 75201	Telephone: (214) 978-4044
	 	 	 

 

 

April 15, 2010

 

Kendall Larsen

Chief Executive Officer 

VirnetX, Inc.

5615 Scotts Valley Drive 

Suite 110

Scotts Valley, CA  95066

 

	 	
RE:

	
VirnetX Inc. v. Microsoft Corp.,

Civil Action No. 6:10-cv-00094-LED (E.D. Tex., Tyler Division)

 

Dear Kendall:

 

We are pleased to confirm McKool Smith’s (the “Firm’s”) representation of VirnetX, Inc. (the “Client”) as counsel in the above-referenced matter. It is the Firm’s policy to set forth at the beginning of our representation the scope and terms of our representation and the manner in which we bill for our legal services, related ancillary services and disbursements advanced by the firm. We believe that a clear understanding of these matters is helpful in maintaining a harmonious, professional relationship. I encourage you to consider carefully the contents of this letter and to ask any questions that you have about the terms of the letter.

 

Each of the lawyers in the Firm has, through experience and training, developed certain expertise. In order to provide you with cost-effective legal service, it is our practice, as time and work schedules permit, to refer matters internally to those individuals who can perform the highest quality work at the lowest cost. In addition, we employ staff members who are not licensed to practice law, but who are capable of performing (under the supervision of a licensed attorney) legally related tasks requiring a lower level of experience or expertise so as to facilitate the most efficient rendering of services. As a result, in addition to my services, VirnetX will find services being performed by other individuals within the Firm. Although Luke McLeroy will handle the day-to-day responsibilities on this case, I will ultimately be responsible for assuring that the work performed on VirnetX’s behalf is performed to your satisfaction. While I certainly do not expect that VirnetX will find the legal representation of our firm unsatisfactory in any respect, I do encourage VirnetX to discuss any problems that may arise so that we may resolve them promptly.

 

 

[CONFIDENTIAL TREATMENT REQUESTED]

 

  

  

  

 

Kendall Larsen 

April 15, 2010 

Page 2

 

 

I presently charge for my services an hourly rate of $[***], and Luke McLeroy charges an hourly rate of $[***] for his services. Currently other attorneys in the firm have rates ranging from $[***] to $[***]. These rates are subject to change with 30 days notice. Our statements for legal services will include the current billing rates for all lawyers involved in the matter.

 

In addition to legal fees, we will bill you on a monthly basis for any ancillary services such as messenger delivery, photocopying by us or outside copy services, document imaging, computerized research, etc., if needed and used for your matter. In the case of certain hearings, mediations, arbitrations and at trial there will be charges for the preparation of graphics and multimedia presentations. These charges can be significant. Invoices for out-of-pocket expenses will be sent to you from time to time for payment direct to our suppliers. All charges by outside suppliers will be billed to you at our cost. If cost is not readily determinable from the invoice because of shared services or other reasons, we will use reasonable methods to estimate or determine the cost included in our bills.

 

We will bill you for our services on a monthly basis. Among other things, this allows you to monitor both current and cumulative legal fees. If you dispute any charge, please deduct the amount and pay the remainder of the invoice. The billings are due within thirty days of when you receive them. Moreover, if, during the course of our representation, billing disputes arise which remain unresolved or if timely payment is not made, we reserve the right to withdraw from further representation after appropriate notice in accordance with ethical standards and court requirements.

 

Notwithstanding anything else herein to the contrary, the terms of the Term Sheet attached hereto as Exhibit A shall be incorporated herein by this reference and in the event of any conflict between this engagement letter and the Term Sheet, the terms in the Term Sheet shall supersede the terms of this engagement letter.

 

We understand that Kendall Larsen will be responsible for approval and processing of all invoices in this matter. Accordingly, all original invoices regarding this matter will be forwarded directly to Kendall Larsen for your review, approval and transmittal to the appropriate company representative for payment. I urge you and VirnetX to raise questions with me regarding our invoices as soon as you have any questions, so that we can resolve any problems promptly.

 

Client agrees that the Firm has not been retained to review or advise VirnetX with respect to insurance coverage for the event or transaction in question. We strongly recommend that VirnetX conduct a review of any potentially applicable insurance coverage and place appropriate carriers on notice of any potential claim. Should you desire additional advice in this area, we agree that you will make such request in writing.

 

Client agrees that the Firm does not assume responsibility for advising Client about community property issues, tax consequences or deductibility of any recovery or expenses, or estate planning or investment issues with regard to the payment of any claimed amount or recovery if any, or administrative benefits and/or remedies available to Client due to disability. The attorneys make no representations or guarantees regarding the tax consequences of any payment or recovery obtained on behalf of the Client, and are offering no tax advice with regard to these matters. Client agrees to rely on other advisers for advice on those matters, and Client acknowledges that the Firm has informed the Client that the Client should seek such advice in this case and that this case could have unanticipated financial or tax consequences for the Client.

 

 

[CONFIDENTIAL TREATMENT REQUESTED]

 

  

  

  

 

Kendall Larsen 

April 15, 2010 

Page 3

 

 

If it becomes necessary or advisable to secure the services of others in connection with our representation of you, such as expert witnesses, jury consultants, accountants or attorneys to represent you in other localities, we will normally discuss these needs with you prior to retaining outside persons. These persons typically determine their own fees, and will ordinarily provide a separate engagement letter with either you or the Firm. We will provide you with a copy of such engagement letter. We normally ask that these types of outside professionals bill you directly. Whether you are billed directly or receive bill forwarded from the Firm, you will be ultimately responsible for paying the amounts billed.

 

It is expressly understood and agreed that this Agreement shall be governed by, construed, interpreted, and enforced in accordance with the laws of the State of Texas and shall be performable in Dallas County, Texas. All claims, disputes, or other differences between Client and the Firm or any of its attorneys regarding the above-referenced litigation, our engagement or services related thereto, or this Agreement shall first be referred to a business person selected jointly by you and the Firm. The parties shall explain their respective claims, disputes, or differences to the business person selected who shall render a non-binding recommendation to them for resolving such claims, disputes, or differences. If the parties are unable to agree on a business person, or if, at least, one of the parties is unwilling to accept and abide by the non-binding recommendation of the business person, then any and all such claims, disputes, or differences shall be exclusively resolved by binding arbitration pursuant to the Federal Arbitration Act and the Commercial Arbitration Rules of the American Arbitration Association (“AAA”), with arbitration to occur at Dallas, Texas, The arbitration shall be before a single arbitrator selected from the complex business or commercial cases panel of the AAA, and each party shall bear its own attorney fees and costs in connection with the arbitration, including the costs of the AAA and the arbitrator, which shall be equally divided. The AAA shall, promptly after receipt of a demand for arbitration from one of the parties, proceed to select the arbitrator. In doing so, the AAA shall submit a list of 5 potential arbitrators to the parties who, within five days thereafter, shall be entitled to strike two names and rank the remaining names. You acknowledge that you have been advised by independent counsel that submission to binding arbitration typically results in the waiver of significant rights, including the waiver of the right to file a lawsuit in a different venue, waiver of the right to a jury trial, the possible waiver of broad discovery, and the loss of the right to appeal. In the event that, for any reason, the arbitration provision set forth in this paragraph is deemed to be unenforceable, such unenforceability shall have no effect on any other provision of this Agreement and the parties in such event shall be free to pursue whatever other remedies are otherwise available to them.

 

Because we are a party to this Agreement and have a material economic interest in it, we have a conflict of interest and cannot give you any advice with respect to it. We therefore strongly advise you to seek independent legal representation regarding this Agreement and the arbitration provision contained in it.

 

  

  

  

 

Kendall Larsen 

April 15, 2010 

Page 4

 

 

If, after review of this letter, you find the foregoing to be acceptable, I request that you sign and return the original to me, which, when executed, will indicate VirnetX’s agreement to this fee arrangement and will authorize us to undertake legal services on the terms set forth herein.

 

 

	 	Sincerely, 
	 	 
	 	McKOOL SMITH, P.C. 
	 	 
	 	 
	 	By:  /s/ Douglas A. Cawley                                     
	 	Douglas A. Cawley 

 

 

	AGREED AND APPROVED:  	 
	 	 
	VIRNETX, INC. 	 
	 	 
	 	 
	By:  /s/ Kendall Larsen                                               	 
	Kendall Larsen 	 
	
Chief Executive Officer 

4/27/2010

	 

 

 

 

 

  

  

  

 

Exhibit A

 

As we discussed earlier, our best estimate for the cost of this litigation through trial is $7.5 million in fees and $1.5 million in costs. This estimate is based on our preliminary investigation into the facts of this case, as well as our previous experience in this Court. This estimate covers our fees through appeal.

 

The firm will bill you monthly at our standard hourly fees for the actual work performed. The total fees, however, would be capped at a maximum of $7.5 million.

 

Should this new matter be resolved separately from the previous matter, (i.e., as a separate settlement or through trial), we would receive 8% of the total proceeds from that resolution.

 

Should this new matter be resolved as part of the settlement of the initial case against Microsoft (cause no. 6:07-cv-00080-LED; VirnetX Inc. v. Microsoft Corporation), we would receive an additional 2% of the total proceeds of that settlement above and beyond any amount to which we are entitled under our current arrangement (i.e. a total of 10%).

 

You will pay actual expenses, which we will bill monthly. Expenses are not capped, but we would expect them to be $1.5 million for this case.

 

As used in this Exhibit A, the term “proceeds” shall mean a sum of money or other valuable consideration equal in amount to the gross recovery, including the full fair market value of all relief obtained and received directly or indirectly by VirnetX from Microsoft, measured by the amount of recovery collected from Microsoft, either through settlement, compromise or judgment, including, but not limited to, compensatory damages, exemplary or enhanced damages, attorney's fees, prejudgment interest, costs and post judgment interest (whether through trial or settlement of any lawsuit). Proceeds shall not be reduced by the value of any counterclaim, judgment or settlement inuring to the benefit of Microsoft against VirnetX, which shall be the sole responsibility of VirnetX. Such things of value include, but are not limited to, the full fair market value of any business deal or transaction entered into by VirnetX and Microsoft relating to the patents. For example, if there is any type of agreement or settlement whereby Microsoft instead of, or in addition to, paying money or property, makes an agreement with VirnetX to provide something of benefit, then McKool Smith shall be entitled to its percentage of the full fair market value of the business deal or other consideration received by VirnetX.

 

 

 

 

  

A-1ex10-1.htm

  

  

  

Cash Incentive Plan for 2010

 

 

The following is a summary of the incentive periods, performance targets, and calculation of cash incentive awards established by the Compensation Committee for 2010.

 

 

Incentive Periods

 

	
(1)  

	
Annual Incentive Period.  There shall be one annual incentive period (“Annual Incentive Period”) and 50% of an Executive’s aggregate target bonus will be earned based on performance in the Annual Incentive Period.  In the event performance for the Annual Incentive Period is above or below target performance, the actual amount of the cash incentive bonus paid for the Annual Incentive Period could be smaller or larger than 50% of the Executive’s aggregate target bonus as the amount of the cash incentive bonus to be paid shall be adjusted as more fully described below.

 

	
(2)  

	
Quarterly Incentive Periods.  In addition, there shall be four quarterly incentive periods (the “Quarterly Incentive Periods”) correlating to the Company’s four fiscal quarters.  Twelve and one-half percent of an Executive’s target bonus will be earned based on performance in the Quarterly Incentive Period.  In the event performance for the Quarterly Incentive Period is above or below target performance, the actual amount of the cash incentive bonus could be smaller or larger than 12.5% of the Executive’s aggregate target bonus as the amount of the bonus to be paid shall be adjusted as more fully described below.

 

 

Performance Targets and Target Bonus Percentages

 

	
(1)  

	
Establishment of Performance Targets.  The Compensation has established minimum, full, and stretch Operating Income Targets (“Operating Income Targets”) and minimum, full, and stretch Revenue Targets (“Revenue Target”) for each Quarterly Incentive Period and for the Annual Incentive Period.  For corporate Executives, these targets have been established for global results.  For regional Executives, these targets have also been established for regional results.

 

	
(2)  

	
Bonus Percentages. The Committee has established a target bonus percentage (the “Bonus Percentage”) for each Executive representing a percentage of base salary as set forth on Schedule A.  Such Bonus Percentage shall be allocated to the respective Targets  as follows:

 

 

  

  

  

 

Regional Executives

 

	 	 	 	 
	  	  	
Global Revenue

 

	
15%

	  	  	
Global Operating Income

 

	
15%

	  	  	
Regional Revenue

 

	
49%

	  	  	
Regional Operating Income

	
21%

 

Corporate

 

	 	 	 	 
	  	  	
Global Revenue

 

	
50%

	  	  	
Global Operating Income

 

	
50%

 

    Cash Incentive Awards

 

	
(1)  

	
Minimum Threshold.  In the event that the Company’s operating income is less than the minimum Operating Income Target for the applicable Incentive Period, no cash incentive award shall be paid to an Executive for such Incentive Period for global results regardless of whether the global Revenue Targets were achieved.  In the event operating income for a region is less than the minimum Operating Income Target for the region, no cash incentive award shall be paid to Executive for such Incentive Period for regional results.

 

	
(2)  

	
Incentive Awards.  In the event the relevant Operating Income targets have been satisfied, the total Incentive Award for an Executive for any Incentive Period shall be determined by (A) multiplying the Executive’s base salary as in effect at the time of the payment of the cash incentive bonus  by the sum of all of the Adjusted Bonus Percentages applicable for such Incentive Period with respect to the targets where the required performance thresholds have been met, and (B) multiplying the result obtained in (A) above by 12.5% for Quarterly Incentive Periods, and 50% for the Annual Incentive Period.

 

	
(3)  

	
Adjusted Bonus Percentages.  Bonus Percentages shall be adjusted as follows:

 

	
a.  

	
In the event that actual performance is less than the full target level but equal to or greater than the minimum target, then the Bonus Percentage for such Incentive Period and such Target shall be reduced in a linear manner so that there is a 50% negative adjustment to the applicable Bonus Percentage at the minimum level Target, with the adjusted bonus percentage increasing linearly to equal the applicable Bonus Percentage at the full level Target.

 

	
b.  

	
In the event that actual performance is greater than the full level Target, the Bonus Percentage for such Incentive Period and such Target shall be adjusted so that there the Bonus Percentage increases linearly until it equals 200% of the applicable Bonus Percentage at the stretch level Target.

 

 

 

 

 

 

  

  

  

 

 

 

 

 

 

	
c.  

	
In the event that actual performance exceeds the stretch level Target,  the Bonus Percentage for such Incentive Period and such Target shall be adjusted  in proportion to the extent to which the stretch level targets are exceeded in accordance with the following formula:

 

Adjusted Bonus Percentage = Bonus Percentage * [1+ ((Actual Performance)/(Stretch Level Target))]

 

	
(4)  

	
Individual Performance Targets.  In the event the individual performance targets established for a Participant are not achieved, the Compensation Committee shall have the discretion to reduce Incentive Award payable for the annual period by up to 40%.   In addition, in the event that individual performance targets are achieved, but operating income targets are not achieved, the Compensation Committee may pay a cash incentive award based on achievement of individual targets in an amount up to 10% of the Executive aggregate Target Bonus.

 

 

	
(5)  

	
Cap.  Aggregate Incentive Awards for Executives shall be capped at two times their Target Bonus (i.e, Annual Salary multiplied by two times the Bonus Percentage set forth on Schedule A).

 

	
(6)  

	
Determination of Incentive Award Payments. The Compensation Committee shall make the determination of whether a Target has been achieved and the level of Incentive Award that is payable with respect to each executive.  In determining whether a performance target has been satisfied, the targets and actual revenue and operating income results shall be calculated on constant currency basis to eliminate the impact of foreign currency fluctuations.  This shall be accomplished by using the same foreign currency exchange rates that were used in the equivalent prior-year period for purposes of establishing both the targets and actual results in order to provide clear comparison of the targets and actual results compared to prior-year results. Actual results shall also be calculated by eliminating any settlement amounts, or any accrual related to adverse decisions, with respect to the custom cases in Japan.  In the event that the accrual of an Incentive Award would result in an Operating Income Target not being achieved, but the Target would be achieved without the accrual, then the amount of bonus that will be payable shall be reduced in amount until the Operating Income Target will be achieved.

 

	
(7)  

	
Compensation Committee Discretion.  Notwithstanding anything to the contrary, the Compensation Committee may elect not to pay or reduce an Incentive Award otherwise payable to a Participant even if the applicable Targets have been met.  Such determination may be made based on such factors that the Compensation Committee considers relevant including, without limitation, failure of such Participant to perform individual employment responsibilities at acceptable performance level or other performance related issues.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00173-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00173-of-00352.parquet"}]]