Document:

ex10-2.htm

Exhibit 10.2

 

FORM OF SENIOR SUBORDINATED

 

SECURED CONVERTIBLE PROMISSORY NOTE

 

NEITHER THIS NOTE NOR THE SECURITIES ISSUABLE UPON THE CONVERSION HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (i) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (ii) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.

 

ISC8 Inc.

 

Senior Subordinated Secured Convertible Promissory Note

 

Issuance Date: XXX Principal: U.S. $XXX

 

FOR VALUE RECEIVED, ISC8 Inc., a Delaware corporation (the “Company”), hereby promises to pay to [Holder Name] or his registered assigns (the “Holder”) the amount set out above opposite the caption “Principal” (as such amount may be increased or reduced from time to time pursuant to the terms hereof, whether through the payment of PIK Interest (as defined below) or through prepayment or otherwise, the “Principal”) when due, whether upon the Maturity Date (as defined below), acceleration, prepayment or otherwise (in each case, in accordance with the terms hereof) and to pay Interest (as defined below) on the outstanding Principal at the rates, in the manner and at the times set forth herein.  This Senior Subordinated Secured Convertible Promissory Note (including all Senior Subordinated Secured Convertible Promissory Notes issued in exchange, transfer or replacement hereof) is part of the same series of notes as those senior subordinated secured convertible promissory notes issued pursuant to the Note Purchase Agreement (the “Notes”).  Certain capitalized terms used herein are defined in Section 31).

 

1. PAYMENTS OF PRINCIPAL.

 

(a) Voluntary.  Subject to the Holder’s right to convert under Section 3, the Company may prepay this Note at any time, in whole or in part, without penalty or premium; provided that at least an aggregate of 90 days of interest is being repaid with such prepayment in the event such prepayment is less than 90 days after the issuance of the Note being prepaid.  All prepayments of Principal made pursuant to this Section 1(a) shall be accompanied by accrued and unpaid Interest thereon through such prepayment date and subject to the proviso in the foregoing sentence.

 

(b) Mandatory.  Subject to the Holder’s right to convert under Section 3, on the Maturity Date, the Holder shall surrender this Note to the Company and the Company shall pay to the Holder in cash an amount equal to the outstanding Principal and accrued and unpaid Interest thereon.

 

2. INTEREST.  Simple interest shall accrue on the outstanding Principal at the Interest Rate from and including the date set forth above opposite the caption “Issuance Date” (the “Issuance Date”) until the Principal is paid in full, shall be computed on the basis of a 365-day year and actual days elapsed.

 

  

  

  

(a) Payment of Interest.  Unless the Holder of the Note requires otherwise but except for the period when Interest is calculated at the default rate, Interest shall be payable on the Maturity Date to the record holder of this Note as of the last day of the Interest Period through the addition of the amount of such Interest to the then outstanding Principal (any Interest paid in such manner, “PIK Interest”).  Interest payments that are instead required to be made in cash (“Cash Interest”) shall be subject to Section 2(b).

 

(b) Restrictions on Cash Interest Payments.  Notwithstanding the foregoing, in the event that the Company would otherwise be required under this Section 2 to pay Interest in the form of Cash Interest but is not permitted to do so pursuant to Section 23, the Company shall instead pay such Interest as PIK Interest.  Interest that is paid in the form of PIK Interest shall be considered paid or duly provided for, for all purposes under this Note, and shall not be considered overdue.

 

3. CONVERSION OF NOTE. This Note shall be convertible into equity securities of Company, on the terms and conditions set forth in this Section 3.

 

(a) Automatic Conversion.  In the event the Company consummates a Qualified Equity Financing prior to the Maturity Date, then all principal and accrued interest due under the terms of this Note shall automatically convert into shares of the Company Conversion Securities at the same price and on the same terms as the other investors that purchase the Company Conversion Securities in the Qualified Equity Financing.  In conjunction with such conversion, the Holder shall become a party and shall execute all related Qualified Equity Financing documentation.

 

(b) Mandatory Conversion.  Upon the vote of the Required Holders, this Note shall automatically without any further action on the part of the Holder convert into such equity or other securities of the Company issued upon consummation of a financing transaction approved by the Board of Directors of the Company.

 

(c) Fractional Shares; Interest; Effect of Conversion.  No fractional shares shall be issued upon conversion of this Note.  In lieu of the Company issuing any fractional shares to the Holder upon the conversion of this Note, the Company shall pay to the Holder an amount equal to the product obtained by multiplying the conversion price by the fraction of a share not issued pursuant to the previous sentence.  In addition, the Company shall pay to the Holder any interest accrued on the amount converted and on the amount to be paid to the Company pursuant to the previous sentence.  Upon conversion of this Note in full and the payment of the amounts specified in this Section 3(c), Company shall be forever released from all its obligations and liabilities under this Note.

 

(d) Transfer and Other Taxes.  The Company shall pay any and all taxes that may be payable with respect to the issuance and delivery of Company Conversion Securities upon conversion of the Note; provided that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issue and delivery of Company Conversion Securities to any Person other than the Holder or with respect to any income tax due by the Holder with respect to such Company Conversion Securities issued upon conversion.

 

  

  

  

4. EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT.

 

(a) Events of Default.  Each of the following events (so long as it is continuing) shall constitute an “Event of Default”:

 

(i) any Change of Control;

 

(ii) the Company’s failure to pay to the Holder any amount of Principal, Interest or other amounts when and as due under this Note, provided, that in the case of a failure to pay Interest when and as due, such failure shall constitute an Event of Default only if such failure continues for a period of at least five (5) Business Days;

 

(iii) any event of default under, redemption of or acceleration prior to maturity of any Indebtedness of the Company or any of its Subsidiaries (other than this Note) in an aggregate principal amount in excess of $500,000;

 

(iv) the Company or any of its Subsidiaries pursuant to or within the meaning of any Bankruptcy Law, (A) commences a voluntary case, (B) consents to the entry of an order for relief against it in an involuntary case, (C) consents to the appointment of a Custodian, (D) makes a general assignment for the benefit of its creditors or (E) admits in writing that it is generally unable to pay its debts as they become due;

 

(v) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that (A) is for relief against the Company or any of its Subsidiaries in an involuntary case, (B) appoints a Custodian of the Company or any of its Subsidiaries or (C) orders the liquidation of the Company or any of its Subsidiaries;

 

(vi) a final judgment or judgments for the payment of money aggregating in excess of $500,000 are rendered against the Company or any of its Subsidiaries and which judgments are not, within sixty (60) days after the entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within sixty (60) days after the expiration of such stay; provided, however, that any judgment which is covered by insurance or an indemnity from a creditworthy party shall not be included in calculating the $500,000 amount set forth above so long as the Company provides the Holder Representative with a written statement from such insurer or indemnity provider (which written statement shall be reasonably satisfactory to the Holder Representative) to the effect that such judgment is covered by insurance or an indemnity and the Company will receive the proceeds of such insurance or indemnity within thirty (30) days of the issuance of such judgment or such later date as provided by the terms of such insurance policy;

 

(vii) any representation or warranty made by the Company in this Note, the Note Purchase Agreement or the Security Agreement shall prove to be materially false or misleading as of the date made or deemed made;

 

(viii) the Company shall breach any covenant or other material term or condition of this Note, the Note Purchase Agreement or the Security Agreement and, in the case of a breach of a covenant or term or condition which is curable, such breach continues for a period of at least ten (10) consecutive Business Days;

 

(ix) any material provision of this Note, the Note Purchase Agreement or the Security Agreement ceases to be of full force and effect other than by its terms, or the Company contests in writing (or supports any other person in contesting) the validity or enforceability of any provision of this Note, the Note Purchase Agreement or the Security Agreement;

 

(x) the Security Agreement shall for any reason (other than pursuant to the terms thereof) cease to create a valid and perfected lien, with the priority required by the Security Agreement, on, and security interest in, any material portion of the Collateral purported to be covered thereby, subject to Permitted Liens; or

 

  

  

  

 

 

(xi) any Event of Default (as defined in the Turner Notes) occurs with respect to any Turner Note.

 

(b) Acceleration.  Upon the occurrence and during the continuance of an Event of Default, but subject to Section 23, the Holder Representative may, and at the request of the Required Holders shall, take either or both of the following actions: (i) declare all or any part of the Outstanding Note Obligations to be immediately due and payable; provided, however, that if an Event of Default shall occur under either Section 4(a)(iv) or 4(a)(v), the outstanding Principal, accrued and unpaid Interest and any other amounts outstanding under this Note shall automatically become immediately due and payable, and (ii) exercise on behalf of itself and the other Holders all rights and remedies available to it under the Security Agreement and applicable law.  To the extent that the Holder Representative declares this Note to be immediately due and payable (or this Note becomes due and payable following an Event of Default under Section 4(a)(iv) or 4(a)(v)), the Company shall pay the sum of the Outstanding Note Obligations to the Holder within five (5) Business Days after the date that the Outstanding Note Obligations are declared due and payable, and upon full payment, the Note shall be extinguished.

 

5. RIGHTS UPON FUNDAMENTAL TRANSACTION.  The Company shall not enter into or be party to a Fundamental Transaction unless the Successor Entity assumes in writing all of the obligations of the Company under this Note in accordance with the provisions of this Section 5 pursuant to written agreements in form and substance satisfactory to and approved by the Required Holders (such approval not to be unreasonably withheld or delayed and the Required Holders shall not be permitted to approve any written agreement that materially modifies, alters or changes the terms of the Notes in a manner adverse to the Holders) prior to such Fundamental Transaction, including agreements to deliver to the Holder in exchange for this Note a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Note, including, without limitation, having a principal amount and interest rate equal to the principal amount and the interest rate of this Note and having similar ranking to this Note, and satisfactory to the Required Holders (any such approval not to be unreasonably withheld or delayed).  Upon the occurrence of any Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Note referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Note with the same effect as if such Successor Entity had been named as the Company herein.  The provisions of this Section shall apply similarly and equally to successive Fundamental Transactions and shall be applied without regard to any limitations on the redemption of this Note.

 

6. RESERVATION OF AUTHORIZED SHARES.  Prior to the Issuance Date, the Company shall reserve out of its authorized and unissued Common Stock and Company Conversion Securities a number of shares of Common Stock and Company Conversion Securities equal to the number of shares of Common Stock and Company Conversion Securities as shall be necessary to effect the conversion of this Note in Company Conversion Securities and any shares of Common Stock upon conversion or exercise of such Company Conversion Securities.

 

7. COVENANTS.

 

(a) Incurrence of Indebtedness.  So long as this Note is outstanding, without the affirmative vote or written consent of the Required Holders, the Company shall not, and the Company shall not permit any of its Subsidiaries to, directly or indirectly, incur or guarantee, assume or suffer to exist any Indebtedness, other than (i) the Indebtedness evidenced by this Note, and (ii) Permitted Indebtedness.

 

(b) Existence of Liens.  So long as this Note is outstanding, the Company shall not, and the Company shall not permit any of its Subsidiaries to, directly or indirectly, allow or suffer to exist Lien other than Permitted Liens.

 

  

  

  

(c) Restricted Payments.  The Company shall not, and the Company shall not permit any of its Subsidiaries to, directly or indirectly, redeem, defease, repurchase, repay or make any payments in respect of, by the payment of cash or cash equivalents (in whole or in part, whether by way of open market purchases, tender offers, private transactions or otherwise), all or any portion of any Indebtedness described in clause (i) of the definition of Permitted Indebtedness, whether by way of payment in respect of principal of (or premium, if any) or interest on such Indebtedness if at the time such payment is due or is otherwise made or, after giving effect to such payment, an event constituting, or that with the passage of time and without being cured would constitute, an Event of Default has occurred and is continuing.

 

8. AMENDMENTS.  The affirmative vote at a meeting duly called for such purpose or the written consent without a meeting of the Required Holders shall be required for any amendment or waiver of this Note or any amendment to the Security Agreement (including to release all or substantially all of the Collateral, in any transaction or series of related transactions); provided that no such amendment or waiver shall adversely affect the rights of the holders of the Turner Notes.

 

9. REISSUANCE OF THIS NOTE.

 

(a) Transfer.  The Company may, as a condition to the transfer of any of this Note, require that the request for transfer be accompanied by an opinion of counsel reasonably satisfactory to the Company, to the effect that the proposed transfer does not result in a violation of the Securities Act, unless such transfer is covered by an effective registration statement or by Rule 144 or Rule 144A under the Securities Act; provided, however, that an opinion of counsel shall not be required for a transfer by a Holder that is (i) a partnership transferring to its partners or former partners in accordance with partnership interests, (ii) a corporation transferring to a wholly owned subsidiary or a parent corporation that owns all of the capital stock of the Holder, (iii) a limited liability company transferring to its members or former members in accordance with their interest in the limited liability company, (iv) an individual transferring to the Holder’s family member or trust for the benefit of an individual Holder, or (v) transferring its Note to any Affiliate of the Holder, in the case of an institutional investor, or other Person under common management with such Holder; provided, further, that (A) the transferee in each case agrees to be subject to the restrictions in this Section 9 and provides the Company with a representation letter containing substantially the same representations and warranties of a “Purchaser” set forth in the Note Purchase Agreement, (B) the Company satisfies itself that the number of transferees is sufficiently limited and (C) in the case of transferees that are partners or limited liability company members, the transfer is for no consideration.  It is understood that the certificates evidencing any Notes may bear substantially the following legends (in addition to any other legends as legal counsel for the Company deems necessary or advisable under the applicable state and federal securities laws or any other agreement to which the Company is a party):

 

“NEITHER THIS NOTE NOR THE SECURITIES ISSUABLE UPON THE CONVERSION HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (i) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (ii) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.”

 

If this Note is to be transferred in compliance with the foregoing, the Holder shall surrender this Note to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Note (in accordance with Section 9(d)), registered as the Holder may request, representing the outstanding Principal being transferred by the Holder and, if less than the entire outstanding Principal is being transferred, a new Note (in accordance with Section 9(d)) to the Holder representing the outstanding Principal not being transferred.

 

(b) Lost, Stolen or Mutilated Note.  Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Note, and, in the case of loss, theft or destruction, of an indemnification undertaking by the Holder to the Company, in customary form and, in the case of mutilation, upon surrender and cancellation of this Note, the Company shall execute and deliver to the Holder a new Note (in accordance with Section 9(d)) representing the outstanding Principal.

 

  

  

  

 

 

(c) Note Exchangeable for Different Denominations.  This Note is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a new Note or Notes (in accordance with Section 9(d)) representing in the aggregate the outstanding Principal of this Note, and each such new Note will represent such portion of such outstanding Principal as is designated by the Holder at the time of such surrender.

 

(d) Issuance of New Notes.  Whenever the Company is required to issue a new Note pursuant to the terms of this Note, such new Note (i) shall be of like tenor with this Note, (ii) shall represent, as indicated on the face of such new Note, the Principal remaining outstanding (or in the case of a new Note being issued pursuant to Section 9(a) or Section 9(c), the Principal designated by the Holder which, when added to the principal represented by the other new Notes issued in connection with such issuance, does not exceed the Principal remaining outstanding under this Note immediately prior to such issuance of new Notes), (iii) shall have an issuance date, as indicated on the face of such new Note which is the same as the Issuance Date of this Note, (iv) shall have the same rights and conditions as this Note, and (v) shall represent accrued and unpaid Interest of this Note from the Issuance Date.

 

10. REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.

 

(a) The remedies provided in this Note shall be cumulative and in addition to all other remedies available at law or in equity (including a decree of specific performance and/or other injunctive relief), and, subject to Section 10(a) and Section 20, nothing herein shall limit the Holder’s right to pursue monetary damages for any failure by the Company to comply with the terms of this Note.  Amounts set forth or provided for herein with respect to payments and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof).  The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate.  The Company therefore agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required.

 

(b) Notwithstanding the foregoing, but subject to Section 20, the right of the Holder to receive payment of Principal and Interest on this Note, on or after the respective due dates set forth herein, or to bring suit for the enforcement of any such right to payment, shall not be impaired or affected without the consent of the Holder.

 

11. PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS.  If (a) this Note is placed in the hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding or the Holder otherwise takes action to collect amounts due under this Note or to enforce the provisions of this Note or (b) there occurs any bankruptcy, reorganization, receivership of the Company or other proceedings affecting Company creditors’ rights and involving a claim under this Note, then the Company shall pay the costs incurred by the Holder for such collection, enforcement or action or in connection with such bankruptcy, reorganization, receivership or other proceeding, including, but not limited to, reasonable attorneys’ fees and disbursements.

 

12. CONSTRUCTION; HEADINGS.  This Note shall be deemed to be jointly drafted by the Company and the Holder and shall not be construed against any person as the drafter hereof.  The headings of this Note are for convenience of reference and shall not form part of, or affect the interpretation of, this Note.

 

13. FAILURE OR INDULGENCE NOT WAIVER.  No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege.

 

  

  

  

14. NOTICES; PAYMENTS.

 

(a) Notices.  All notices, requests, consents, and other communications under this Note shall be in writing and shall be deemed delivered (i) when delivered, if delivered personally, (ii) four business days after being sent by registered or certified mail, return receipt requested, postage prepaid; (iii) one Business Day after being sent via a reputable nationwide overnight courier service guaranteeing next business day delivery, or (iv) when receipt is acknowledged, in the case of facsimile, in each case to the intended recipient as set forth below:

 

	
(i)  

	
If to the Holder, at its address set forth next to the Holder’s name on Exhibit A to the Note Purchase Agreement.

 

(ii) If to the Company:

 

ISC8 Inc.

151 Kalmus Drive

Costa Mesa, CA 92626

Attention: Chief Executive Officer

 

or at such other address as the Company or the Holder each may specify by written notice to the other parties hereto in accordance with this Section 14.  The Company shall provide the Holder with prompt written notice of all actions taken pursuant to this Note, including in reasonable detail a description of such action and the reason therefore.

 

(b) Payments.  Whenever any payment of cash is to be made by the Company to any Person pursuant to this Note, such payment shall be made in lawful money of the United States of America by a check drawn on the account of the Company and sent via overnight courier service to such Person at such address as previously provided to the Company in writing; provided that the Holder may elect to receive a payment of cash via wire transfer of immediately available funds by providing the Company with prior written notice setting out such request and the Holder’s wire transfer instructions.  Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a Business Day, the same shall instead be due on the next succeeding day which is a Business Day.

 

(c) Withholding Taxes.  All payments made by the Company hereunder shall be made without withholding for or on account of any present or future taxes (other than overall net income taxes imposed on the recipient).  If any such withholding is so required, the Company shall make the withholding, pay the amount withheld to the appropriate authority before penalties attach thereto or interest accrues thereon and pay to the recipient such additional amount as may be necessary to ensure that the net amount actually received by the recipient free and clear of such taxes (including taxes on such additional amount) is equal to the amount that the recipient would have received had such withholding not been made.  If the recipient is required to pay any such taxes, penalties or interest, the Company shall reimburse the recipient for that payment on demand.  If the Company pays any such taxes, penalties or interest, it shall deliver official tax receipts or other evidence of payment to the recipient on whose account such withholding was made on or before the thirtieth day after payment.  The Holder agrees to provide, promptly following the Company’s request therefore, such forms or certifications as it is legally able to provide to establish an exemption from, or a reduction in, any withholding taxes that might otherwise apply.

 

15. CANCELLATION.  After all Principal, accrued Interest and other amounts at any time owed on this Note have been paid in full, this Note shall automatically be deemed canceled, shall be surrendered to the Company for cancellation and shall not be reissued.

 

16. WAIVER OF NOTICE.  To the extent permitted by law, the Company hereby waives demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note.

 

  

  

  

17. GOVERNING LAW.  This Note shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Note shall be governed by, the internal laws of the State of Delaware, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Delaware or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of Delaware.

 

18. CERTAIN DEFINITIONS.  For purposes of this Note, the following terms shall have the following meanings:

 

(a) “Affiliate” means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with such entity provided that, for purposes of this definition, “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or by contract or otherwise.

 

(b) “Bankruptcy Law” means Title 11 of the U.S. Code, or any similar Federal, foreign or state law for the relief of debtors.

 

(c) “Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in the city of Los Angeles are authorized or required by law to remain closed.

 

(d) “Cash Interest” has the meaning set forth in Section 2(a).

 

(e) “Change of Control” means any Fundamental Transaction other than (i) a Fundamental Transaction in which holders of the Company’s voting power immediately prior to the Fundamental Transaction continue after the Fundamental Transaction to hold publicly traded securities and, directly or indirectly, the voting power of the surviving entity or entities necessary to elect a majority of the members of the board of directors (or their equivalent if other than a corporation) of such entity or entities, (ii) a Fundamental Transaction with any Holder, any Affiliate of any Holder or any person otherwise related to or associated with a Holder, or (iii) pursuant to a migratory merger effected solely for the purpose of changing the jurisdiction of incorporation of the Company.

 

(f) “Collateral” has the meaning given to such term in the Security Agreement.

 

(g) “Common Stock” means the Common Stock of the Company.

 

(h) “Company” has the meaning set forth in the introductory paragraph of this Note.

 

(i) “Company Conversion Securities” means the class of equity securities (including without limitation shares of Series D Preferred Stock) of the Company sold in a Qualified Equity Financing.

 

(j) “Contractual Obligation” means, with respect to any Person, any contract, agreement, deed, mortgage, lease, sublease, license, sublicense or other legally enforceable commitment, promise, undertaking, obligation, arrangement, instrument or understanding, whether written or oral, to which or by which such Person is a party or otherwise subject or bound or to which or by which any property, business, operation or right of such Person is subject or bound.

 

(k) “Custodian” means a receiver, trustee, assignee, liquidator or similar official.

 

  

  

  

(l) “Distribution” means (i) any payment or distribution made by the Company on account of the Note, whether in the form of cash, securities or other property, by setoff or otherwise, or (ii) any redemption, purchase or other acquisition by the Company of all or a portion of the Note, in each of cases (i) and (ii), other than any payment, distribution, redemption, purchase or other acquisition made (x) through the exchange of all or a portion of the Note into or for (I) equity securities of the Company or (II) debt securities of the Company that (A) are subordinated in right of payment to the Existing Secured Debt to at least the same extent as this Note is subordinated to the Existing Secured Debt, (B) do not have the benefit of any obligation of any Person (whether as issuer, guarantor or otherwise) unless the Existing Secured Debt has at least the same benefit of the obligation of such Person and the obligation of such Person to the Holder is subordinated to the obligations of such Person to the Existing Secured Debt Holder to at least the same extent that this Note is subordinated to the Existing Secured Debt and (C) is either unsecured or secured by liens that are subordinated to the liens securing the Existing Secured Debt, (y) at any time that no “Default” (as defined in the Existing Secured Debt) has occurred and is continuing under Section 6(a) or 6(c) of the Existing Secured Debt or (z) through the accrual and addition to principal of capitalized interest in the amounts and at the times specified in this Note.

 

(m) “Event of Default” has the meaning set forth in Section 4(a).

 

(n) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

(o) “Existing Secured Debt” means all obligations, liabilities and indebtedness of every nature of the Company from time to time owed to (i) Partners for Growth III, L.P. pursuant to that certain Loan and Security Agreement dated December 14, 2011 between the Company and Partners for Growth III, L.P; and (ii) holders of certain senior secured subordinated promissory notes issued pursuant to the Note Purchase Agreement dated March __, 2014, by and between the Company and the signatories thereto (“Existing Note Holders”).

 

(p) “Existing Secured Debt Holder” means Partners for Growth III, L.P., Existing Note Holders, and any of its or their grantees, successors or assigns.

 

(q) “Fundamental Transaction” means that the Company shall, directly or indirectly, in one or more related transactions, (i) consolidate or merge with or into (whether or not the Company is the surviving corporation) another Person, or (ii) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the assets of the Company to another Person, or (iii) allow another Person to make a purchase, tender or exchange offer that is accepted by the holders of more than the 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the Person or Persons making or party to, or associated or affiliated with the Persons making or party to, such purchase, tender or exchange offer), or (iv) consummate a stock purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than the 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock purchase agreement or other business combination), or (v) reorganize, recapitalize or reclassify its Common Stock.

 

(r) “GAAP” means generally accepted accounting principles as promulgated by the Financial Accounting Standards Board, as in effect from time to time.

 

(s) “Guarantee” means, with respect to any Person, (i) any guarantee of the payment or performance of, or any contingent obligation in respect of, any Indebtedness or other Liability of any other Person, (ii) any other arrangement whereby credit is extended to any obligor (other than such Person) on the basis of any promise or undertaking of such Person (A) to pay the Indebtedness or other Liability of such obligor, (B) to purchase any obligation owed by such obligor, (C) to purchase or lease assets under circumstances that are designed to enable such obligor to discharge one or more of its obligations or (D) to maintain the capital, working capital, solvency or general financial condition of such obligor and (iii) any liability as a general partner of a partnership or as a venturer in a joint venture in respect of Indebtedness or other Liabilities of such partnership or venture.

 

(t) “Holder” has the meaning set forth in the introductory paragraph of this Note.

 

  

  

  

 

(u) “Holder Representative” means Fundamental Master LP, or such other Person appointed to act as Holder Representative pursuant to the Security Agreement.

 

(v) “Indebtedness” means, with respect to any Person, and without duplication, all Liabilities, including all obligations in respect of principal, accrued interest, penalties, fees and premiums, of such Person (i) for borrowed money (including amounts outstanding under overdraft facilities), (ii) evidenced by notes, bonds, debentures or other similar Contractual Obligations, (iii) in respect of “earn-out” obligations and other obligations for the deferred purchase price of property, goods or services (other than trade payables or accruals incurred in the ordinary course of business), (iv) for the capitalized liability under all capital leases of such Person (determined in accordance with GAAP), (v) in respect of letters of credit and bankers’ acceptances, (vi) for Contractual Obligations relating to interest rate protection, swap agreements and collar agreements, in each case, to the extent payable if such Contractual Obligation is terminated at the Closing, and (vii) in the nature of Guarantees of the obligations described in clauses (i) through (vi) above of any other Person.

 

(w) “Interest” means any Cash Interest or PIK Interest payable under this Note.

 

(x) “Interest Period” means the period beginning on and including the Issuance Date and ending on and including the Maturity Date.

 

(y) “Interest Rate” means twelve percent (12%) per annum; provided that upon the occurrence and during the continuance of an Event of Default, the Interest Rate shall be increased to twenty percent (20%) per annum.  In the event that such Event of Default is subsequently cured or waived, the Interest Rate shall be reduced to twelve percent (12%) per annum as of the date of such cure or waiver, it being understood, however, that unless the Holder otherwise agrees in writing, such reduction shall not apply retroactively to the period when such Event of Default was continuing.

 

(z) “Issuance Date” has the meaning set forth in Section 2.

 

(aa) “Liability” means, with respect to any Person, any liability or obligation of such Person whether known or unknown, whether asserted or unasserted, whether determined, determinable or otherwise, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, whether directly incurred or consequential, whether due or to become due and whether or not required under GAAP to be accrued on the financial statements of such Person.

 

(bb) “Lien” or “Liens” means any mortgage, lien, pledge, charge, security interest or other similar encumbrance upon or in any property or assets (including accounts and contract rights) owned by the Company or any of its Subsidiaries.

 

(cc) “Material Adverse Effect” means any (i) adverse effect on the issuance or validity of this Note or the transactions contemplated hereby or on the ability of the Company to perform its obligations under this Note, or (ii) material adverse effect on the condition (financial or otherwise), properties, assets, liabilities, business or operations of the Company and its Subsidiaries taken as a whole.

 

(dd) “Maturity Date” means July 31, 2014.

 

(ee) “Note Purchase Agreement” means that certain Note Purchase Agreement dated as of March __, 2014 by and between the Company and certain purchasers of Notes.

 

(ff) “Notes” has the meaning set forth in the introductory paragraph of this Note.

 

(gg) “Outstanding Note Obligations” means the outstanding Principal, accrued and unpaid Interest and any other amounts outstanding under this Note as of any point in time.

 

  

  

  

(hh) “Permitted Indebtedness” means (i) Indebtedness incurred by the Company that is made expressly subordinate in right of payment to the Indebtedness evidenced by this Note, as reflected in a written agreement reasonably acceptable to the Holder Representative and approved by the Holder Representative in writing, and which Indebtedness does not provide at any time for (A) the payment, prepayment, repayment, repurchase or defeasance, directly or indirectly, of any principal or premium, if any, thereon until ninety-one (91) days after the Maturity Date or later and (B) total interest and fees at a rate in excess of six percent (6%) per annum, (ii) Indebtedness secured by Permitted Liens, (iii) Indebtedness to trade creditors or for professional services incurred in the ordinary course of business, (iv) any Indebtedness owing under the Notes or the Turner Notes, (v) any Indebtedness owing under the Existing Secured Debt, and (vi) extensions, refinancings and renewals of any items of Permitted Indebtedness described in clauses (i) through (v) above, provided that the principal amount is not increased or the terms modified to impose more burdensome terms upon the Company or its Subsidiary, as the case may be.

 

(ii) “Permitted Liens” means (i) any Lien for taxes not yet due or delinquent or being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with GAAP, (ii) any statutory Lien arising in the ordinary course of business by operation of law with respect to a liability that is not yet due or delinquent, (iii) any Lien created by operation of law, such as materialmen’s liens, mechanics’ liens and other similar liens, arising in the ordinary course of business with respect to a liability that is not yet due or delinquent or that are being contested in good faith by appropriate proceedings, (iv) Liens securing the Company’s obligations under the Notes and the Turner Notes, (v) Liens (A) upon or in any equipment acquired or held by the Company or any of its Subsidiaries to secure the purchase price of such equipment or indebtedness incurred solely for the purpose of financing the acquisition or lease of such equipment, or (B) existing on such equipment at the time of its acquisition, provided that the Lien is confined solely to the property so acquired and improvements thereon, and the proceeds of such equipment, (vi) Liens securing the Company’s obligations under the Existing Secured Debt, (vii) Liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by Liens of the type described in clauses (i) through (vi) above, provided that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the Indebtedness being extended, renewed or refinanced does not increase, (viii) leases or subleases and licenses and sublicenses granted to others in the ordinary course of the Company’s business, not interfering in any material respect with the business of the Company and its Subsidiaries taken as a whole, (ix) Liens in favor of customs and revenue authorities arising as a matter of law to secure payments of custom duties in connection with the importation of goods, and (x) Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default under Section 4(a)(vi).

 

(jj) “Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof.

 

(kk) “PIK Interest” has the meaning set forth in Section 2(a).

 

(ll) “Principal” has the meaning given in the introductory paragraph of this Note.

 

(mm) “Qualified Equity Financing” means the consummation by the Company prior to the Maturity Date of a financing with an aggregate sales price of not less than $4,000,000, excluding any and all convertible bridge notes which are converted into such equity securities (including this Note and the other Notes) pursuant to which it sells equity with the principal purpose of raising capital.

 

(nn) “Register” has the meaning set forth in Section 21.

 

(oo) “Required Holders” means the holders of Notes representing at least a majority of the aggregate principal amount of the Notes whether or not converted pursuant to Section 3 or prepaid by the Company.

 

(pp) “SEC” means the United States Securities and Exchange Commission.

 

(qq) “Securities Act” means the Securities Act of 1933, as amended.

 

  

  

  

 

 

(rr) “Security Agreement” means the security agreement dated as of January 31, 2014, between the Company and the Holder Representative, as amended from time to time.

 

(ss) “Series D Preferred Stock” means shares of the Company’s Series D Preferred Stock.

 

(tt) “Subsidiary” means any corporation, association trust, limited liability company, partnership, joint venture or other business association or entity (i) at least 50% of the outstanding voting securities of which are at the time owned or controlled directly or indirectly by the Company or (ii) with respect to which the Company possesses, directly or indirectly, the power to direct or cause the direction of the affairs or management of such Person.

 

(uu) “Successor Entity” means the Person, which may be the Company, formed by, resulting from or surviving any Fundamental Transaction or the Person with which such Fundamental Transaction shall have been made.

 

(vv) “Turner Notes” refers to those Senior Subordinated Secured Convertible Promissory Notes issued by the Company in 2013 using J.P. Turner & Company, L.L.C. as a commissioned placement agent.

 

19. SECURITY. The Notes shall be secured by and to the extent provided in the Security Agreement, as amended through the date hereof.

 

20. SUBORDINATION.  It is a requirement of the Existing Secured Debt that any Indebtedness of the Company, including this Note, be subordinated in right of payment to the Existing Secured Debt.  Accordingly, each of the Company and, by acceptance of this Note, the Holder and each of its successors and assigns hereby covenants and agrees that for so long (but only for so long) as the Outstanding Note Obligations are secured by any of the assets of the Company, the following provisions of this Section 20 shall apply:

 

(a) Subordination of Note to Existing Secured Debt.  Notwithstanding anything to the contrary set forth herein, this Note shall be subordinated in right and time of payment, to the extent and in the manner set forth in this Section 20, to the prior indefeasible payment in full in cash of the Existing Secured Debt.

 

(b) Payment Restrictions.  The Company hereby agrees that it may not make, and the Holder hereby agrees that it will not accept, any Distribution with respect to this Note until the earlier of (i) the date that is one (1) day following the date the Existing Secured Debt is indefeasibly paid in full in cash and (ii) in the event that the Existing Secured Debt Holder has acknowledged in writing that the Existing Secured Debt has been indefeasibly paid in full in cash, the date of such payment and acknowledgment in writing.

 

21. REGISTERED OBLIGATION.  The Company shall establish and maintain a record of ownership (the “Register”) in which it will register by book entry the interest of the Holder and of each subsequent assignee in this Note, and in the right to receive any payments of principal and interest or any other payments hereunder, and any assignment of any such interest.  Notwithstanding anything herein to the contrary, this Note is intended to be treated as a registered obligation for federal income tax purposes and the right, title, and interest of the Holder and its assignees in and to payments under this Note shall be transferable only upon notation of such transfer in the Register.  This Section shall be construed so that the Note is at all times maintained in “registered form” within the meaning of Sections 163(f), 871(h)(2) and 881(c)(2) of the Internal Revenue Code and any related regulations (or any successor provisions of the Code or such regulations).

 

[SIGNATURE PAGE FOLLOWS]

  

  

  

IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as of the Issuance Date set out above.

 

	
  

	
ISC8 INC.

 

	
  

	
By:    

	/s/ John Vong	 

	
  

	
John Vong

	
  

	
Sr. Vice President and Chief Financial Officer

 

Accepted and Agreed:

 

HOLDER

 

By: ______________________________

 

Name: _____________________________                                                   

 

Title: _____________________________

SIGNATURE PAGE TO

SENIOR SUBORDINATED SECURED

CONVERTIBLE PROMISSORY NOTEExhibit 10.2 to Form 10-K 12.31.13

Exhibit 10.2

EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (“Agreement”) is made and entered into on this second day of December, 2013, by and between Brian M. Sullivan (“Executive”) and CTPARTNERS EXECUTIVE SEARCH INC, a Delaware corporation (the “Company”).
W I T N E S S E T H:
WHEREAS, the Company is engaged in the business of providing retained executive search and related services to clients on a global basis (the “Business”);
WHEREAS, for purposes of this Agreement (except where the context contemplates otherwise), the term “the Company” shall include CTPartners Executive Search Inc., its subsidiaries and assignees, and any predecessors and successors in interest of the Company;
WHEREAS, the Company previously entered into an Employment Agreement effective as of December 2, 2010, which terminated in accordance with its terms on December 2, 2013 (the “Prior Agreement”);
WHEREAS, Executive shall attain valuable knowledge and experience pertaining to the Business, trade secrets, customers, markets, sources of supply, manner of doing business and other confidential and proprietary information; and
WHEREAS, the Company currently employs Executive and desires to continue to employ Executive from and after the Effective Date, and Executive desires to continue to be so employed by the Company upon the terms and conditions set forth herein, including, without limitation, the prohibitions upon Executive from the disclosure of confidential information and interference with the Company’s business operations as provided herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, the Company and Executive agree as follows:
1.RECITALS.  The recitals contained in the “WHEREAS” clauses are incorporated herein and made a part of this Agreement as though fully rewritten herein.
2.TITLE, DUTIES AND TERM.  The Company hereby employs Executive as Chief Executive Officer of the Company, with such authority, duties and responsibilities as are customarily associated with, or assigned to, the highest-ranking executive officer of a publicly-held corporation, and such additional duties as may be assigned to Executive from time to time by the Company’s Board of Directors (the “Board”)) which are consistent with the position of Chief Executive Officer of a publicly-held corporation. In addition, Executive shall continue as a member of the Board immediately upon the Effective Time, and for so long as Executive shall serve as the highest-ranking executive officer of the Company, he shall be nominated by the Corporate Governance and Nominating Committee (or its successor) for re-election as a director at such time as nominees are being proposed for election at the annual meeting of shareholders of the Company, as long as such nomination does not impair the proper exercise of the applicable fiduciary duties by such committee or the Board. The employment of Executive under this Agreement shall continue from and after December 3, 2013 (the “Effective Date”) and until the earlier of (a) June 30, 2015 (the “Term”), and (b) the date such employment is terminated pursuant to Section 7, provided that the Company may elect to renew the Term of this Agreement for an additional one-year period by giving written notice thereof to Executive at least ninety (90) days prior to the 

expiration of the Term. If the Company does not elect to renew the Term for such additional one-year period, then Executive’s employment shall terminate at the close of business on the last business day of the Term, and such termination of employment shall be treated as a Termination Other than for Cause (as defined herein).  Regardless of the reason for termination of Executive’s employment hereunder, Executive, without taking any further action, shall be deemed to have resigned from the Board upon such termination. During the course of his employment, Executive shall at all times, faithfully, industriously and to the best of his abilities, perform his duties hereunder. Except with the consent of the Board (which consent shall not be unreasonably withheld), Executive shall devote his full business time and efforts to the affairs of the Company, but nothing contained herein shall be construed to prevent Executive from (i) investing Executive’s assets or (ii) engaging in other activities for charitable or other non-profit institutions, provided that such activities do not materially interfere with the performance of Executive’s duties hereunder. Furthermore, service by Executive on the boards of directors of up to two (2) non-competing companies shall not be deemed to be a violation of this Agreement provided such service does not materially interfere with the performance of Executive’s duties hereunder. The parties acknowledge that the Executive is, and intends to continue to be, domiciled in the State of Florida. The parties further acknowledge that the nature of the Executive’s activities will require extensive travel. In light of the foregoing, the parties agree that the Executive shall not be required to be physically present in any particular office of the Company on any regular basis or for any particular number of days during a calendar year. The Executive agrees, however, that the foregoing shall not diminish the Executive’s duties and responsibilities to the Company as provided herein.
3.SALARY, BONUS AND EQUITY INCENTIVE AWARDS.  As consideration for the services of Executive hereunder, the Company shall pay Executive an annual base salary equal to Seven Hundred and Fifty Thousand ($750,000) (the “Base Salary”) payable in equal semi-monthly installments, or in such other periodic method to which both parties agree, less applicable payroll taxes, withholdings and deductions. The Compensation Committee of the Board (the “Compensation Committee”) shall perform an annual review of Executive’s compensation based on Executive’s performance of his duties and the Company’s other compensation policies. The term “Base Salary” as used herein shall include any changes to the Base Salary from time to time. Executive shall be eligible for an annual bonus in an amount determined by the Compensation Committee based on Executive’s performance of his duties and the Company’s other compensation policies with a target annual bonus opportunity for each year which is between 75% and 150% of the Executive’s Base Salary for such year (the “Annual Bonus”). The actual Annual Bonus paid will be based on the Company’s and Executive’s performance. Such Annual Bonus shall be paid at such time as annual bonuses are paid to executive officers of the Company as determined by the Compensation Committee.  Executive must be employed by the Company at the time of payment, except if Executive’s employment is terminated by death, Disability, by the Company Other than for Cause or by the Executive for Good Reason after December 31 of a given year (the “Bonus Year”) and before the full payment to Executive of the Annual Bonus amount to which he is entitled for the Bonus Year, in which case, Executive or his estate will be paid any remaining amount of the Annual Bonus for the Bonus Year on or before the latter of (i) the date similar Annual Bonus amounts are paid to other executive officers of the Company, and (ii) 30 days after the date Executive’s employment is terminated. Executive shall be eligible to receive, from time to time, one or more equity awards under the Company’s 2010 Equity Incentive Plan (or other equity incentive plan then in existence) (an “Equity Award”) it being agreed to and understood that any such Equity Award shall be at the discretion of the Board or the Compensation Committee based on Executive’s performance of his duties and the Company’s other compensation policies. Such Equity Awards shall be subject to the terms of the applicable equity incentive plan of the Company and granting agreement.
4.BENEFITS.  During the term of his employment and as otherwise provided herein, Executive shall be entitled to participate in any employee benefit plans, that may exist from time to time, which are generally maintained or established by the Company on the same terms and conditions as 

generally apply to its executive employees, including, without limitation, health care benefits, insurance, retirement plan benefits, and disability benefits.
5.ABSENCE AND LEAVE.  During the Term, Executive shall be entitled to the same paid absence (whether for vacation, sick leave or personal time) and continuous service leave benefits on the same terms and conditions, as generally apply to executive employees of the Company.
6.EXPENSES.  The Company shall reimburse Executive, in accordance with the Company’s policies, for reasonable expenses incurred by him on behalf of the Company in the performance of his duties as specified herein. Such reimbursement shall be made upon presentation of itemized expense statements and such other supporting documentation as the Company may reasonably require.
7.TERMINATION.  The Executive’s employment hereunder may be terminated as follows:
1.Termination for Death.  The Executive’s employment hereunder shall terminate automatically upon Executive’s death. In the event of termination of the Executive’s employment pursuant to this Section 7.1, the Company shall promptly (but in no event later than sixty (60) days following the date of termination) pay the Executive’s heirs or legal representative, as applicable, any Base Salary and Annual Bonus, accrued and unpaid, through the date of death, less applicable payroll taxes, withholdings and deductions, together with any unpaid expense reimbursements owed Executive under Section 6 hereof. If the Executive’s death occurs after the Bonus Year to which an Annual Bonus relates, the Executive’s heirs or legal representatives shall be entitled to payment of that Annual Bonus in accordance with Section 3. For any partial performance year, the Company shall pay Executive’s heirs or legal representative an amount equal to the Target Bonus during the year of death multiplied by a fraction, the numerator of which is the number of completed days (including the date of death) during the year of death and the denominator of which is 365. Executive’s heirs or legal representative, as applicable, shall also be entitled to any fringe benefits which have vested on Executive’s behalf prior to his death. Except as provided in Sections 4, 6, 7.1, 7.6 and 8, which the parties agree survive the termination of the Executive’s employment pursuant to this Section 7.1, upon termination of the Executive’s employment pursuant to this Section 7.1, the parties (and, in the case of the Executive, his heirs or legal representatives, as applicable) shall have no further rights or obligations under this Agreement.
2.Termination for Disability.
(a)The Company and Executive acknowledge and agree that essential functions of Executive’s position are unique and critical to the Company and that a disability condition which causes Executive to be unable to perform the essential functions of his position even with reasonable accommodations for a period in excess of (i) ninety (90) consecutive days or (ii) for shorter periods aggregating one hundred eighty (180) days in any three hundred sixty five (365) consecutive day period, shall constitute an undue hardship on the Company. If the Company determines in good faith upon medical certification, and after consultation with Executive (and, if requested by Executive, with Executive’s physician(s)), that Executive is disabled and unable to perform the essential functions of his position even with reasonable accommodations for such period, the Company may give Executive written notice of its intention to terminate Executive’s employment hereunder. Executive shall have the right to dispute the Company’s determination as set forth in Section 12. Subject to the foregoing, if the Executive’s employment is terminated by the Company pursuant to this Section 7.2, the Company shall promptly (but in no event later than sixty (60) days following the date of termination) pay the Executive any Base Salary and Annual Bonus, accrued and unpaid, through the date of termination pursuant to this Section 7.2, less applicable payroll taxes, withholdings and deductions, together with any unpaid expense reimbursements owed Executive under Section 6 hereof. If the Executive’s termination by reason of disability occurs after the Bonus Year to which an Annual Bonus relates, the Executive shall be entitled to payment of that Annual Bonus in accordance with 

Section 3. For any partial performance year, the Company shall pay the Executive an additional amount equal to the Target Bonus during the year of termination multiplied by a fraction, the numerator of which is the number of completed days (including the date of termination) during the year of termination and the denominator of which is 365. Executive shall also be entitled to any fringe benefits which have vested on Executive’s behalf prior to termination. Except as provided in Sections 4, 6, 7.2, 7.6, 8, 9 and 11, which the parties agree survive the termination of the Executive’s employment pursuant this Section 7.2, upon termination of the Executive’s employment hereunder pursuant to this Section 7.2, the parties shall have no further rights or obligations under this Agreement.
(b)Solely for purposes of the Company making and/or defending a determination of disability as provided for in Section 7.2(a) above and after advance notice to Executive from Company and acknowledgment within seven (7) days by Executive to Company, Executive hereby authorizes any health care provider or health care plan which has provided health care services or payment therefor on behalf of Executive, to disclose Executive’s health information to the Board or officers and/or human resource personnel of the Company upon the request of any one or more of them. As used herein, the term “health information” means any and all health information (including but limited to, diagnoses, reports and test results) that may relate to Executive’s fitness for employment by the Company, or to his status pursuant to this or any other agreement with, or policy of, the Company. The Company agrees to maintain the confidentiality of such information, and to cause its officers and other agents in receipt of such information to maintain the confidentiality of such information, and that such information shall be accessed by, and disclosed to, individual directors, officers, employees and agents of the Company strictly on a need to know basis. Executive understands and agrees to the following:
		
	(i)
	that he has the right to revoke the authorization contained in this Section 7.2(b) at any time by notifying the Company in writing that such revocation will only be effective after it is received and logged by the Company, and that any use or disclosure made prior to revocation under this Section 7.2(b) will not be affected by the revocation;

		
	(ii)
	that after Executive’s health information is disclosed, federal law might not protect it, and it may be redisclosed by the recipient;

		
	(iii)
	that Executive’s continued employment and position with the Company are subject to his consent to this authorization and authorizing release of any additional health care information that the Company requests;

		
	(iv)
	that the Board is entitled to receive a copy of this Agreement, including this authorization; and

		
	(v)
	that this authorization will expire upon the termination of Executive’s employment with the Company.

3.Termination by the Company for Cause.  Except as a result of the death or disability of Executive, the Company may terminate Executive’s employment hereunder for Cause by written notification citing the specific reasons for termination. For purposes of the Agreement, “Cause” means:
		
	(i)
	Executive’s breach, non-performance or non-observance of any of the provisions of this Agreement, which breach has a material adverse effect on the Company or the Business and shall continue unremedied for thirty (30) business days after Executive shall have been given written notice by the Board of said breach, non-performance or non-observance;

		
	(ii)
	Executive’s breach of any of his fiduciary duties to the Company, which breach has a material adverse effect on the Company or the Business and shall continue 

unremedied for thirty (30) business days after Executive shall have been given written notice by the Board of said breach; and
		
	(iii)
	Executive’s conviction of a felony involving theft, embezzlement, fraud or moral turpitude or a felony in connection with his employment with the Company.

In the event of termination of Executive’s employment pursuant to this Section 7.3, the Company shall promptly (but in no event later than sixty (60) days following the date of termination) pay the Executive any Base Salary, calculated on a pro rata basis (based on the ratio of the number of days in the year prior to termination to the total number of days in the year) through the date of termination, less applicable payroll taxes, withholdings and deductions, together with any unpaid expense reimbursements owed Executive under Section 6 hereof. With respect to 7.3(iii), the Company shall have the right to place Executive on paid leave pending the ultimate disposition of the matter. In the event of conviction, the Company shall be entitled to reimbursement from Executive for Base Salary paid to Executive during such paid leave. Executive shall also be entitled to any fringe benefits which have vested on Executive’s behalf prior to termination. Except as provided in Sections 4, 6, 7.3, 7.6, 8, 9, 10 and 11, which the parties agree survive the termination of the Executive’s employment pursuant to this Section 7.3, upon termination of the Executive’s employment pursuant to this Section 7.3, the parties shall have no further rights or obligations under this Agreement.
4.Termination by Executive.  Subject to prior termination pursuant to Sections 7.1 or 7.2 above, Executive may terminate his employment hereunder for Good Reason. If Executive’s employment is terminated for Good Reason, Executive shall be entitled to the same payments and benefits provided in Section 7.5, as if his employment  were terminated other than for Cause. For purposes of this Agreement, “Good Reason” shall mean:
		
	(i)
	Any assignment to Executive of any duties inconsistent in any material respect with his duties as Chief Executive Officer of the Company, without Executive’s written consent (which consent will not be unreasonably withheld to the extent that such duties are duties normally performed by the chief executive officer of a public corporation at the same stage of development as the Company), or a material change in his position, authority or responsibilities without Executive’s written consent or any other action by the Company which results in a material diminution of the position, duties, authority, or responsibility of Executive;

		
	(ii)
	A material reduction in Executive’s Base Salary as in effect on the date of this Agreement or as the same may be increased from time to time, other than as part of an across-the-board reduction applicable to the executive officers of the Company;

		
	(iii)
	The Company shall breach any material provision of this Agreement, which breach shall continue unremedied for thirty (30) business days after the Company shall have been given written notice of said breach; or

		
	(iv)
	Failure of the Company to obtain from any successor the assumption of, or the agreement to perform, this Agreement (as contemplated in Section 13 hereof) prior to consummation of a Change of Control (as defined below).

Notwithstanding the foregoing provisions of this Section 7.4, Executive’s termination of employment shall be considered to be on account of Good Reason only if (A) an event or condition occurs which satisfies the foregoing provisions of this Section 7.4, (B) Executive provides the Company with written notice pursuant to Section 15 that he intends to resign for Good Reason and such written notice includes (I) a designation of at least one of Section 7.4(i) through (iv) (the “Designated Section”) and (II) specifically describes the events or conditions Executive is relying upon to satisfy the requirements of the Designated Section(s), (C) as of the thirtieth (30th) day following the Company’s receipt of such notice from Executive, such events or conditions have not been corrected in all material respects, and (D) Executive resigns his employment within sixty (60) days after the date on which Executive first has 

actual knowledge of the occurrence of the first event or condition upon which Executive relies upon to satisfy any of the Designated Section(s).
In addition, Executive may terminate his employment hereunder other than for Good Reason. Upon termination of the Executive’s employment hereunder for other than Good Reason, the Company shall promptly (but in no event later than sixty (60) days following the date of termination) pay to the Executive any Base Salary, accrued and unpaid, through the date of termination pursuant to this Section 7.4, less applicable payroll taxes, withholdings and deductions, together with any unpaid expense reimbursements owed Executive under Section 6 hereof. The Executive shall also be entitled to any fringe benefits which have vested on Executive’s behalf prior to such termination. If Executive terminates his employment for other than Good Reason, Executive acknowledges and agrees that upon such voluntary resignation, termination or retirement by Executive, except as provided in Sections 4, 6, 7.3, 7.6, 8, 9, 10 and 11, which the parties agree survive the termination of the Executive’s employment for other than Good Reason, the parties shall have no further rights or obligations under this Agreement.
5.Termination by the Company Other than for Cause or by Executive for Good Reason.  The Company may terminate Executive’s employment hereunder other than for Cause. In the event that either (1) the Company exercises its right to terminate Executive’s employment hereunder other than for Cause or (2) the Executive terminates his employment hereunder for Good Reason under Section 7.4, the Company shall pay to Executive, as severance, an amount equal to six (6) months of base salary, payable in equal semi-monthly installments. Executive will not be required to mitigate the amount of compensation payable to Executive hereunder, by seeking to secure other employment or otherwise, and the payments pursuant to this Section 7.5 will not be reduced by reason of Executive securing other employment or for any other reason. In addition to the foregoing, the Company shall promptly (but in no event later than thirty (30) days following the date of termination) pay to Executive any Base Salary due and owing through the date of such termination, less applicable payroll taxes, withholding and deductions, together with any unpaid expense reimbursements owed Executive under Section 6 hereof and any unpaid Annual Bonus amounts under Section 3 for prior years. Executive shall also be entitled to any fringe benefits which have vested on Executive’s behalf prior to termination. Except as provided in Sections 4, 6, 7.5, 7.6, 8, 9, 10 and 11, which the parties agree survive termination of the Executive’s employment hereunder pursuant to this Section 7.5, upon termination of the Executive’s employment pursuant to this Section 7.5, the parties shall have no further rights or obligations under this Agreement.
6.Continued Maintenance of Benefit Plans.  Unless Executive’s employment is terminated for Cause, death or by Executive for other than Good Reason, the Company shall maintain in full force and effect, and at no expense to Executive or Executive’s family, for the continued benefit of Executive (and, to the extent applicable under such plans, the Executive’s family) for six (6) months, commencing on the date of such termination, all medical, hospitalization, health and accident insurance benefits, plans or programs in which Executive (and, to the extent applicable under such plans, the Executive’s family) was entitled to participate immediately prior to the date of termination. In the event that Executive’s participation in any such benefits, plan or program is barred or would have adverse tax consequences for the Company, the Plan or the Executive, the Company shall use all commercially reasonable efforts to provide, at no expense to the Executive or his family, Executive (and, to the extent applicable under such plans, the Executive’s family) with benefits substantially similar to those which Executive (and, to the extent applicable under such plans, the Executive’s family) would otherwise have been entitled to receive under such plans or programs. Notwithstanding the foregoing, benefits under this Section 7.6 shall cease during such six (6) month period if Executive secures other employment 

and, as a result of such employment, receives comparable benefits. If Executive is not employed after the six (6) month period, and he timely and properly elects continuation health care coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") under the Company’s plan, Executive shall be eligible to continue his coverage, pursuant to COBRA, and shall be responsible for the entire COBRA premium for the remainder of the applicable COBRA continuation period.
7.Change of Control Payment.
(a)If during the period beginning on the date six (6) months prior to a Change in Control (as defined below) and ending on the date two (2) years after the occurrence of a Change of Control, Executive’s employment hereunder is terminated by the Company other than for Cause or by the Executive for Good Reason, the Company will pay to Executive within thirty (30) days of such termination an amount equal to (i) twelve (12) months of Executive’s then-current Base Salary payable in a lump sum (the “Change of Control Payment”) plus (ii) an amount in cash equal to the target amount of Executive’s Annual Bonus for  the year of termination multiplied by a fraction, the numerator of which is the number of completed days (including the date of termination) during the year of termination and the denominator of which is 365 ((i) and (ii) collectively, the “Change of Control Payment”). In addition to the foregoing, the Company shall promptly (but in no event later than sixty (60) days following the date of termination) pay to Executive any Base Salary due and owing through the date of such termination, less applicable payroll taxes, withholding and deductions, together with any unpaid expense reimbursements owed Executive under Section 6 hereof and any unpaid Annual Bonus amounts under Section 3 for prior years. Executive will not be required to mitigate the amount of compensation payable to Executive hereunder, by seeking to secure other employment or otherwise, and the Change of Control Payment will not be reduced by reason of Executive securing other employment or for any other reason.
(b)For purposes of this Agreement, the term “Change of Control” shall be deemed to have occurred upon the first to occur of the following events:
		
	(i)
	any Person becomes the Beneficial Owner, directly or indirectly, of 30% or more of either: (A) the then outstanding shares of common stock of the Company (“Outstanding Company Common Stock”) or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (“Outstanding Voting Securities”); provided, however, that, for purposes of this Section 7.7(b), the following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from the Company; (B) any acquisition by the Company; (C) any acquisition by any employee benefit plan (or related trust) sponsored by the Company or any Affiliate of the Company; or (D) any acquisition pursuant to a transaction that complies with Sections 7.7(b)(iii)(A), 7.7(b)(iii)(B) and 7.7(b)(iii)(C); or

		
	(ii)
	individuals who, as of the Effective Date, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Effective Date whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or 

other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Incumbent Board; or
		
	(iii)
	the consummation of a reorganization, merger, consolidation, or sale or other disposition of all or substantially all of the assets of the Company (each, a “Business Combination”) unless following such Business Combination: (A) all or substantially all of the individuals and entities who were the beneficial owners of the outstanding common stock and voting securities of the Company immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the entity resulting from such Business Transaction (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Business Combination of the outstanding common stock and the outstanding voting securities of the Company, as the case may be; or (B) no Person (excluding any employee benefit plan (or related trust) of the Company or any corporation resulting from such Business Combination beneficially owns, directly or indirectly, 30% or more of, respectively, the then-outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination; or (C) at least a majority of the members of the board of directors of the entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination.

Notwithstanding the foregoing, a “Change of Control” shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the common stock of the Company immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately following such transaction or series of transactions.
For purposes of Change of Control definition, (i) “Beneficial Owner” shall have the meaning set forth in Rule 13d-3 under the Exchange Act, (II) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended from time to time, (III) “Person” shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (w) the Company or any of the Company’s direct or indirect subsidiaries, (x) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, (y) an underwriter temporarily holding securities pursuant to an offering of such securities, or (z) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company and (IV) “Affiliate” shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act.
8.Section 409A Payment.  Certain payments contemplated by this Agreement (including certain payments not contingent on a Change of Control) may be “deferred compensation” for purposes of Section 409A of the Code. Accordingly, the following provisions 

shall be in effect for purposes of avoiding or mitigating any adverse tax consequences to Executive under Section 409A:
		
	(i)
	It is the intent of the parties that the provisions of this Agreement comply with all applicable requirements of Section 409A. Accordingly, to the extent any provisions of this Agreement would otherwise contravene one or more requirements or limitations of Section 409A, then the Parties shall, within any applicable remedial amendment period provided under the regulations issued under 409A or otherwise, effect through mutual agreement the appropriate amendments to those provisions which are necessary in order to bring the provisions of this Agreement into compliance with Section 409A, provided such amendments shall not reduce the dollar amount of any such item of deferred compensation or adversely affect the vesting provisions applicable to such item or otherwise reduce the present value of that item. If any legislation is enacted while this Agreement in effect which imposes a dollar limit on deferred compensation, then Executive will cooperate with the Company in restructuring any items of compensation under this Agreement that are deemed to be deferred compensation subject to such limitation, provided such restructuring shall not reduce the dollar amount of any such item or adversely affect the vesting provisions applicable to such item or otherwise reduce the present value of that item.

		
	(ii)
	Notwithstanding any provision to the contrary in this Agreement, if the Company, in its good faith discretion, determines that the payments or benefits described in Sections 7.1, 7.2, 7.4, 7.5, 7.7 or 7.8 of this Agreement do not qualify as “short-term deferrals” (within the meaning of Section 409A of the Code and the Treasury Regulations thereunder), then, (a) if Executive is a “specified employee” (within the meaning of Section 409A of the Code and the Treasury Regulations thereunder) at the time of his termination of employment, and (b) there has been no change or clarification in the law after the date of this Agreement that would permit any such payments or benefits to be paid in accordance with their original terms (rather than upon the expiration of the Delay Period (as defined below)) without such payment resulting in a payment that is not a permissible payment (within the meaning of Section 409A of the Code and the Treasury Regulations thereunder) as determined by the Company in its good faith discretion, no payments or benefits to which Executive becomes entitled under Sections 7.1, 7.2, 7.4, 7.5, 7.7 or 7.8 of the Agreement due to his “separation from service” (within the meaning of Section 409A of the Code and the Treasury Regulations thereunder) shall be made or paid to Executive prior to the earlier of (i) the expiration of the six (6) month period measured from the date of such “separation from service” or (ii) the date of his death (the “Delay Period”). Upon the expiration of the Delay Period, all payments deferred pursuant to this Section 7.9 shall be paid in a lump sum to Executive, and any remaining payments due under this Agreement shall be paid in accordance with the normal payment dates specified for them herein.

9.General Release.  Executive acknowledges and agrees that Executive’s right to receive severance pay and other benefits pursuant to Sections 7.5, 7.7 and 7.8 of this Agreement (collectively, the “Severance Benefits”) is contingent upon Executive’s compliance with the covenants, representations, warranties and agreements set forth in Sections 8, 9, 10 and 11 of this Agreement and, except for those payments and benefits required to be made or provided by law or pursuant to the express terms of a benefit plan (and other than those benefits to be provided upon death), such Severance Benefits shall be conditioned upon Executive’s execution and acceptance of the terms and conditions of, and the effectiveness of, a general release in the standard form used 

by the Company at the time of Executive’s termination of employment (the “Release”). If Executive fails to comply with the covenants set forth in Sections 8, 9, 10 and 11 or if Executive fails to execute the Release or revokes the Release during the seven (7)-day Period following his execution of the Release, then Executive shall not be entitled to any Severance Benefits. The Company shall provide Executive with the Release within five (5) days following his termination of employment. If any of the Severance Benefits are subject to Section 409A of the Code, Executive shall be entitled to any such Severance Benefits only if the Release has been executed, is effective and the applicable revocation period has expired no later than the date as of which such Severance Benefits are to be paid (or provided) pursuant to this Agreement and if such requirements are not satisfied, Executive shall not be entitled to any such Severance Benefits.
8.NONDISCLOSURE.  Executive acknowledges that:
		
	(i)
	the Company is and will be engaged in the Business during the term of his employment and thereafter;

		
	(ii)
	Executive will occupy a position of trust and confidence with the Company, and during the course of his employment, Executive will become familiar with the Company’s trade secrets and with other proprietary and Confidential Information (defined below) concerning the Company and the Business;

		
	(iii)
	the agreements and covenants contained in Sections 8, 9, 10 and 11 are essential to protect the Company and the confidentiality of its Confidential Information and client relationships as well as goodwill of the Business, and compliance with such agreements and covenants will not impair Executive’s ability to procure subsequent and comparable employment; and

		
	(iv)
	Executive’s employment with the Company has special, unique and extraordinary value to the Company and the Company would be irreparably damaged if Executive were to provide services to any person or entity in violation of the provisions of this Agreement.

Therefore, Executive covenants and agrees that he shall, at all times, hold in strictest confidence, and will not directly or indirectly reveal or otherwise make available to any other person other than within the scope of his employment with the Company or in strict accordance with applicable law (and then only after consulting with the Company’s legal counsel), any and all confidential information, data, know-how, knowledge, or trade secrets regarding clients’ products, services, technology, suppliers, finances, financial arrangements, strategic plans, or methods of operation of the Company and its customers (any and all of which shall be deemed “Confidential Information”) without the express written consent of the Board. Such Confidential Information includes, without limitation, financial information, finances, strategic plans, sales and distribution information, price lists, the identity and lists of actual and potential customers and technical information, unless such Confidential Information is already in the public domain. Executive further agrees that all documents, records, notebooks, notes, computer software systems or programs, memoranda, and other materials made or compiled by Executive at any time or made available to him during his employment with the Company concerning the present or prospective activities of the Company (including copies thereof), whether or not intermingled with other information, shall be and remain the property of the Company, and shall be delivered to the Company upon termination of his employment with the Company and upon request by the Company at any other time.
9.NONINTERFERENCE.  For a period of one (1) year following the termination of the Executive’s employment hereunder for any reason, Executive covenants and agrees that he shall not, at any time, without the prior written consent of the Company, (i) directly or indirectly induce or attempt to induce any person or entity who, during the six (6) months immediately prior to termination, had been a supplier, client, customer, employee, agent, or other representative or associate of the Company to withdraw, curtail or cancel such business, or terminate its relationship 

with the Company, or in any way directly or indirectly interfere with such a relationship or any relationship between any such person or entity and the Company, or (ii) knowingly hire any person who during the six (6) month period prior to termination had been an employee or consultant (but excluding any outside accountant, attorney or similar professional) of the Company.
10.NONCOMPETITION.  Executive covenants and agrees that for a period of six (6) months following the termination of Executive’s employment hereunder for any reason other than (i) termination by the Company without Cause or (ii) termination by Executive for Good Reason, Executive shall not, without the prior written consent of the Company, accept employment with or directly or indirectly operate or perform any services for (whether as an employee, agent or independent contractor), invest in (other than stock in a publicly-held corporation which is traded on a recognized securities exchange or over-the-counter, provided that the ownership of such equity interest does not give Executive greater than five percent (5%) of the equity or voting power of such corporation), or otherwise become associated with in any capacity, any company, partnership, organization, proprietorship, or any other entity which competes directly with the business of the Company anywhere in the world, as such business is operating at the time of such termination of employment.
11.PROPRIETARY RIGHTS.
(a)Except as necessary to carry on the business of the Company, Executive shall not, directly or indirectly, use or disclose to any person, firm or corporation, any of the Company’s Proprietary Information, including any candidate list, personal histories or resumes, employment information, business information, customer lists, customer contacts, business secrets, or any other information not generally known in the industry concerning the business or policies of the Company, including, but not limited to, the Company’s list of Clients and placed candidates.
(b)Executive acknowledges that, in the course of his employment hereunder and through his activities for and on behalf of the Company, he will develop, create, supply, receive, deal with and have access to the Company’s Proprietary Information and shall hold the Company’s Proprietary Information in trust and confidence for the Company. In addition to, and not in limitation of the foregoing, if Executive’s employment is terminated for any reason whatsoever, voluntarily or involuntarily, Executive recognizes that it is necessary to safeguard and protect the Company’s business, and that Executive’s compensation is, in part, in exchange for the restrictions contained in this Agreement. Moreover, Executive agrees that, notwithstanding anything in this Agreement to the contrary, he shall, upon termination of employment (or, at any prior time, if the Company requests same), immediately turn over to the Company all of its Proprietary Information. In addition, Executive shall have no right to retain copies of the Company’s Proprietary Information for any reason whatsoever after termination of employment without the express written consent of the Company.
(c)Executive will not disclose to the Company or use, or induce the Company to use any proprietary information or trade secrets of others. Executive represents and warrants that Executive has returned all property and confidential information belonging to all prior employers.
(d)For purposes of this Agreement:
		
	(i)
	“Proprietary Information” shall mean: the Company’s confidential proprietary information constituting the trade secrets of the Company including, but not limited to information of a technical and business nature pertaining to the Business, the identity of candidates, any candidate list, the personal information, resumes or histories supplied by candidates, information concerning the identity of employer-clients, and their personnel, the personnel needs and requirements of employer-clients, and terms and conditions under which the Company deals with employer-

clients, all trade names, service marks, slogans, customer lists and contracts, training manuals, training tapes and films, business information and secrets, computer programs, video cassettes, records, forms, brochures, unique techniques, methods and procedures for the operation of a search business, the terms and conditions under which the Company deals with other companies engaged in the Business, including, but not limited to, its contracts with such companies.
		
	(ii)
	The term “candidate” shall mean any individual who has provided the Company with job history information, job history resume or an application containing job history and/or other related information in person, by telephone, in writing or otherwise whether or not such person was contacted by the Company; provided, however that, the term candidate shall be limited to candidates who are, at the time Executive terminates his employment with the Company, identified by the Company as candidates on any current active search within the Company or who were placed by the Company prior to the termination of the Executive.

		
	(iii)
	The term “customer list” shall not be limited to a physical writing or compilation of any number of the names of the Company’s customers, employer-clients, and candidates and/or the pertinent information relating to them but also includes any and all information whatsoever regarding them whether or not such compilation is mental or physical.

12.REMEDIES.
1.Non-Exclusive Remedy for Restrictive Covenants.  Executive acknowledges that the restrictions on his activities under Sections 8, 9, 10 and 11 hereof are required for the reasonable protection of the Company. Executive further acknowledges and agrees that a breach of such obligations and agreements will result in irreparable and continuing damage to the Company and the Business for which there will be no adequate remedy at law (and will not raise such as a defense to any action brought by the Company) and agrees that in the event of any breach of said obligations and agreements, the Company and its successors and assigns, shall be entitled to temporary and permanent injunctive relief, without the necessity of showing actual monetary damages or the posting of a bond, and to such other further relief, including damages, as is proper in the circumstances. Each of the parties further acknowledges that, if the scope of any restrictions contained in Sections 8, 9 10 or 11 is too broad to permit enforcement thereof to the full extent of such restrictions, then such restrictions shall be enforced to the maximum extent permitted by law, and the parties hereby consent and agree that such scope may be judicially modified accordingly in any proceeding brought to enforce such restrictions.
2.Arbitration.  Except as set forth in Section 12.1, all controversies, claims, disputes and matters in question, arising out of or relating to this Agreement or the breach thereof, or arising out of or relating to the employment relationship, including, but not limited to, claims of Employment Discrimination (defined below), shall be decided by arbitration in Cleveland, Ohio before a single arbitrator administered by the American Arbitration Association (“AAA”) under its National Rules for the Resolution of Employment Disputes, amended and restated effective as of September 15, 2005 (the “Employment Rules”), and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Notwithstanding the foregoing, Rule R-34 of the AAA’s Commercial Arbitration Rules amended and restated effective as of June 1, 2009 (instead of Rule 27 of the Employment Rules) shall apply to interim measures. References herein to any arbitration rule(s) shall be construed as referring to such rule(s) as amended or renumbered from time to time and to any successor rules. References to the AAA include any successor organization.  “Employment Discrimination” means any discrimination against or harassment of Executive in connection with Executive’s employment with the Company or the termination of such employment, including any discrimination or harassment prohibited 

under federal, state or local statute or other applicable law, including the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, the Employee Retirement Income Security Act of 1974, the Americans with Disability Act, the Family and Medical Leave Act, the Fair Labor Standards Act, or any similar federal. The parties further agree that the Court of Common Pleas for Cuyahoga County, Ohio and (if the Federal Arbitration Act is applicable) the Federal District Court for the Northern District of Ohio, Eastern Division, shall have jurisdiction over the parties hereto. The arbitrator may grant any of the parties injunctive relief, including mandatory injunctive relief, in order to protect the rights of said party hereunder, but shall not be limited to such relief. The parties specifically agree that this provision for arbitration shall not preclude a party from seeking injunctive relief in a court in order to protect its rights hereunder, nor shall the filing of such an action constitute waiver by a party of his or its right to seek arbitration hereunder. In preparation for the arbitration hearing, each party may utilize all methods of discovery authorized by the Ohio Rules of Civil Procedure, and may enforce the right to such discovery in the manner provided by said Rules and/or by the Ohio Arbitration law.
13.ASSIGNMENT.  This Agreement shall inure to the benefit of, and shall be binding upon and enforceable by the Company and its successors and assigns.  “Successors and assigns” shall mean, in the case of the Company, any successor to the Company’s business or assets, whether pursuant to a merger, consolidation, sale or other transfer of securities or assets, including any Change of Control. The Company shall require any successor or assign, by agreement in form and substance reasonably satisfactory to Executive, to expressly assume and agree to perform this Agreement in the same manner and to same extent that the Company would be required to perform if no such succession or assignment had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession or assignment shall be a breach of this Agreement and shall entitle Executive to receive from the Company prior to the Change in Control becoming effective the Change in Control Payment and compensation from the Company pursuant to Section 7.5 as if Executive terminated his employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession or assignment becomes effective shall be deemed the date of termination; provided, however, that it is further agreed that upon such assumption and agreement prior to the effectiveness of any such succession or assignment, this Agreement shall remain in full force and effect, binding upon Executive and such successor, with each reference herein to the Company being deemed to mean such successor or assignee. Nothing in this Section 13 shall constitute an agreement by the Executive to a novation of this Agreement upon a succession or assignment. This Agreement shall inure to the benefit of, and shall be binding upon and enforceable by, the Executive. Executive shall not assign this Agreement without the prior written consent of the Company.
14.INDEMNIFICATION.  The Company represents and warrants that the Executive shall be entitled to the benefits of the indemnification provisions contained in the Certificate of Incorporation of the Company or in any separate Indemnification Agreement that may be entered into by and between the Company and Executive with respect to the Executive’s activities as an executive officer, director, and/or employee (i) of the Company or any subsidiary thereof, or (ii) at the request of the Company, of any other entity.
15.NOTICE.  Any notice required to be given under the terms of this Agreement shall be in writing, and mailed to the recipient’s last known address or delivered in person. If sent by registered or certified mail, such notice shall be effective on the date of the first attempted delivery thereof; otherwise, it shall be effective upon delivery.
16.KEY MAN INSURANCE.  Executive agrees that, during the Term, the Company may at any time and for the Company’s own benefit, apply for and take out life, health, accident, and/or other insurance covering Executive either independently or together with others in any amount which the Company deems to be in its best interests and the Company may maintain any existing insurance policies on the life of Executive owned by the Company. The Company shall own all rights in any such insurance 

policies and in the cash values and proceeds thereof and, except as otherwise provided, Executive shall not have any right, title or interest therein. Executive agrees to assist the Company at the Company’s expense in obtaining any such insurance by, among other things, submitting to the customary examinations and correctly preparing, signing and delivering such applications and other documents as may be required by insurers.
17.ENTIRE AGREEMENT; AMENDMENTS; WAIVERS.  This Agreement and the agreements referenced herein contain the entire agreement between the parties hereto with respect to the subject matter hereof and replaces or supersedes any previous agreement on such subject matter, provided, however, that nothing in this Agreement shall affect Executive’s right to receive payments or other benefits to which he is entitled under the Prior Agreement. It may not be changed orally, but only by agreement, in writing, signed by each of the parties hereto. The terms or covenants of this Agreement may be waived only by a written instrument specifically referring to this Agreement, executed by the party waiving compliance. If any party fails to take action for any violation of this Agreement, such failure shall not constitute a waiver or estoppel as to said violation, but it shall have the right to enforce or take such action for any prior violation or future violation without being subjected to the defense of waiver or estoppel.
18.HEADINGS.  The headings in this Agreement are intended solely for convenience of reference and shall be given no effect in the construction or interpretation of this Agreement.
19.COUNTERPARTS.  This Agreement may be executed in multiple counterparts each of which shall be deemed an original but all of which together shall constitute one and the same document.
20.GENDER; NUMBER.  The use of the masculine, feminine or neuter pronoun shall not be restrictive as to gender, and the use of the singular or plural shall not be restrictive as to number, and shall be interpreted in all cases as the context may require.
21.SEVERABILITY.  Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms and provisions of this Agreement in any other jurisdiction.
22.GOVERNING LAW.  This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio without giving effect to the conflict of law provisions thereof.
[Signature page follows]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
CTPARTNERS EXECUTIVE SEARCH LLC
__________________________________________
By: Michael Feiner, Chairman of the Compensation Committee of the Company’s Board of Directors
EXECUTIVE
                            
Brian M. Sullivan

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