Document:

exh_101.htm

Exhibit 10.1

 

SETTLEMENT AND LICENSE AGREEMENT

 

This Settlement and License Agreement (“Agreement”) is made and entered into as of November 5, 2012 (“Effective Date”) by and between Alexsam, Inc., a Texas corporation (“Alexsam”), NetSpend Holdings, Inc., a Delaware corporation (“Holdings”), and NetSpend Corporation, a Delaware corporation (“NetSpend”).

 

WHEREAS, Alexsam is the owner of U.S. Patent No. 6,000,608, issued on December 14, 1999 and entitled “Multifunction Card System” (“the ‘608 Patent”), and U.S. Patent No. 6,189,787, issued on February 20, 2001 and entitled “Multifunction Card System” (“the ‘787 Patent”);

 

WHEREAS, Alexsam and NetSpend entered into a license agreement dated March 17, 2004 (the “2004 License Agreement”), wherein Alexsam granted certain rights under the ‘608 Patent and the ‘787 Patent to NetSpend pursuant to the terms and conditions set forth therein;

 

WHEREAS, there is now pending in the District Court of Travis County, Texas, 419th Judicial District, a civil action entitled Alexsam, Inc. v. NetSpend Corporation., Cause No. D-1-GN-07-003659 (“the Lawsuit”); and

 

WHEREAS, Alexsam alleged in the Lawsuit claims of breach and fraud related to the 2004 License Agreement, and NetSpend alleged certain affirmative defenses and counterclaims to Alexsam’s allegations;

 

WHEREAS, the Parties’ dispute in the Lawsuit was tried to verdict in the Travis County District Court in April, 2012, resulting in an $18 million jury verdict in Alexsam’s favor, and the Court subsequently ruled in favor of Alexsam as to NetSpend’s alleged affirmative defense under the “Most-Favored Nations” clause of the 2004 License Agreement;

 

WHEREAS, the Parties desire to avoid further litigation risks and expense, and to fully compromise, settle and release any and all claims and counterclaims which were or could have been asserted in the Lawsuit or that arise from or are otherwise related to the Licensed Patents or the 2004 License Agreement, on the terms and conditions set forth below, and have therefore agreed, with no Party admitting liability to any other Party, to dismiss the Lawsuit with prejudice.

 

 

 

 

NOW, THEREFORE, in consideration of the mutual promises and covenants made herein, Alexsam, Holdings and NetSpend agree as follows:

 

1. Definitions. As used in this Agreement, the following terms and phrases shall have the following meanings:

 

1.1           “Company” means NetSpend Corporation or any Affiliate thereof.

 

1.2           “Affiliate” means, with respect to any Person, any other Person that directly or indirectly Controls, is Controlled by, or is under common Control with such Person.

 

1.3           “Alexsam” means Alexsam, Inc., and any corporation, firm, partnership, proprietorship, or other form of business organization in which Alexsam has at least a fifty percent (50%) ownership interest either directly or indirectly through one or more entities related to Alexsam, or (b) the power to direct or cause the direction, either directly or indirectly, of the management and policies of such entity, whether through ownership of voting securities, by contract or otherwise.

 

1.4           “Control” means the possession, direct or indirect, of the power to vote fifty-one percent (51%) or more of the securities that have ordinary voting power for the election of directors of any entity, or to direct or cause the direction of the management and policies of such entity, whether through ownership of voting securities or by contract or otherwise.

 

1.5           “Parties” means NetSpend, Holdings and Alexsam collectively; “Party” means any of them individually.

 

1.6           “Person” means an individual, corporation, partnership, limited liability company, limited liability partnership, syndicate, trust, association, organization or other entity, or any governmental authority.

 

1.7           “Licensed Patents” means the ‘608 Patent and ‘787 Patent, and any reissues, reexaminations, extensions, substitutions, continuations, divisions, and continuation-in-parts thereof, all patents and patent applications claiming priority from, or from which priority is claimed, all foreign counterpart patents and applications or equivalents to any of the foregoing worldwide, and any future patents, applications or equivalents covering any inventions underlying the Licensed Patents, if a license to same would be required by the Company  to exercise its rights and enjoy the benefits granted under the licenses granted in this Agreement.

 

 

 

 

1.8             “Licensed Product” means any product with respect to which Company serves as (i) a processor for the accounts and/or sub-accounts associated with such product, (ii) a program manager or (iii) an issuer, or any system or method associated with or related to such a product, where the product, system or method, either alone, or in conjunction with other components or activities, infringes or may infringe any claim of the Licensed Patents.

 

2.           License.

 

2.1           In exchange for and upon receipt of the payment required by Section 5.1 below, Alexsam grants to the Company a non-exclusive, irrevocable, non­transferable (except as set forth in Section 13 below), perpetual, fully paid-up, worldwide right and license, without the right to grant sub-licenses (subject to the provisions of Section 2.2 below), under the Licensed Patents to make, use, import, issue, distribute, offer to sell, design, operate, market, process, sell or otherwise practice the Licensed Product, alone or in combination with others, including without limitation to process card activations, recharges, signature debit, PIN debit and ATM withdrawal transactions for Licensed Product.

 

2.2           The license granted in Section 2.1 above shall extend to the Company’s distributors, retailers, agents, issuing banks, marketers, branding partners, aggregators, accountholders, card associations, authorization networks, and other Persons through whom, or as agent, member service provider, third party processor or independent sales organization for whom, the Company offers, distributes, activates, loads, reloads or otherwise provides a Licensed Product, including any such Person who may contract with the Company to offer such Licensed Product under, in whole or in part, such Person’s own name or marks (collectively, “Third Parties”), but only to the extent that such Third Parties’ activities pertain to a Licensed Product.

 

2.3           Except as otherwise authorized herein, nothing in this Agreement shall extend any rights under the Licensed Patents to any other Person, including distributors, retailers, issuing banks, card associations and authorization networks.  It is not the intention of the Parties to license or extend any other rights under the Licensed Patents to any third party for any activity not related to a Licensed Product.  It is further agreed that nothing contained in this Agreement exhausts any of Alexsam’s rights under the Licensed Patents against any non-licensed entities, and that no aspect of this Agreement may be relied upon to support any argument of any such patent exhaustion, or any claim of sublicense.

 

 

 

 

3.           Covenant Not to Sue.  In exchange for and upon receipt of the payment to be paid as required by Section 5.1 below, Alexsam covenants and agrees neither to sue the Company, nor its attorneys, employees, agents, officers, directors or shareholders, nor any Third Parties within the scope of Section 2.2 above (but only to the extent that such Third Party’s activities are related to a Licensed Product) for infringement of the Licensed Patents or any other intellectual property right related to the Licensed Patents for the Company’s or the Third Party’s licensed activities under Sections 2.1 or 2.2 above.

 

4.           Termination of 2004 License Agreement.  Upon receipt of the payment to be paid as required by Section 5.1 below, the 2004 License Agreement, and all past, present and future rights and obligations of the Parties thereunder, shall automatically terminate and be superseded by this Agreement.

 

5.           Settlement Payment.

 

5.1           In consideration of the license, covenants, releases, and other agreements contained herein, NetSpend agrees to pay Alexsam within five (5) business days of the Effective Date, a lump sum payment in the amount of Twenty Four Million and No/100ths Dollars ($24,000,000.00).

 

5.2           The payment due under Section 5.1 shall be made in U.S. dollars by wire transfer and in immediately available funds to:

 

The Northern Trust Company

50 South LaSalle Street

Chicago, IL 60675

ABA Routing #

For the Benefit of: Fitch Even Tabin & Flannery Client Fund Account

Account #

5.3           The payment due under Section 5.1 shall be made without deductions, and each Party shall be responsible for its own taxes, assessments, or other charges (if any) associated with payment or receipt of payment under this Agreement.

 

 

 

 

6.           Patent Marking. The Company agrees to mark all Licensed Products or associated packaging with an appropriate marking of the Licensed Patents in accordance with 35 U.S.C. §287, including, without limitation, use of the phrase “Licensed Under U.S. Patent Nos. 6,000,608 and 6,189,787” or the like. The Company shall have one year from the Effective Date to begin producing Licensed Products or associated packaging conforming to the requirements of this Section 6 and shall be under no obligation to replace unmarked Licensed Products or associated packaging in existence as of one year after the Effective Date. If Alexsam believes the Company is, at any time during the Term of this Agreement, in breach of the requirements of this Section 6, Alexsam shall give written notice to the Company of such claimed breach no less than sixty (60) days in advance of filing any claim, suit or action regarding same, and in any such claim, suit or action Alexsam’s sole and exclusive remedy shall be to (i) require the Company to comply with this Section 6 with respect to any Licensed Product or associated packaging that is produced after the conclusion of such claim, suit or action and (ii) to recover its attorneys fees to the full extent permitted under Texas Civil Practices & Remedies Code section 38.001 and/or 38.002, and no party shall be entitled to cancel or terminate or refuse to perform other duties established by this Agreement because of such a breach.

 

7.           Term and Termination.  This Agreement shall remain in full force and effect for the life of the Licensed Patents.

 

8.           Warranties, Representations and Indemnification.

 

8.1           Alexsam warrants and represents that: it owns all right, title and interest in and to the Licensed Patents and the 2004 License Agreement; it has complete authority to enter into, execute, deliver and perform this Agreement and to grant the rights granted herein; its execution of this Agreement has been duly authorized by all necessary corporate action.

 

8.2           NetSpend and Holdings warrant and represent that: they have complete authority to enter into, execute, deliver and perform this Agreement; and the execution of this Agreement has been duly authorized by all necessary corporate action.  NetSpend and Holdings further warrant and represent that they have thoroughly investigated their financial condition, and based upon said investigation hereby represent that the Company is solvent and has been generally paying its debts as due and in the ordinary course of business; and that by making said lump sum payment the Company will not become insolvent and will be able to continue generally paying its debts as due and in the ordinary course of business.

 

 

 

 

8.3           The Parties specifically represent that they own all the claims that they are releasing under this Agreement, have authority to release said claims and have not, in any way, transferred those claims to any other Person.

 

8.4           Indemnification

 

a.           Alexsam hereby agrees to defend and hold harmless the Company, its officers, directors, employees, agents and attorneys (each a “NetSpend Indemnitee”), from and against all suits, claims, or other actions, and will indemnify the NetSpend Indemnitees, from any damages and expenses, including reasonable attorneys fees, arising out of any claim brought by a third party based, in whole or in part, upon any action or alleged breach by Alexsam of its representations or warranties set forth in Section 8.1.

 

b.           NetSpend and Holdings hereby agree to defend and hold harmless Alexsam, its officers, directors, employees, agents and attorneys (each an “Alexsam Indemnitee”), from and against all suits, claims, or other actions, and will indemnify the Alexsam Indemnitees, from any damages and expenses, including reasonable attorneys fees, arising out of any breach by the Company of its representations or warranties set forth in Section 8.2.

 

c.           The foregoing indemnification obligations by each Party shall be subject to the following: (i) The indemnified party promptly notifies the other party in writing of the claim; provided that the failure to so notify the indemnifying party shall not relieve the indemnifying party of any liability it may have to the indemnified party hereunder except to the extent the indemnifying party has been materially prejudiced thereby; (ii) the indemnifying party has sole control of the defense and all related settlement negotiations with respect to the claim, provided, however, that the indemnified party has the right, but not the obligation, to participate at its expense in the defense of any such claim of action through counsel of its own choosing; and (iii) the indemnified party cooperates fully to the extent necessary, and executes all documents necessary, for the defense of such claim.

 

 

 

 

9.           Covenant Not to Contest. Unless NetSpend is named as a party in any proceeding brought under the Licensed Patents, NetSpend shall not file, join as a party in, or directly or indirectly assist any third party in challenging or attacking the validity, enforceability, or infringement of either of the Licensed Patents.  However, Alexsam acknowledges and agrees that NetSpend may fully comply with any and all legal obligations related to a subpoena requesting documents or information related to any such challenge or attack.

 

10.           Releases.

 

10.1           In consideration for the covenants, terms and conditions contained in this Agreement, Alexsam hereby releases the Company, its officers, directors, employees, shareholders and agents, from any and all claims and/or counterclaims, including but not limited to any claims and/or counterclaims relating to breach of contract, fraud or patent infringement, known or unknown, which were or could have been brought against the Company in the Lawsuit or under the Licensed Patents or pursuant to the 2004 License Agreement based upon activities occurring before the Effective Date.  Alexsam releases all Third Parties from any and all claims and/or counterclaims, known or unknown, which were or could have been brought against such Third Parties in the Lawsuit or under the Licensed Patents or pursuant to the 2004 License Agreement based upon activities occurring before the Effective Date, but only to the extent that the activities of such Third Parties relate to the Licensed Products. The releases of this Section 10.1 are conditioned on the Company making the required payment to Alexsam pursuant to Section 5.1 above.

 

10.2           In consideration for the covenants, terms and conditions contained in this Agreement, the Company hereby releases Alexsam, its officers, directors, employees, shareholders and agents, from any and all claims and/or counterclaims, including but not limited to any claims and/or counterclaims relating to breach of contract, fraud or patent infringement, known or unknown, which were or could have been brought against Alexsam in the Lawsuit or relating to the Licensed Patents or the 2004 License Agreement based upon activities occurring before the Effective Date, but it is acknowledged by Alexsam that this release does not in any way restrict the Company’s  right to fully and completely defend itself if Alexsam were to ever bring another lawsuit against the Company in the future for infringement of the Licensed Patents.

 

 

 

 

11.           Dismissal of Lawsuit. Promptly upon receipt of the lump sum payment pursuant to Section 5.1 above, Alexsam and NetSpend will dismiss all claims against each other with prejudice to refiling same through the filing and entry of a Joint Motion to Dismiss and Agreed Order of Dismissal in the form attached hereto as Exhibit “A”.

 

12.           Confidentiality. The Parties will not reveal to any third party the specific terms of this Agreement, except as follows: (i) with the prior consent of the other Party; (ii) by court order; (iii) under compulsion of subpoena provided that the other Party is given notice of the subpoena and the opportunity to resist disclosure or to impose confidentiality thereon; (iv) under a protective order entered by a court; (v) to a Party’s financial advisors, legal advisors or insurers; (vi) by Holdings, as necessary to satisfy its SEC reporting obligations; (vii) as otherwise required by law; and (vii) by Alexsam as necessary to satisfy obligations to any other  licensee, or to any potential licensee or entity desirous of acquiring the Licensed Patents so long as reasonable measures are taken to assure the confidential treatment of the disclosed information.  Nothing herein shall prevent a Party from disclosing information regarding this Agreement that becomes part of the public domain by virtue of clause (vi) of this Section.

 

13.           Assignment.  Neither Party may assign, transfer or otherwise dispose of its rights and obligations under this Agreement, in whole or in part, without the prior written consent of the other Party, provided, however,  that a Party may assign or transfer all of its rights and obligations under this Agreement without the other Party’s consent in connection with any merger of which such assigning or transferring Party is not the surviving entity or any sale or transfer of all or substantially all of such assigning or transferring Party’s stock or assets.  In the event of such assignment or transfer by NetSpend and/or Holdings, their rights hereunder shall continue only for that portion of any future owner’s or merger partner’s business directly attributable to the business operations acquired from NetSpend and/or Holdings, recognizing (i) that the future business owner’s or merger partner’s existing operations prior to the acquisition or merger may require a separate license and (ii) the  operations and business directly attributable to the business operations acquired from NetSpend and/or Holdings may continue to evolve and expand following any such assignment or transfer and such evolved or expanded business operations will still be entitled to the Company’s rights hereunder.

 

 

 

 

14.           Entire Agreement. This Agreement constitutes the entire Agreement of the Parties and, upon the payment of the amount required by Section 5.1 above, supersedes all previous negotiations, agreements, understandings or commitments and shall not be released, discharged, changed or modified, except by instruments in writing signed by duly authorized officers or representatives of the Parties.

 

15.           Unknown Facts.  The Parties acknowledge and agree that additional facts may later be learned that are relevant to this Agreement and still they hereby specifically desire, intend and agree to release all claims, as set forth herein.  The Parties have had a full and complete opportunity to engage legal counsel to advise them regarding this Agreement and the execution of this Agreement. The Parties agree, represent, and warrant that they have, in fact, consulted with legal counsel regarding the effect, nature, tenor, advisability, and legal consequences of signing this Agreement and are relying upon their own judgment to enter into this Agreement.

 

16.           Notices.  All notices to be given hereunder shall be in writing and sent by certified mail, return receipt requested to the addresses specified below:

 

Any notice to Alexsam shall be addressed to:

 

Alexsam, Inc.

10916 Grand Journey Avenue

Raleigh, North Carolina 27614

Attention: Robert E. Dorf

With copy to:

 

Timothy P. Maloney

Fitch, Even, Tabin & Flannery, LLP

120 S. LaSalle Street, Suite 1600

Chicago, IL 60603

Any notice to the Company shall be addressed to:

 

NetSpend Corporation

701 Brazos Street, Suite 1300

Austin, Texas 78701

Attention: President

 

 

 

With a copy to:

 

Tommy Jacks

FISH & RICHARDSON P.C.

111 Congress Avenue, Suite 810

Austin, TX 78701

17.           Severability.  In the event that any provision of this Agreement, or the application of such provision, his found to be contrary to law, the remaining provisions shall remain in full force and effect.

 

18.           Disclaimer of Warranties. TO THE FULLEST EXTENT PERMISSIBLE UNDER APPLICABLE LAW AND EXCEPT AS OTHERWISE SET FORTH IN SECTION 8, ALEXSAM DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THOSE RELATED TO THE USE OR SUITABILITY OF ANY PRODUCT OR METHOD AND IMPLIED WARRANTIES OF NONINFRINGEMENT, MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.

 

19.           Governing Law and Dispute Resolution.  THIS AGREEMENT WILL BE GOVERNED BY THE LAWS OF THE UNITED STATES AND THE STATE OF TEXAS, WITHOUT REGARD TO CONFLICTS OF LAWS.  THE PARTIES HEREBY AGREE AND CONSENT TO THE EXCLUSIVE JURISDICTION AND VENUE OF THE STATE AND FEDERAL COURTS LOCATED IN TRAVIS COUNTY, TEXAS FOR RESOLUTION OF ANY CLAIMS OR DISPUTES ARISING UNDER OR RELATED TO THIS AGREEMENT.

 

20.           Signatures. This Agreement may be signed in counterparts and will become binding and effective upon the exchange of facsimile or E-mailed PDF copies of the required signatures. The parties will thereafter exchange formal signed originals of this Agreement for their permanent records.

 

21.           Costs and Fees. The parties shall each bear their own respective costs and attorneys’ fees in connection with the Lawsuit and this Agreement.

 

IN WITNESS WHEREOF, the parties hereby acknowledge their agreement and consent to the terms and conditions set forth above through their respective signatures as contained below.

 

 

 

 

 

I HAVE READ THE ABOVE AND FOREGOING DOCUMENT AND AGREE TO ITS TERMS.

 

 

	AGREED BY ALEXSAM, INC.	 	AGREED BY NETSPEND HOLDINGS, INC.
	By:	
/s/ Robert E. Dorf

	 	By:	
/s/ Chuck Harris

	 	 	 	 	 
	 	 	 	 	 
	Printed Name:	
Robert E. Dorf

	 	Printed Name:	
Chuck Harris

	Title:	
Chief Executive Officer

	 	Title:	
President

	 	 	 	 	 
	 	 	 	 	 
	Date:	
11/5/2012

	 	Date:	
5 Nov 12

	 	 	 	 	 
	 	 	 	 	 
	 	 	 	
AGREED BY NETSPEND CORPORATION

	 	 	 	By:	
/s/ Chuck Harris

	 	 	 	Printed Name:	
Chuck Harris

	 	 	 	Title:	
President

	 	 	 	Date:	
5 Nov 12

 

The following Schedules and Exhibits have been omitted from this Exhibit:

Exhibit A – Joint Motion to Dismiss and Final Order of Dismissal

 

The registrant will furnish supplementally a copy of any omitted Schedule or Exhibit to the Securities and Exchange Commission upon the request of the Commission.ex10-1.htm

Exhibit 10.1

 

EXECUTIVE EMPLOYMENT AGREEMENT

 

 

     This Executive Employment Agreement (this “Agreement”) is made as of the 1st day of November, 2012 by and among Elsinore Services, Inc., a Delaware corporation (the “Company”) and Mr. Arne Dunhem, a natural person, residing at 7901 Ariel Way, McLean, Virginia 22102 (“Mr. Dunhem” or the “Executive”).

 

 

     WHEREAS, the Company wishes to employ Mr. Dunhem as its Chairman and Chief Executive Officer (“CEO”) and Mr. Dunhem wishes to accept such employment;

 

 

     WHEREAS, the Company and Executive wish to set forth the terms of Executive’s employment and certain additional agreements between Executive and the Company.

 

 

         NOW, THEREFORE, in consideration of the foregoing recitals and the representations, covenants and terms contained herein, the parties hereto agree as follows:

 

	
1.  

	
Employment Period

The Company will employ Executive, and Executive will serve the Company, under the terms of this Agreement commencing November 1, 2012 (the “Commencement Date”) for a term of twenty-four (24) months unless earlier terminated under Section 4 hereof. On the second anniversary of the Commencement Date and on each anniversary date thereafter, the term of this Agreement shall automatically be extended for an additional period of twelve (12) months; provided, however, that either party hereto may elect not to so extend this Agreement by giving written notice to the other party at least sixty (60) days prior to such anniversary date. The period of time between the commencement and the termination of Executive’s employment hereunder shall be referred to herein as the “Employment Period.”

 

	
2.  

	
Duties and Status

 

The Company hereby engages Executive as its Chairman and Chief Executive Officer on the terms and conditions set forth in this Agreement. Executive shall report to the Board of Directors of the Company (the “Board”) and shall exercise such authority, perform such executive functions and discharge such responsibilities as are reasonably associated with Executive’s position, commensurate with the authority vested in Executive pursuant to this Agreement and consistent with the governing documents of the Company. These duties include, but are not limited to: (i) seeking and closing acquisition for the Company to increase the Company’s revenue and earnings per share; (ii) structuring and obtaining capital from varied sources to facilitate the growth of the Company; (iii) building the Company’s presence on “Wall Street” and serving as the Company’s “face” to the capital markets; (iv) identifying and recruiting additional personnel to build the Company; (v) working to shape and determine the strategic direction of the Company; and (vi) handling such other leadership, administrative and managerial roles as is customary and appropriate for a company’s Chairman and Chief Executive Officer.

	
3.  

	
Compensation and Benefits

	
a.  

	
Salary. During the Employment Period, the Company shall pay to Executive, as compensation for the performance of his duties and obligations under this Agreement, a base salary commensurate with the development of the Company based on the following:

	
i.  

	
For the period from the Commencement Date of this Agreement through the Closing with a major institutional investor (the “Closing”), the duties by Executive as Chairman and CEO and compensation shall be governed by a separate Consulting Agreement between the Company and the Executive based on a compensation of $7,500.00 per month.

 

  

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ii.  

	
For the period from the Commencement Date of this Agreement through the Closing with a major institutional investor (the “Closing”), the cash salary compensation shall be accrued and deferred for later payout or conversion into equity;

	
iii.  

	
For the period from the Closing with a major institutional investor through the first anniversary of the agreement, a compensation of twenty one thousand dollars ($21,000) per month;

	
iv.  

	
The period from the first anniversary through the second anniversary of the agreement, a compensation of twenty five thousand dollars ($25,000) per month;

	
v.  

	
The base salary may be increased, but not decreased, at the discretion of the Board. After the initial two years of the Employment Period, Executive shall be entitled to receive a minimum of a 5% per annum increase in this base salary

	
b.  

	
Bonuses. During the Employment Period, Executive shall be entitled to a cash bonus, “the acquisition bonus” equal to one half of one percent (0.5%) of the revenues, with an EBITDA percentage of at least 10%, for the most recent twelve (12) month period of each acquisition made by the Company during the Employment Period and for which Executive has been actively instrumental in finding and closing the acquisition. An acquisition shall be deemed “made” if a definitive agreement is executed during the Employment Period and the transaction closes within six (6) months after the definitive agreement is executed. Further, in addition to the acquisition bonus, the Board will put in place an annual performance bonus plan which will provide an additional annual cash bonus of up to 50% of base salary, subject to achieving performance metrics mutually agreed to between the Company and Executive.

	
c.  

	
Participation in Executive Stock Incentive Plan. The Executive will be eligible for grants under the Executive Stock Incentive Plan and the terms and conditions of such grants shall be determined by the Board.

	
d.  

	
Other Benefits. During the Employment Period, Executive shall be entitled to participate in all of the employee benefit plans, programs and arrangements of the Company in effect during the Employment Period which are generally available to senior executives of the Company, subject to and on a basis consistent with the terms, conditions and overall administration of such plans, programs and arrangements. In addition, during the Employment Period, Executive shall be entitled to fringe benefits and perquisites comparable to those of other senior executives of the Company including, but not limited to, twenty (20) days of vacation pay plus two (2) sick/personal days, to be used in accordance with the Company’s vacation pay policy for senior executives, reasonable car allowance, reimbursement of reasonable legal and financial services. It is also anticipated that, at first opportunity, the Company will put in place employee family health and medical insurance and other such benefits as are customary in similar companies.

	
e.  

	
Business Expenses. During the Employment Period, the Company shall promptly reimburse Executive for all appropriately documented, reasonable business expenses incurred by Executive in the performance of his duties under this Agreement, including, but not limited to, telecommunications, including cell phone, expenses and travel expenses.

	
f.  

	
Office. During the Employment Period, the Company shall provide a headquarters office in the Washington, D.C. metropolitan area, at a place mutually agreeable to Executive and the Company and, to the extent that the Company’s budget allows, secretarial assistance to Executive suitable to Executive’s position as the Company’s Chairman and Chief Executive Officer. Should the Company decide to relocate the headquarters office outside of the Washington, D.C. metropolitan area, or Executive be requested to relocate to a location outside the Washington, D.C. metropolitan area, then Executive shall be reimbursed for reasonable and customary relocation expenses.

 

  

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4.  

	
Termination of Employment

	
a.  

	
Termination for Cause. The Company may terminate Executive’s employment hereunder for Cause (defined below). For purposes of this Agreement and subject to Executive’s opportunity to cure as provided in Section 4(c) hereof, the Company shall have Cause to terminate Executive’s employment hereunder if such termination shall be the result of:

	
i.  

	
a willful or grossly negligent material breach of fiduciary duty or material breach of the terms of this Agreement or any other agreement between Executive and the Company (including without limitation any agreements regarding confidentiality, inventions assignment and non-competition), which, in the case of a material breach of the terms of this Agreement or any other agreement, remains uncured for a period of thirty (30) days following receipt of written notice from the Board specifying the nature of such breach;

	
ii.  

	
the commission by Executive of any act of embezzlement, fraud, larceny or theft on or from the Company;

	
iii.  

	
substantial and continuing gross neglect or inattention by Executive of the duties of his employment or the willful misconduct or gross negligence of Executive in connection with the performance of such duties which remains uncured for a period of thirty (30) days following receipt of written notice from the Board specifying the nature of such breach; and

	
iv.  

	
the commission by and indictment of Executive of any crime involving moral turpitude or a felony.

	
b.  

	
Termination for Good Reason. Executive shall have the right at any time to terminate his employment with the Company upon not less than thirty (30) days prior written notice of termination for Good Reason (defined below). For purposes of this Agreement and subject to the Company’s opportunity to cure as provided in Section 4(c) hereof, Executive shall have Good Reason to terminate his employment hereunder if such termination shall be the result of:

	
i.  

	
The breach by the Company of any material provision of this Agreement; or

	
ii.  

	
A requirement by the Company that Executive perform any act or refrain from performing any act that would be in violation of any applicable law.

	
c.  

	
Notice and Opportunity to Cure. Notwithstanding the foregoing, it shall be a condition precedent to the Company’s right to terminate Executive’s employment for Cause and Executive’s right to terminate for Good Reason that (i) the party seeking termination shall first have given the other party written notice stating with specificity the reason for the termination (“breach”) and (ii) if such breach is susceptible of cure or remedy, a period of fifteen (15) days from and after the giving of such notice shall have elapsed without the breaching party having effectively cured or remedied such breach during such 15-day period, unless such breach cannot be cured or remedied within fifteen (15) days, in which case the period for remedy or cure shall be extended for a reasonable time (not to exceed an additional thirty (30) days) provided the breaching party has made and continues to make a diligent effort to effect such remedy or cure.

	
d.  

	
Voluntary Termination. Executive, at his election, may terminate his employment upon not less than sixty (60) days prior written notice of termination other than for Good Reason.

	
e.  

	
Termination Upon Death or Permanent and Total Disability. The Employment Period shall be terminated by the death of Executive. The Employment Period may be terminated by the Board if Executive shall be rendered incapable of performing his duties to the Company by reason of any medically determined physical or mental impairment that can be reasonably expected to result in death or that can be reasonably be expected to last for a period of either (i) six (6) or more consecutive months from the first date of Executive’s absence due to the disability or (ii) nine (9) months during any twelve-month period (a “Permanent and Total Disability”). If the Employment Period is terminated by reason of a Permanent and Total Disability of Executive, the Company shall give thirty (30) days’ advance written notice to that effect to Executive.

 

  

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f.  

	
Termination Without Cause. The Company, at its election, may terminate Executive’s employment otherwise than for Cause, upon not less than sixty (60) days written notice of termination.

	
g.  

	
Termination for Business Failure. Anything contained herein to the contrary notwithstanding, in the event the Company’s business is discontinued because continuation is rendered impracticable by substantial financial losses, lack of funding, legal decisions, administrative rulings, declaration of war, dissolution, national or local economic depression or crisis or any reasons beyond the control of the Company, then this Agreement shall terminate as of the day the Company determines to cease operation with the same force and effect as if such day of the month were originally set as the termination date hereof. In the event this Agreement is terminated pursuant to this Section 4(g), Executive will not be entitled to severance pay.

	
5.  

	
Consequences of Termination

	
a.  

	
Without Cause, due to a Change of Control or for Good Reason. In the event of a termination of Executive’s employment during the Employment Period by the Company other than for Cause pursuant to Section 4(f) or by Executive for Good Reason pursuant to Section 4(b) (e.g., due to a Change of Control of the Company, where Change of Control means: (i) the acquisition (other than from the Company) in one or more transactions by any Person, as defined in this Section 5(a), of the beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended) of 50% or more of (A) the then outstanding shares of the securities of the Company, or (B) the combined voting power of the then outstanding securities of the Company entitled to vote generally in the election of directors (the “Company Voting Stock”); (ii) the closing of a sale or other conveyance of all or substantially all of the assets of the Company; or (iii) the effective time of any merger, share exchange, consolidation, or other business combination of the Company if immediately after such transaction persons who hold a majority of the outstanding voting securities entitled to vote generally in the election of directors of the surviving entity (or the entity owning 100% of such surviving entity) are not persons who, immediately prior to such transaction, held the Company Voting Stock; provided, however, that a Change of Control shall not include a public offering of capital stock of the Company. For purposes of this Section 5(a), a “Person” means any individual, entity or group within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended, other than: employee benefit plans sponsored or maintained by the Company and corporations controlled by the Company, the Company shall pay Executive (or his estate) and provide him with the following:

	
i.  

	
Lump-Sum Payment. A lump-sum cash payment, payable ten (10) days after Executive’s termination of employment, equal to the sum of the following:

	
1.  

	
Salary. The equivalent of ten (10) months (the “Severance Period”) of Executive’s then-current base salary; plus

	
2.  

	
Earned but Unpaid Amounts. Any previously earned but unpaid salary through Executive’s final date of employment with the Company, and any previously earned but unpaid bonus amounts prior to the date of Executive’s termination of employment.

	
3.  

	
Equity. All Warrant or Stock Option Shares or other equity incentives vested at time of termination shall be retained by Executive. All unvested Warrant or Stock Option Shares or other equity incentives shall immediately vest and be retained by Executive. Executive shall have the benefit of the full ten year option period to exercise such Warrant or Stock Option Shares or other equity incentives.

 

  

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ii.  

	
Other Benefits. The Company shall provide continued coverage for the Severance Period under all health, life, disability and similar employee benefit plans and programs of the Company on the same basis as Executive was entitled to participate immediately prior to such termination, provided that Executive’s continued participation is possible under the general terms and provisions of such plans and programs. In the event that Executive’s participation in any such plan or program is barred, the Company shall use its commercially reasonable efforts to provide Executive with benefits substantially similar (including all tax effects) to those which Executive would otherwise have been entitled to receive under such plans and programs from which his continued participation is barred. In the event that Executive is covered under substitute benefit plans of another employer prior to the expiration of the Severance Period, the Company will no longer be obligated to continue the coverages provided for in this Section 5(a)(ii).

	
b.  

	
Other Termination of Employment. In the event that Executive’s employment with the Company is terminated during the Employment Period by the Company for Cause (as provided for in Section 4(a) hereof) or by Executive other than for Good Reason (as provided for in Section 4(b) hereof), the Company shall pay or grant Executive any earned but unpaid salary, bonus, and Warrant or Stock Option Shares or other equity incentives through Executive’s final date of employment with the Company, and the Company shall have no further obligations to Executive.

	
c.  

	
Withholding of Taxes. All payments required to be made by the Company to Executive under this Agreement shall be subject only to the withholding of such amounts, if any, relating to tax, excise tax and other payroll deductions as may be required by law or regulation.

	
d.  

	
No Other Obligations. The benefits payable to Executive under this Agreement are not in lieu of any benefits payable under any employee benefit plan, program or arrangement of the Company, except as specifically provided herein, and Executive will receive such benefits or payments, if any, as he may be entitled to receive pursuant to the terms of such plans, programs and arrangements. Except for the obligations of the Company provided by the foregoing and this Section 5, the Company shall have no further obligations to Executive upon his termination of employment.

	
e.  

	
No Mitigation or Offset. Executive shall have no obligation to mitigate the damages provided by this Section 5 by seeking substitute employment or otherwise and there shall be no offset of the payments or benefits set forth in this Section 5 except as provided in Section 5(a)(ii).

	
6.  

	
Governing Law

This Agreement and the rights and obligations of the parties hereto shall be construed in accordance with the laws of District of Columbia, without giving effect to the principles of conflict of laws.

	
7.  

	
Indemnity and Insurance

The Company shall indemnify and save harmless Executive for any liability incurred by reason of any act or omission performed by Executive while acting in good faith on behalf of the Company and within the scope of the authority of Executive pursuant to this Agreement and to the fullest extent provided under the Bylaws, the Certificate of Incorporation and the General Corporation Law of the State of Delaware, except that Executive must have in good faith believed that such action was in, or not opposed to, the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe that such conduct was unlawful          

The Company shall provide that Executive is covered by any Directors and Officers insurance that the Company provides to other senior executives and/or Board members.  Such insurance will be put in place at first opportunity.

 

  

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8.  

	
Non-Disparagement

At all times during the Employment Period and for a period of five (5) years thereafter (regardless of how Executive’s employment was terminated), Executive shall not, directly or indirectly, make (or cause to be made) to any person any disparaging, derogatory or other negative or false statement about the Company (including its products, services, policies, practices, operations, employees, sales representatives, agents, officers, members, managers, partners or directors), provided, however, that any statements that Executive makes to his immediate family and in-laws shall be immune from this provision.

	
9.  

	
Cooperation with the Company After Termination of Employment

Following termination of Executive’s employment for any reason, Executive shall fully cooperate with the Company in all matters relating to the winding up of Executive’s pending work on behalf of the Company including, but not limited to, any litigation in which the Company is involved, and the orderly transfer of any such pending work to other employees of the Company as may be designated by the Company. Following any notice of termination of employment by either the Company or Executive, the Company shall be entitled to such full time or part time services of Executive as the Company may reasonably require during all or any part of the sixty (60)-day period following any notice of termination, provided that Executive shall be compensated for such services at the same rate as in effect immediately before the notice of termination.

	
10.  

	
SEC Rule 144 Restrictions

Executive agrees that he will not sell or otherwise transfer or dispose of more shares of the Company’s common stock during any calendar quarter thereafter during the Employment Period than permitted under SEC Rule 144.

	
11.  

	
Notice

          

All notices, requests and other communications pursuant to this Agreement shall be sent by overnight mail to the following addresses:

 

If to Executive:

7901 Ariel Way

McLean, VA 22102

Phone: (703) 847-0940

 

If to the Company:

Elsinore Services, Inc

Attn: The Board of Directors

4201 Connecticut Avenue, N.W,

Suite 407

Washington, D.C. 20008

Phone: (202) 609-7756

	
12.  

	
Waiver of Breach

Any waiver of any breach of this Agreement shall not be construed to be a continuing waiver or consent to any subsequent breach on the part of either Executive or of the Company.

 

  

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13.  

	
Non-Assignment / Successors

Neither party hereto may assign his or its rights or delegate his or its duties under this Agreement without the prior written consent of the other party; provided, however, that (i) this Agreement shall inure to the benefit of and be binding upon the successors and assigns of the Company upon any sale or all or substantially all of the Company’s assets, or upon any merger, consolidation or reorganization of the Company with or into any other corporation, all as though such successors and assigns of the Company and their respective successors and assigns were the Company; and (ii) this Agreement shall inure to the benefit of and be binding upon the heirs, assigns or designees of Executive to the extent of any payments due to them hereunder. As used in this Agreement, the term “Company” shall be deemed to refer to any such successor or assign of the Company referred to in the preceding sentence.

	
14.  

	
Severability

To the extent any provision of this Agreement or portion thereof shall be invalid or unenforceable, it shall be considered deleted there from and the remainder of such provision and of this Agreement shall be unaffected and shall continue in full force and effect.

	
15.  

	
Counterparts

This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

	
16.  

	
Arbitration

Executive and the Company shall submit to mandatory and exclusive binding arbitration, any controversy or claim arising out of, or relating to, this Agreement or any breach hereof where the amount in dispute is greater than or equal to Fifty Thousand Dollars ($50,000), provided, however, that the parties retain their right to, and shall not be prohibited, limited or in any other way restricted from, seeking or obtaining equitable relief from a court having jurisdiction over the parties. In the event the amount of any controversy or claim arising out of, or relating to, this Agreement, or any breach hereof, is less than Fifty Thousand Dollars ($50,000), the parties hereby agree to submit such claim to mediation. Such arbitration shall be governed by the Federal Arbitration Act and conducted through the American Arbitration Association (“AAA”) in the District of Columbia, before a single neutral arbitrator, in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association in effect at that time. The parties may conduct only essential discovery prior to the hearing, as defined by the AAA arbitrator. The arbitrator shall issue a written decision which contains the essential findings and conclusions on which the decision is based. Mediation shall be governed by, and conducted through, the AAA. Judgment upon the determination or award rendered by the arbitrator may be entered in any court having jurisdiction thereof.

	
17.  

	
Entire Agreement

 

          This Agreement and all schedules and other attachments hereto constitute the entire agreement by the Company and Executive with respect to the subject matter hereof and, except as specifically provided herein, supersedes any and all prior agreements or understandings between Executive and the Company with respect to the subject matter hereof, whether written or oral. This Agreement may be amended or modified only by a written instrument executed by Executive and the Company.

 

 

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

 

 

ARNE DUNHEM                                                                            ELSINORE SERVICES, INC.

 

 

/s/ Arne Dunhem                                           /s/ Leif L. Carlsson

                         By:   Leif L. Carlsson

                         Its:    Director

  

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