Document:

Exhibit
10.1

 

EMPLOYMENT
AND NON-COMPETITION AGREEMENT

 

BETWEEN

 

VANTAGE
INTERNATIONAL PAYROLL CO.

 

AND

 

DOUGLAS
HALKETT

 

 

DATED JANUARY 15, 2008

 

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
  Page

  
	
  1.

  	
  EMPLOYMENT TERM AND DUTIES

  	
  1

  
	
   

  	
  1.1

  	
  Term of Employment

  	
  1

  
	
   

  	
  1.2

  	
  Duties as Employee of the Company

  	
  1

  
	
   

  	
  1.3

  	
  Place of Performance

  	
  2

  
	
   

  	
  1.4

  	
  Fiduciary Duty

  	
  2

  
	
   

  	
  1.5

  	
  Compliance

  	
  2

  
	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  COMPENSATION AND RELATED MATTERS

  	
  2

  
	
   

  	
  2.1

  	
  Base Salary

  	
  2

  
	
   

  	
  2.2

  	
  Bonus Payments

  	
  2

  
	
   

  	
  2.3

  	
  Expenses

  	
  3

  
	
   

  	
  2.4

  	
  Automobiles

  	
  3

  
	
   

  	
  2.5

  	
  Business, Travel and Entertainment Expenses

  	
  3

  
	
   

  	
  2.6

  	
  Vacation

  	
  3

  
	
   

  	
  2.7

  	
  Welfare, Pension and Incentive Benefit Plans

  	
  3

  
	
   

  	
  2.8

  	
  Dues

  	
  3

  
	
   

  	
  2.9

  	
  Other Benefits

  	
  3

  
	
   

  	
  2.10

  	
  Perquisites

  	
  4

  
	
   

  	
  2.11

  	
  Proration

  	
  4

  
	
   

  	
  2.12

  	
  Signing Bonus

  	
  4

  
	
   

  	
  2.13

  	
  Additional Payments

  	
  4

  
	
   

  	
   

  	
  (a)     Excise
  Tax; Gross-Up Payment

  	
  4

  
	
   

  	
   

  	
  (b)     Accounting
  Firm Determinations

  	
  5

  
	
   

  	
   

  	
  (c)     Notification
  of Claims

  	
  5

  
	
   

  	
   

  	
  (d)     Refund

  	
  6

  
	
   

  	
   

  	
  (e)     Insurance

  	
  7

  
	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  TERMINATION

  	
  7

  
	
   

  	
  3.1

  	
  Definitions

  	
  7

  
	
   

  	
   

  	
  3.1.2     Notice
  to Cure

  	
  7

  
	
   

  	
  3.2

  	
  Termination Date

  	
  10

  
	
   

  	
  3.3

  	
  Constructive Termination Without Cause

  	
  10

  
	
   

  	
  3.4

  	
  Termination Without Cause or Termination For Good Reason or Constructive
  Termination Without Cause: Benefits

  	
  10

  
	
   

  	
  3.5

  	
  Base Salary

  	
  10

  
	
   

  	
  3.6

  	
  Stock Awards

  	
  11

  
	
   

  	
  3.7

  	
  Other Benefits

  	
  11

  
	
   

  	
  3.8

  	
  Expenses

  	
  11

  
	
   

  	
  3.9

  	
  Mitigation

  	
  11

  
	
   

  	
  3.10

  	
  Maximum Payments

  	
  11

  
	
   

  	
  3.11

  	
  Net After-Tax Benefit

  	
  12

  
	
   

  	
  3.12

  	
  Termination In Event of Death: Benefits

  	
  12

  
	
   

  	
  3.13

  	
  Termination In Event of Disability: Benefits

  	
  12

  

 

 

i

 

	
   

  	
  3.14

  	
  Voluntary Termination by Employee and Termination for Cause: Benefits

  	
  12

  
	
   

  	
  3.15

  	
  Termination Procedure

  	
  13

  
	
   

  	
   

  	
  A.     Notice
  of Termination

  	
  13

  
	
   

  	
   

  	
  B.     Date
  of Termination

  	
  13

  
	
   

  	
   

  	
  C.     Mitigation

  	
  13

  
	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  DIRECTOR POSITIONS

  	
  13

  
	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
  NON-COMPETITION, NON-SOLICITATION, AND
  CONFIDENTIALITY

  	
  14

  
	
   

  	
  5.1

  	
  Non-Competition During Employment

  	
  14

  
	
   

  	
  5.2

  	
  Conflicts of Interest

  	
  14

  
	
   

  	
  5.3

  	
  Non-Competition After Termination

  	
  14

  
	
   

  	
  5.4

  	
  Non-Solicitation of Customers

  	
  15

  
	
   

  	
  5.5

  	
  Non-Solicitation of Employees

  	
  15

  
	
   

  	
  5.6

  	
  Confidential Information

  	
  15

  
	
   

  	
  5.7

  	
  Original Material

  	
  15

  
	
   

  	
  5.8

  	
  Return of Documents, Equipment, Etc.

  	
  16

  
	
   

  	
  5.9

  	
  Reaffirm Obligations

  	
  16

  
	
   

  	
  5.10

  	
  Prior Disclosure

  	
  16

  
	
   

  	
  5.11

  	
  Confidential Information of Prior Companies

  	
  16

  
	
   

  	
  5.12

  	
  Rights Upon Breach

  	
  16

  
	
   

  	
   

  	
  (a)     Specific
  Performance

  	
  17

  
	
   

  	
   

  	
  (b)     Accounting

  	
  17

  
	
   

  	
  5.13

  	
  Remedies For Violation of Non-Competition or Confidentiality Provisions

  	
  17

  
	
   

  	
  5.14

  	
  Severability of Covenants

  	
  18

  
	
   

  	
  5.15

  	
  Court Review

  	
  18

  
	
   

  	
  5.16

  	
  Enforceability in Jurisdictions

  	
  18

  
	
   

  	
  5.17

  	
  Extension of Post-Employment Restrictions

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
  INDEMNIFICATION

  	
  18

  
	
   

  	
  6.1

  	
  General

  	
  18

  
	
   

  	
  6.2

  	
  Expenses

  	
  19

  
	
   

  	
  6.3

  	
  Enforcement

  	
  19

  
	
   

  	
  6.4

  	
  Partial Indemnification

  	
  19

  
	
   

  	
  6.5

  	
  Advances of Expenses

  	
  19

  
	
   

  	
  6.6

  	
  Notice of Claim

  	
  19

  
	
   

  	
  6.7

  	
  Defense of Claim

  	
  19

  
	
   

  	
  6.8

  	
  Non-exclusivity

  	
  20

  
	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
  LEGAL FEES AND EXPENSES

  	
  20

  
	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
  BREACH

  	
  20

  
	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
  RIGHT TO ENTER AGREEMENT

  	
  20

  

 

 

ii

 

	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
  COMPLIANCE WITH SECTION 409A

  	
  21

  
	
   

  	
  10.2

  	
  Certain Definitions

  	
  21

  
	
   

  	
  10.3

  	
  Delay in Payments

  	
  21

  
	
   

  	
  10.4

  	
  Reformation

  	
  22

  
	
   

  	
   

  	
   

  	
   

  
	
  11.

  	
  ENFORCEABILITY

  	
  22

  
	
   

  	
   

  	
   

  	
   

  
	
  12.

  	
  SURVIVABILITY

  	
  22

  
	
   

  	
   

  	
   

  	
   

  
	
  13.

  	
  ASSIGNMENT

  	
  22

  
	
   

  	
   

  	
   

  	
   

  
	
  14.

  	
  BINDING AGREEMENT

  	
  22

  
	
   

  	
   

  	
   

  	
   

  
	
  15.

  	
  NOTICES

  	
  22

  
	
   

  	
   

  	
   

  	
   

  
	
  16.

  	
  WAIVER

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
  17.

  	
  SEVERABILITY

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
  18.

  	
  ARBITRATION

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
  19.

  	
  ENTIRE AGREEMENT

  	
  24

  
	
   

  	
   

  	
   

  	
   

  
	
  20.

  	
  SECTION HEADINGS

  	
  24

  
	
   

  	
   

  	
   

  	
   

  
	
  21.

  	
  MODIFICATION OF AGREEMENT

  	
  24

  
	
   

  	
   

  	
   

  	
   

  
	
  22.

  	
  UNDERSTANDING OF AGREEMENT

  	
  24

  
	
   

  	
   

  	
   

  	
   

  
	
  23.

  	
  GOVERNING LAW

  	
  24

  
	
   

  	
   

  	
   

  	
   

  
	
  24.

  	
  WITHHOLDING

  	
  24

  
	
   

  	
   

  	
   

  	
   

  
	
  25.

  	
  JURISDICTION AND VENUE

  	
  24

  
	
   

  	
   

  	
   

  	
   

  
	
  26.

  	
  NO PRESUMPTION AGAINST INTEREST

  	
  25

  

 

 

iii

 

EMPLOYMENT
AND NON-COMPETITION AGREEMENT

 

This Employment and
Non-Competition Agreement (“Agreement”)
is entered into as of the 15th day of
January, 2008 (the “Effective Date”), between
Vantage International Payroll Co., a Cayman Island Company (“Company”), and Douglas Halkett (“Employee” or “Executive”).

 

RECITALS:

 

WHEREAS, Executive is to
be employed as an integral part of its management who participates in the
decision-making process relative to short and long-term planning and policy for
the Company, will serve on the Company’s Executive Management Committee;

 

WHEREAS, the Company
desires to obtain assurances from the Executive that he will devote his best
efforts to the Company and will not enter into competition with the Company,
solicit its customers, or solicit employees of the Company after termination of
his employment;

 

WHEREAS, Executive will
serve as a key employee with special and unique talents and skills of peculiar
benefit and importance to the Company; and

 

WHEREAS, Executive is
desirous of committing himself to serve on the terms herein provided; and

 

NOW, THEREFORE, in
consideration of the foregoing and of the respective covenants and agreements
set forth below, the Parties agree as follows:

 

1.             EMPLOYMENT
TERM AND DUTIES

 

1.1          Term of Employment.  Effective
as of the Effective Date, the Company hereby agrees to employ Executive as its
Vice President — Chief Operating Officer, and Executive hereby agrees to accept
such employment, on the terms and conditions set forth herein, for
the period commencing on the Effective Date and expiring as of January 15,
2010 (the “Basic Term”)
(unless sooner terminated as hereinafter set forth). The Basic Term shall be
automatically extended for successive terms of one (1) year commencing on
each Anniversary of the Effective Date thereafter (each such date being a “Renewal Date”), so as to
terminate one (1) year from such Renewal Date, unless and until at least
ninety (90) days prior to a Renewal Date either party hereto gives written
notice to the other that the Term should not be further extended after the next
Renewal Date (a “Notice of
Non-Renewal”), in which event the Termination Date shall not be
less than one (1) year following receipt of the Notice of Non-Renewal.

 

1.2          Duties as Employee of the Company.  Executive
shall, subject to the supervision of the Chief Executive Officer and Board,
have general management and control of operations in the ordinary course of its
business with all such powers with respect to such management and control as
may be reasonably incident to such responsibilities.  Executive shall devote his normal and regular
business time, attention and skill to diligently attending to the business of
the Company during the Basic Term. During the Basic Term, Executive shall not
directly or indirectly render any services of a business, commercial, or
professional nature to any other 

 

VANTAGE INTERNATIONAL
PAYROLL CO. EMPLOYMENT AGREEMENT

 

 

1

 

person, firm,
corporation, or organization, whether for compensation or otherwise, without
the prior written consent of the Chairman of the Board.  Notwithstanding the foregoing, it shall not
be a violation of the Agreement for Executive to (i) serve on corporate,
civic or charitable boards or committees, (ii) deliver lectures, fulfill
speaking engagements or teach at educational institutions, and (iii) manage
personal investments so long as such activities do not materially interfere or
conflict with the performance of his duties to the Company hereunder.  The conduct of such activity shall not be deemed
to materially interfere or conflict with Executive’s performance of his duties
until Executive has been notified in writing thereof and given a reasonable
period in which to cure the same.

 

1.3          Place of Performance.  During
the Employment Period, the Company shall maintain its executive offices in
Houston, Texas, but the Executive shall be located in other locations, as
agreed between Executive and the Company. 
During the Employment Period, the Company shall provide the Executive
with an office and staff and other such facilities and services as shall be
suitable to Executive’s position and adequate for the performance of Executive’s
duties hereunder.

 

1.4          Fiduciary Duty.  Executive
acknowledges and agrees that he owes a fiduciary duty to the Company, and
further agrees to make full disclosure to the Company of all business
opportunities pertaining to the Company’s business and shall not act for his
own benefit concerning the subject matter of his fiduciary relationship.

 

1.5          Compliance.  Executive agrees
that he will not take any action which he knows would not comply with United
States law as applicable to Executive’s employment, including, but without
limitation to the Foreign Corrupt Practices Act.

 

2.                                      COMPENSATION AND RELATED MATTERS

 

2.1          Base Salary.  Executive shall
receive a base salary (the “Base
Salary”) paid by the Company at the annual rate of Four Hundred
Thousand ($400,000.00) U.S., payable not less frequently than in substantially
equal monthly installments, with the opportunity to increases, from time to
time thereafter which are in accordance with the Company’s regular executive
compensation practices.

 

2.2          Bonus Payments.  For each
full fiscal year of the Company that begins and ends during the Employment
Period, and for the portion of the fiscal year of the Company that begins in
2008 (“Fiscal Year 2008”),
the Executive shall be eligible to earn an annual cash bonus in such amount as
shall be determined by the Compensation Committee of the Board (the “Compensation Committee”) (the
“Annual Bonus”)
based on the achievement by the Company of performance goals established by the
Compensation Committee for each such fiscal year (or portion of Fiscal Year
2008).  The Compensation Committee shall
establish objective criteria to be used to determine the extent to which
performance goals have been satisfied. 
For purposes of this Agreement, net earnings per share is defined as the
Company’s consolidated net earnings per share as reported in the Company’s
Annual Report on Form 10-K.  The Executive’s annual bonus
potential target as be eighty percent (80%) of Base Salary, but not to exceed
one hundred sixty percent (160%) of Base Salary.

 

 

2

 

2.3          Expenses.  During the Basic
Term, Executive shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by him in accordance with the policies and
procedures established by the Compensation Committee for the Company’s senior
executive officers in performing services hereunder, provided that Executive
properly accounts for such expenses in accordance with the Company’s policies
and procedures.

 

2.4          Automobiles.  The Company
shall provide the Executive with an automobile provided by the Company, or, in
the alternative, an automobile allowance consistent with the practices of the
Company.

 

2.5          Business, Travel and Entertainment Expenses.  The
Company shall promptly reimburse the Executive for all business, travel and
entertainment expenses consistent with the Executive’s titles and the practices
of the Company.

 

2.6          Vacation.  The Executive
shall be entitled to six (6) weeks of vacation per year. Vacation not
taken during the applicable fiscal year (but not in excess of two (2) weeks)
shall be carried over to the next following fiscal year.

 

2.7          Welfare, Pension and Incentive Benefit Plans.  During
the Employment Period, the Executive (and his eligible spouse and dependents)
shall be entitled to participate in all the welfare benefit plans and programs
maintained by the Company from time-to-time for the benefit of its senior
executives including, without limitation, all medical, hospitalization, dental,
disability, accidental death and dismemberment and travel accident insurance
plans and programs. In addition, during the Employment Period, the Executive
shall be eligible to participate in all pension, retirement, savings and other
employee benefit plans and programs maintained from time-to-time by the Company
for the benefit of its senior executives, other than any annual cash incentive
plan.

 

2.8          Dues.  During the Employment
Period, the Company shall pay or promptly reimburse the Executive for annual
dues for membership in professional organizations relevant to Executive’s job
responsibilities.

 

2.9          Other Benefits.  Executive
shall be entitled to participate in or receive benefits under any compensatory
employee benefit plan or other arrangement made available by the Company now or
in the future to its senior executive officers and key management employees,
subject to and on a basis consistent with the terms, conditions, and overall
administration of such plan or arrangement. Nothing paid to Executive under any
plan or arrangement presently in effect or made available in the future shall
be deemed to be in lieu of the Base Salary payable to Executive pursuant to Section 2.1 of this
Agreement.  The Company shall not make
any changes in any employee benefit plans or other arrangements in effect on
the date hereof or subsequently in effect in which Executive currently or in
the future participates (including, without limitation, each pension and
retirement plan, supplemental pension and retirement plan, savings and profit
sharing plan, stock or unit ownership plan, stock or unit purchase plan, stock
or unit option plan, life insurance plan, medical insurance plan, disability
plan, dental plan, health and accident plan, or any other similar plan or
arrangement) that would adversely affect Executive’s rights or benefits
thereunder, unless such change occurs pursuant to a program applicable to
substantially 

 

 

3

 

all executives of the
Company and does not result in a proportionately greater reduction in the
rights of or benefits to Executive as compared with any other executive of the
Company.  The Company shall recommend that Executive receive an
annual restricted stock or stock options in Vantage Energy Services, Inc.
in the range of One Million Dollars ($1,000,000.00) to One Million Two Hundred
Fifty Thousand Dollars ($1,250,000.00) based on market studies of industry
executives, but Executive recognizes and agrees that future years could vary
significantly as market conditions and industry compensation trends change.

 

2.10        Perquisites.  Executive shall
be entitled to receive the perquisites and fringe benefits appertaining to an
executive officer of the Company, in accordance with any practice established
by the Compensation Committee.  In
addition to the other benefits provided in this Agreement, Executive and his
family shall be entitled to receive medical insurance as that may be provided
under the Company’s group program, as such group program may be changed from
time-to-time in the future, and Executive shall be entitled to continue to be
covered by such group program or, if not permitted under the terms of the group
program, then the Company shall provide Executive with a medical insurance
policy providing substantially similar benefits as to the group program, for
the period ending on the date of the later to die of Executive or, if Executive
is married on the date of his death, Executive’s spouse.  Executive shall be entitled to receive the
medical benefits defined herein at no cost to the Executive.  However, Executive’s rights pursuant to this
subsection shall be void if Executive is terminated for Cause or if Executive
voluntarily terminates his employment.

 

2.11        Proration.  Any payments or
benefits payable to Executive hereunder in respect of any calendar year during
which Executive is employed by the Company for less than the entire year,
unless otherwise provided in the applicable plan or arrangement, shall be
prorated in accordance with the number of days in such calendar year during
which he is so employed.

 

2.12        Signing Bonus.  Executive
shall receive a signing bonus of Twenty Five Thousand Dollars ($25,000.00) upon
execution of this Agreement within
         days after the Effective
Date.

 

2.13        Additional Payments.

 

(a)           Excise Tax; Gross-Up Payment.  Anything
in this Agreement to the contrary notwithstanding, in the event it shall be
determined that any payment or distribution by the Company to or for benefit of
the Executive (whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise, but determined without regard to
any additional payments required under this Section (a “Payment”) would be subject to
the excise tax imposed by Section 4999 of the Internal Revenue Code of
1986, as amended (the “Code”),
or any interest or penalties are incurred by the Executive with respect to such
excise tax (such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the “Excise Tax”), then the Executive shall be entitled to
receive an additional payment (a “Gross-Up
Payment”) in an amount such that after payment by the Executive
of all taxes (including any interest or penalties imposed with respect to such
taxes), including, without limitation, any income taxes (and any interest and
penalties imposed with 

 

 

4

 

respect thereto) and
Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount
of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.

 

(b)           Accounting Firm Determinations.  All
determinations required to be made under this Section 2.12, including whether and when Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by a reputable
accounting firm selected by the Company (the “Accounting Firm”), which shall provide detailed
supporting calculations both to the Company and the Executive within fifteen
(15) business days after the receipt of notice from the Executive that there
has been a Payment, or such earlier time as is requested by the Company. In the
event that the Accounting Firm is serving as accountant or auditor for the
individual, entity or group effecting a Change of Control of the Company, the
Executive shall appoint another reputable accounting firm to make the
determinations required hereunder (which accounting firm shall then be referred
to as the Accounting Firm hereunder). All fees and expenses of the Accounting
Firm shall be borne solely by the Company. 
Any Gross-Up Payment, as determined pursuant to this Section, shall be
paid by the Company to the Executive within five (5) days after the
receipt of the Accounting Firm’s determination. 
If the Accounting Firm determines that no Excise Tax is payable by the
Executive, it shall furnish the Executive with a written opinion that failure
to report the Excise Tax on the Executive’s applicable federal income tax
return would not result in the imposition of a negligence or similar penalty.
Any determination by the Accounting Firm shall be binding upon the Company and
the Executive.  As a result of the
uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments that will not have been made by the Company should have been made
(an “Underpayment”),
consistent with the calculations required to be made hereunder.  In the event that the Company exhausts its
remedies pursuant to this Section and the Executive thereafter is required
to make a payment of any Excise Tax, the Accounting Firm shall determine the
amount of the Underpayment and any applicable penalty that has occurred and the
amount of any such Underpayment and any applicable penalty shall be promptly
paid by the Company to or for the benefit of the Executive.

 

(c)           Notification of Claims.  The
Executive shall notify the Company in writing of any claims by the Internal
Revenue Service that, if successful, would require the payment by the Company
of the Gross-Up Payment.  Such
notification shall be given as soon as practicable but no later than thirty
(30) days after the Executive actually receives notice in writing of such claim
and shall apprise the Company of the nature of such claim and the date on which
such claim is requested to be paid.  The
Executive shall not pay such claim prior to the expiration of the thirty (30)
day period following the date on which the Executive gives such notice to the
Company (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due).  If
the Company notifies the Executive in writing prior to the expiration of such
period that it desires to contest such claim, the Executive shall:

 

 

5

 

1.             give
the Company any information reasonably requested by the Company relating to
such claim;

 

2.             take
such action in connection with contesting such claim as the Company shall
reasonably request in writing from time to time, including, without limitation,
accepting legal representation with respect to such claim by an attorney
reasonably selected by the Company;

 

3.             cooperate
with the Company in good faith in order to effectively contest such claim; and

 

4.             permit
the Company to participate in any proceedings relating to such claim;

 

provided, however, that the Company shall bear and pay
directly all costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold the
Executive harmless, on an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto) imposed as a result of
such representation and payment of costs and expenses.  Without
limitation on the foregoing provisions of this Section, the Company shall
control all proceedings taken in connection with such contest and, at its sole
option, may pursue or forego any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority in respect of such claim and
may, at its sole option, either direct the Executive to pay the tax claimed and
sue for a refund or contest the claim in any permissible manner, and the
Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however, that if
the Company directs the Executive to pay such claim and sue for a refund, the
Company shall advance the amount of such payment to the Executive, on an
interest-free basis and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further
provided that any extension of the statute of limitations relating to payment
of taxes for the taxable year of the Executive with respect to which such
contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company’s control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.

 

(d)           Refund.  If, after the
receipt by the Executive of an amount advanced by the Company pursuant to this
Section, the Executive becomes entitled to receive any refund with respect to
such claim, the Executive shall (subject to the Company’s complying with the
requirements of this Section) promptly pay to the Company the amount of such
refund (together with any interest paid or credited thereon after taxes
applicable thereto).  If, after the
receipt by the Executive of an amount advanced by the Company pursuant to this
Section, a determination is made that the Executive shall not

 

 

6

 

be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of thirty (30) days after such determination, then such advance shall be forgiven
and shall not be required to be repaid and the amount of such advance shall
offset, to the extent thereof, the amount of Gross-Up Payment required to be
paid.

 

(e)           Insurance.  The Company may,
from time to time, apply for and take out, in its own name and at its own
expense, naming itself or one or more of its affiliates as the designated
beneficiary (which it may change from time to time), policies for life, health,
accident, disability or other insurance upon the Executive in any amount or
amounts that it may deem necessary or appropriate to protect its interest.  The Executive agrees to aid the Company in
procuring such insurance by submitting to medical examinations and by
completing, executing and delivering such applications and other instruments in
writing as may reasonably be required by an insurance company or companies to
which any application or applications for insurance may be made by or for the
Company.

 

3.                                      TERMINATION

 

3.1          Definitions.

 

A.            “Cause” shall mean:

 

(i)            Material dishonesty which is not the
result of an inadvertent or innocent mistake of Executive with respect to the
Company or any of its subsidiaries;

 

(ii)           Willful misfeasance or nonfeasance of
duty by Executive intended to injure or having the effect of injuring in some
material fashion the reputation, business, or business relationships of the
Company or any of its subsidiaries or any of their respective officers,
directors, or employees;

 

(iii)          Material violation by Executive of any
material term of this Agreement;

 

(iv)          Conviction of Executive of any felony,
any crime involving moral turpitude or any crime other than a vehicular offense
which could reflect in some material fashion unfavorably upon the Company or
any of its subsidiaries; or

 

(v)           Violation of Sections
1.3 or 1.4 above.

 

3.1.2       Notice to Cure.  Executive
may not be terminated for Cause unless and until there has been delivered to
Executive written notice from the Board supplying the particulars of Executive’s
acts or omissions that the Board believes constitute Cause, a

 

7

 

reasonable period of time
(not less than 30 days) has been given to Executive after such notice to either
cure the same or to meet with the Board, with his attorney if so desired by
Executive, and following which the Board by action of not less than two-thirds
of its members furnishes to Executive a written resolution specifying in detail
its findings that Executive has been terminated for Cause as of the date set
forth in the notice to Executive.

 

3.1.3       For
purposes of this Agreement, no act or failure to act by the Executive shall be
considered “willful” if such act is done by the Executive in the good faith
belief that such act is or was to be beneficial to the Company or one or more
of its businesses, or such failure to act is due to the Executive’s good faith
belief that such action would be materially harmful to the Company or one of
its businesses.  Cause shall not exist
unless and until the Company has delivered to the Executive a copy of a
resolution duly adopted by a majority of the Board (excluding the Executive for
purposes of determining such majority) at a meeting of the Board called and
held for such purpose after reasonable (but in no event less than thirty days’)
notice to the Executive and an opportunity for the Executive, together with his
counsel, to be heard before the Board, finding that in the good faith opinion
of the Board that “Cause” exists, and specifying the particulars thereof in
detail.  This Section shall not
prevent the Executive from challenging in an arbitration proceeding the Board’s
determination that Cause exists or that the Executive has failed to cure any
act (or failure to act) that purportedly formed the basis for the Board’s
determination.

 

B.            A “Chance of Control” shall be deemed
to have occurred if:

 

(i)            A reverse merger involving the
Company or the Parent in which the Company or the Parent, as the case may be,
is the surviving corporation but the shares of common stock of the Company or
the Parent (the “Common Stock”) outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise, and the
shareholders of the Parent immediately prior to the completion of such transaction
hold, directly or indirectly, less than fifty percent (50%) of the beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange
Act, or comparable successor rules) of the surviving entity or, if more than
one entity survives the transaction, the controlling entity; or

 

(ii)           Any “person” or “group” (within the
meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act
of 1934) other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company becomes the “beneficial owner” (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934), directly or
indirectly, of 50% or more of the Company’s then outstanding voting common
stock; or

 

8

 

(iii)          At any time during the period of three
(3) consecutive years (not including any period prior to the date hereof),
individuals who at the beginning of such period constituted the Board (and any
new director whose election by the Board or whose nomination for election by
the Company’s shareholders were approved by a vote of at least two-thirds of
the directors then still in office who either were directors at the beginning
of such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority thereof; or

 

(iv)          The shareholders of the Company
approve a merger or consolidation of the Company with any other corporation,
other than a merger or consolidation (a) in which a majority of the directors
of the surviving entity were directors of the Company prior to such
consolidation or merger, and (b) which would result in the voting
securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being changed into voting
securities of the surviving entity) more than 50% of the combined voting power
of the voting securities of the surviving entity outstanding immediately after
such merger or consolidation; or

 

(v)           The shareholders approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company’s assets.

 

C.            A “Disability” shall mean the absence
of Executive from Executive’s duties with the Company on a full-time basis for
180 consecutive days, or 180 days in a 365-day period, as a result of
incapacity due to mental or physical illness which results in the Executive
being unable to perform the essential functions of his position, with or without
reasonable accommodation.

 

D.            A “Good Reason” shall mean any of the
following (without Executive’s express written consent):

 

(i)            Following a Change of Control, a
material alteration in the nature or status of Executive’s title, duties or
responsibilities, or the assignment of duties or responsibilities inconsistent
with Executive’s status, title, duties and responsibilities;

 

(ii)           A failure by the Company to continue
in effect any employee benefit plan in which Executive was participating, or
the taking of any action by the Company that would adversely affect Executive’s
participation in, or materially reduce Executive’s benefits under, any such
employee benefit plan, unless such failure or such taking of any action
adversely affects the senior members of corporate management of the Company
generally to the same extent;

 

9

 

(iii)          Any material breach by the Company of
any provision of this Agreement;

 

(iv)          Any failure by the Company to obtain
the assumption and performance of this Agreement by any successor (by
merger, consolidation, or otherwise) or assign of the Company; or

 

(v)           The Company provides written notice
of non-renewal to the Executive.

 

However, Good Reason shall exist with respect to an
above specified matter only if such matter is not corrected by the Company
within thirty (30) days of its receipt of written notice of such matter from
Executive, and in no event shall a termination by Executive occurring more than
ninety (90) days following the date of the event described above be a
termination for Good reason due to such event.

 

3.2          Termination Date.  “Termination Date” shall mean
the date Executive is terminated for any reason pursuant to this Agreement.

 

3.3          Constructive Termination Without Cause.  “Constructive Termination Without Cause”
shall mean: Notwithstanding any other provision of this Agreement, the
Executive’s employment under this Agreement may be terminated during the Term
by the Executive, which shall be deemed to be constructive termination by the
Company without Cause, if one of the following events shall occur without the
written consent of the Executive: (i) a reduction in the Executive’s fixed
salary; (ii) the failure of the Company to continue to provide the
Executive with office space, related facilities and secretarial assistance that
are commensurate with the Executive’s responsibilities to and position with the
Company; (iii) the notification by the Company of the Company’s intention
not to observe or perform one or more of the obligations of the Company under
this Agreement; or (iv) the failure by the Company to indemnify, pay or
reimburse the Executive at the time and under the circumstances required by
this Agreement.  Any such termination
pursuant to this Section shall be made by the Executive providing written
notice to the Company specifying the event relied upon for such termination and
given within sixty (60) days after such event. 
Any constructive termination pursuant to this Section shall be
effective sixty (60) days after the date the Executive has given the Company
such written notice setting forth the grounds for such termination with
specificity; provided, however, that the Executive shall not be entitled to
terminate this Agreement in respect of any of the grounds set forth above if
within sixty (60) days after such notice the action constituting such ground
for termination has been cured and is no longer continuing.

 

3.4          Termination Without Cause or Termination For Good
Reason or Constructive Termination Without Cause: Benefits.

 

3.5          Base Salary.  For a period of
twelve (12) months after the Termination Date Base Salary (as defined herein),
at the rate, and payable quarterly unless such termination is by the Company
without Cause, in which even such amount of Base Salary shall be paid in a lump
sum within ten (10) days of the Termination Event.

 

10

 

3.6          Stock Awards.  If there is a
Change of Control or if there is a Termination Event, any stock options (“Stock Awards”) which
Executive has received under this Agreement shall vest immediately and, if
there is a Termination Event, all such Stock Awards shall be exercisable from
the date of such Termination Event for the remainder of their term.

 

3.7          Other Benefits.  To the extent
not theretofore paid or provided, the Company shall timely pay or provide to
Executive any other amounts or benefits required to be paid or provided or
which Executive is eligible to receive under any plan, program, policy or
practice, or contract or agreement of the Company and its affiliated companies
for the period of time equal to the remainder of the Basic Term (such other
amounts and benefits shall be hereinafter referred to as the “Other Benefits”).  Without
limiting the preceding sentence and without limiting any other provision of
this Agreement, through the remaining Basic Term, but under no condition less
than one (1) year, the Company, at its sole expense, shall continue to
provide (through its own plan and/or individual policies) Executive (and
Executive’s dependents) with health benefits no less favorable than the group
health plan benefits provided during such period to any senior executive
officer of the Company or any affiliated company (to the extent any such
coverage or benefits are taxable to Executive by reason of being provided under
a self-insured health plan of the Company or an affiliate, the Company shall
make Executive “whole” for the same on an after-tax basis).  In any event, the Other Benefits provided for
pursuant to this Section shall be secondary to any benefits and coverage
Executive (or his dependents) receive from another employer.

 

3.8          Expenses.  All accrued
compensation and unreimbursed expenses through the Termination Date.  Such amounts shall be paid to Executive in a
lump sum in cash within thirty (30) days after the Termination Date; and

 

3.9          Mitigation.  Executive shall
be free to accept other employment during such period, subject to the
limitation as set forth in Section 5
of this Agreement and there shall be no offset of any employment compensation
earned by Executive in such other employment during such period against
payments due Executive under this Section 3,
and there shall be no offset in any compensation received from such other
employment against the Base Salary set forth above.

 

3.10        Maximum Payments.  It is the
objective of this Agreement to maximize the Executive’s Net After-Tax Benefit
(as defined herein) if payments or benefits provided under this Section are
subject to excise tax under Section 4999 of the Code.  Therefore, in the event it is determined that
any payment or benefit by the Company to or for the benefit of the Executive,
whether paid or payable or distributed or distributable pursuant to the terms of
this Section or otherwise, including, by example and not by way of
limitation, acceleration by the Company or otherwise of the date of vesting or
payment or rate of payment under any plan, program or arrangement of the
Company, would be subject to the excise tax imposed by Section 4999 of the
Code or any interest or penalties with respect to such excise tax (such excise
tax, together with any such interest and penalties, are hereinafter
collectively referred to as the “Excise
Tax”), the Company shall first make a calculation under which
such payments or benefits provided to the Executive under this Agreement are
reduced to the extent necessary so that no portion thereof shall be subject to
the excise tax imposed by Section 4999 of the Code (the “4999 Limit”).  The Company shall then compare (x) the
Executive’s Net After-Tax Benefit assuming application of 

 

11

 

the 4999 Limit with (y) the
Executive’s Net After-Tax Benefit without the application of the 4999 Limit and
the Executive shall be entitled to the greater of (x) or (y).

 

3.11        Net After-Tax Benefit.  “Net After-Tax Benefit” shall
mean the sum of (i) all payments and benefits which the Executive receives
or is then entitled to receive from the Company, less (ii) the amount of
federal income taxes payable with respect to the payments and benefits
described in (i) above calculated at the maximum marginal income tax rate
for each year in which such payments and benefits shall be paid to the
Executive (based upon the rate for such year as set forth in the Code at the
time of the first payment of the foregoing), less (iii) the amount of
excise taxes imposed with respect to the payments and benefits described in (i) above
by Section 4999 of the Code.  The
determination of whether a payment or benefit constitutes an excess parachute
payment shall be made by tax counsel selected by the Company and reasonably
acceptable to the Executive. The costs of obtaining this determination shall be
borne by the Company.

 

3.12        Termination In Event of Death: Benefits.  If
Executive’s employment is terminated by reason of Executive’s death during the
Basic Term, this Agreement shall terminate, except as provided herein, without
further obligation to Executive’s legal representatives under this Agreement,
other than for payment of all accrued compensation, unreimbursed expenses, the
timely payment or provision of Other Benefits through the date of death, one (1) year’s
Base Salary, and such cash or stock bonus as Executive would otherwise have
been awarded in year if Executive’s death had not occurred.  Such amounts shall be paid to Executive’s
estate or beneficiary, as applicable, in a lump sum in cash within ninety (90)
days after the date of death.  With
respect to the provision of Other Benefits, the term Other Benefits as used in
this Section shall include, without limitation, and Executive’s estate
and/or beneficiaries shall be entitled to receive, benefits at least equal to
the most favorable benefits provided by the Company to the estates and
beneficiaries of other executive level employees of the Company under such
plans, programs, practices, and policies relating to death benefits, if any, as
in effect with respect to other executives and their beneficiaries at any time
during the 120-day period immediately preceding the date of death.  Additionally, all Stock Awards shall be
vested immediately and shall be exercisable for the greater of one year after
the date of such vesting or the remaining term of such option.

 

3.13        Termination In Event of Disability: Benefits.  If
Executive’s employment is terminated by reason of Executive’s Disability during
the Basic Term, this Agreement shall continue in full force for a period of one
(1) year following such Disability and if such Disability occurs on or
after January 1 of any year Executive shall be entitled to the same cash
or stock bonus in such year that Executive would have been awarded if such
Disability had not occurred. In addition, all outstanding Stock Awards shall
vest immediately upon such termination due to Disability.

 

3.14        Voluntary Termination by Employee and Termination for
Cause: Benefits. Executive may terminate his employment with the
Company without Good Reason by giving written notice of his intent and stating
an effective Termination Date at least ninety (90) days after the date of such
notice; provided, however, that the Company may accelerate such effective date
by paying Executive through the proposed Termination Date and also vesting
awards that 

 

12

 

would have vested but for
this acceleration of the proposed Termination Date and also vesting awards that
would have vested but for this acceleration of the proposed Termination
Date.  Upon such a termination by Executive,
except as provided in Section 5,
or upon termination for Cause by the Company, this Agreement shall terminate
and the Company shall pay to Executive all accrued compensation, unreimbursed
expenses and the Other Benefits through the Termination Date.  Such amounts shall be paid to Executive in a
lump sum in cash within thirty (30) days after the date of
termination.  In addition, all unvested stock options shall terminate
and all vested options will terminate one hundred twenty (120) days after the
Termination Date.

 

3.15        Termination Procedure.

 

A.            Notice of Termination.  Any
termination of the Executive’s employment by the Company or by the Executive
during the Employment Period (other than pursuant to Section 3.5) shall be communicated by written
Notice of Termination to the other party. For purposes of this Agreement, a “Notice of Termination” shall
mean a notice indicating the specific termination provision in this Agreement
relied upon and setting forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive’s employment under
that provision.

 

B.            Date of Termination.  “Date of Termination” shall
mean (i) if the Executive’s employment is terminated by his death, the
date of his death, (ii) if the Executive’s employment is terminated
pursuant to Section 3.6,
thirty (30) days after the date of receipt of the Notice of Termination
(provided that the Executive does not return to the substantial performance of
his duties on a full-time basis during such thirty (30) day period), and (iii) if
the Executive’s employment is terminated for any other reason, the date on
which a Notice of Termination is given or any later date (within thirty (30)
days after the giving of such notice) set forth in such Notice of Termination.

 

C.            Mitigation.  The Executive shall
not be required to mitigate damages with respect to the termination of his
employment under this Agreement by seeking other employment or otherwise, and
there shall be no offset against amounts due the Executive under this Agreement
on account of subsequent employment except as specifically provided in this
Agreement. Additionally, amounts owed to the Executive under this Agreement
shall not be offset by any claims the Company may have against the Executive,
and the Company’s obligation to make the payments provided for in this
Agreement, and otherwise to perform its obligations hereunder, shall not be
affected by any other circumstances, including, without limitation, any
counterclaim, recoupment, defense or other right which the Company may have against
the Executive or others.

 

4.                                      DIRECTOR POSITIONS

 

Executive agrees that
upon termination of employment, for any reason, at the request of the Chairman
of the Board, he will immediately tender his resignation from any and all Board
positions held with the Company and/or any of its subsidiaries and affiliates.
If Executive remains as a director, at the election of the Board, after such
termination, Executive shall be compensated as an outside director.

 

13

 

5.                                      NON-COMPETITION, NON-SOLICITATION, AND CONFIDENTIALITY

 

The Company shall provide
Executive with its trade secrets, goodwill, and confidential information of
Company and contact with the Company’s customers and potential customers.  Executive also recognizes and agrees that the
benefit of not being employed at-will, is provided in consideration for, among
other things, the agreements contained in this Section, as well as the Stock
Awards granted to Executive pursuant to this Agreement.  Executive agrees that the business of the
Company is highly competitive and that the trade secrets, goodwill, and
confidential information of the Company is of primary importance to the success
of the Company.  In consideration of all
of the foregoing, and in recognition of these conditions, and specifically for
being provided trade secrets, goodwill, and confidential information, Executive
agrees as follows:

 

5.1          Non-Competition During Employment.  Executive
agrees during the Basic Term he will not compete with the Company by engaging
in the conception, design, development, production, marketing, or servicing of
any product or service that is substantially similar to the products or
services which the Company provides, and that he will not work for, in any
capacity, assist, or became affiliated with as an owner, partner, etc., either
directly or indirectly, any individual or business which offer or performs
services, or offers or provides products substantially similar to the services
and products provided by Company.

 

5.2          Conflicts of Interest.  Executive
agrees that during the Basic Term, he will not engage, either directly or
indirectly, in any activity (a “Conflict
of Interest”) which might adversely affect the Company or its
affiliates, including ownership of a material interest in any supplier,
contractor, distributor, subcontractor, customer or other entity with which the
Company does business or accepting any material payment, service, loan, gift,
trip, entertainment, or other favor from a supplier, contractor, distributor,
subcontractor, customer or other entity with which the Company does business,
and that Executive will promptly inform the Chairman of the Company as to each
offer received by Executive to engage in any such activity. Executive further
agrees to disclose to the Company any other facts of which Executive becomes
aware which might in Executive’s good faith judgment reasonably be expected to
involve or give rise to a Conflict of Interest or potential Conflict of
Interest.

 

5.3          Non-Competition After Termination.  In
further consideration of the Company providing Employee confidential
information, executive agrees that Executive shall not, at any time during the
period of one (1) year after termination within the geographic area as
defined by this Section 5
that the Company has sold products or services or formulated a plan to sell
products or services into a market during the last twelve (12) months of
Executive’s employ, engage in or contribute Executive’s knowledge to any work
which is competitive with or similar to a product, process, apparatus,
services, or development on which Executive worked or with respect to which
Executive had access to Confidential Information while employed by the
Company.  It is understood that the
geographical area set forth in this covenant is divisible so that if this
clause is invalid or unenforceable in an included geographic area, that area is
severable and the clause remains in effect for the remaining included
geographic areas in which the clause is valid. For purposes of this Section 5.4, the
geographic area shall apply to the territory or country where the Company
conducts operations.

 

14

 

5.4          Non-Solicitation of Customers.  In
further consideration of the Company providing Employees confidential
information, Executive further agrees that for a period of one (1) year
after termination, he will not solicit or accept any business from any customer
or client or prospective customer or client with whom Executive dealt or
solicited while employed by Company during the last twelve (12) a months of his
employment.

 

5.5          Non-Solicitation of Employees.  Executive
agrees that for the duration of the Basic Term, and for a period of one (1) year
after the termination of the Basic Term, he will not either directly or
indirectly, on his own behalf or on behalf of others, solicit, attempt to hire,
or hire any person employed by Company to work for Executive or for another
entity, firm, corporation, or individual.

 

5.6          Confidential Information.  Executive
further agrees that he will not, except as the Company may otherwise consent or
direct in writing, reveal or disclose, sell, use, lecture upon, publish or
otherwise disclose to any third party any Confidential Information or proprietary
information of the Company, or authorize anyone else to do these things at any
time either during or subsequent to his employment with the Company.  This Section shall continue in full
force and effect after termination of Executive’s employment and after the termination
of this Agreement.  Executive shall continue to be obligated under
the Confidential Information Section of this Agreement not to use or to
disclose Confidential Information of the Company so long as it shall not be
publicly available.  Executive’s
obligations under this Section with respect to any specific Confidential
Information and proprietary information shall cease when that specific portion
of the Confidential Information and proprietary information becomes publicly
known, in its entirety and without combining portions of such information
obtained separately.  It is understood
that such Confidential Information and proprietary information of the Company
include matters that Executive conceives or develops, as well as matters
Executive learns from other employees of Company. Confidential Information is
defined to include information: (1) disclosed to or known by the Executive
as a consequence of or through his employment with the Company; (2) not
generally known outside the Company; and (3) which relates to any aspect
of the Company or its business, finances, operation plans, budgets, research,
or strategic development. “Confidential Information” includes, but is not
limited to the Company’s trade secrets, proprietary information, financial
documents, long range plans, customer lists, employer compensation, marketing
strategy, data bases, costing data, computer software developed by the Company,
investments made by the Company, and any information provided to the Company by
a third party under restrictions against disclosure or use by the Company or
others.

 

5.7          Original Material.  The
Executive agrees that any inventions, discoveries, improvements, ideas,
concepts or original works of authorship relating directly to the Company
Business, including without limitation information of a technical or business
nature such as ideas, discoveries, designs, inventions, improvements, trade
secrets, know-how, manufacturing processes, product formulae, design
specifications, writings and other works of authorship, computer programs,
financial figures, marketing plans, customer lists and data, business plans or
methods and the like, which relate in any manner to the actual or anticipated
business or the actual or anticipated areas of research and development of the
Company and its divisions and affiliates, whether or not protectable by patent
or copyright, that have been originated, developed or reduced to practice by
the Executive alone or jointly with others during the Executive’s

 

15

 

 

employment with the
Company shall be the property of and belong exclusively to the Company. The
Executive shall promptly and fully disclose to the Company the origination or
development by the Executive of any such material and shall provide the Company
with any information that it may reasonably request about such material.  Either during the subsequent to the Executive’s
employment, upon the request and at the expense of the Company or its nominee,
and for no remuneration in addition to that due the Executive pursuant to the
Executive’s employment by the Company, but at no expense to the Executive, the
Executive agrees to execute, acknowledge, and deliver to the Company or its
attorneys any and all instruments which, in the judgment of the Company or its attorneys,
may be necessary or desirable to secure or maintain for the benefit of the
Company adequate patent, copyright, and other property rights in the United
States and foreign countries with respect to any such inventions, improvements,
ideas, concepts, or original works of authorship embraced within this
Agreement.

 

5.8          Return of Documents, Equipment, Etc.  All
writings, records, and other documents and things comprising, containing,
describing, discussing, explaining, or evidencing any Confidential Information,
and all equipment, components, parts, tools, and the like in Executive’s
custody or possession that have been obtained or prepared in the course of
Executive’s employment with the Company shall be the exclusive property of the
Company, shall not be copied and/or removed from the premises of the Company,
except in pursuit of the business of the Company, and shall be delivered to the
Company, without Executive retaining any copies, upon notification of the
termination of Executive’s employment or at any other time requested by the
Company. The Company shall have the right to retain, access, and inspect all
property of Executive of any kind in the office, work area, and on the premises
of the Company upon termination of Executive’s employment and at any time
during employment by the Company upon termination of Executive’s employment and
at any time during employment by the Company to ensure compliance with the
terms of this Agreement.

 

5.9          Reaffirm Obligations.  Upon
termination of his employment with the Company, Executive, if requested by
Company, shall reaffirm in writing Executive’s recognition of the importance of
maintaining the confidentiality of the Company’s Confidential Information and
proprietary information, and reaffirm any other obligations set forth in this
Agreement.

 

5.10        Prior Disclosure.  Executive
represents and warrants that he has not used or disclosed any Confidential
Information he may have obtained from Company prior to signing this Agreement,
in any way inconsistent with the provisions of this Agreement.

 

5.11        Confidential Information of Prior Companies.  Executive
will not disclose or use during the period of his employment with the Company
any proprietary or Confidential Information or Copyright Works which Executive
may have acquired because of employment with an employer other than the Company
or acquired from any other third party, whether such information is in
Executive’s memory or embodied in a writing or other physical form

 

5.12        Rights Upon Breach.  If the
Executive breaches, any of the provisions contained in Section 5 of this Agreement (the “Restrictive Covenants”), the
Company shall have the following rights and remedies, each of which rights and
remedies shall be independent of the 

 

16

 

others and severally
enforceable, and each of which is in addition to, and not in lieu of, any other
rights and remedies available to the Company under law or in equity:

 

(a)           Specific Performance.  The
right and remedy to have the Restrictive Covenants specifically enforced by any
court of competent jurisdiction, it being agreed that any breach of the
Restrictive Covenants would cause irreparable injury to the Company and that
money damages would not provide an adequate remedy to the Company.

 

(b)           Accounting.  The right and
remedy to require the Executive to account for and pay over to the Company all
compensation, profits, monies, accruals, increments or other benefits derived
or received by the Executive as the result of any action constituting a breach
of the Restrictive Covenants.

 

5.13        Remedies For Violation of Non-Competition or
Confidentiality Provisions. Without limiting the right of the
Company to pursue all other legal and equitable rights available to it for
violation of any of the obligations and covenants made by Employee herein, it
is agreed that:

 

(a)           the
skills, experience and contacts of Employee are of a special, unique, unusual
and extraordinary character which give them a peculiar value;

 

(b)           because
of the business of the Company, the restrictions agreed to by Employee as to
time and area contained in the Agreement are reasonable; and

 

(c)           the
injury suffered by the Company by a violation of any obligation or covenant in
the Agreement resulting from loss of profits created by (i) the
competitive use of such skills, experience contacts and otherwise and/or (ii) the
use or communication of any information deemed confidential herein will be
difficult to calculate in damages in an action at law and cannot fully
compensate the Company for any violation of any obligation or covenant in the
Agreement, accordingly:

 

(i)            the Company shall be entitled to
injunctive relief to prevent violations thereof and prevent Employee from
rendering any services to any person, firm or entity in breach of such
obligation or covenant and to prevent Employee from divulging any confidential
information; and

 

(ii)           compliance with the Agreement is a
condition precedent to the Company’s obligation to make payments of any nature
to employee, subject to the other provisions hereof.

 

(d)           employee
waives any objection to the enforceability of the restrictive covenants and
agrees to be estopped from denying the legality and enforceability of these
provisions.

 

17

 

5.14        Severability of Covenants.  The
Executive acknowledges and agrees that the Restrictive Covenants are reasonable
and valid in duration and geographical scope and in all other respects.  If any court determines that any of the
Restrictive Covenants, or any part thereof, is invalid or unenforceable, the
remainder of the Restrictive Covenants shall not thereby be affected and shall
be given full effect without regard to the invalid portions.

 

5.15        Court Review.  If any court
determines that any of the Restrictive Covenants, or any part thereof is
unenforceable because of the duration or geographical scope of or scope of
activities restrained by, such provision, such court shall have the power to
reduce the duration or scope of such provision, as the case may be, and, in its
reduced form, such provision shall then be enforceable.

 

5.16        Enforceability in Jurisdictions.  The
Company and the Executive intend to and hereby confer jurisdiction to enforce
the Restrictive Covenants upon the courts of any jurisdiction within the
geographical scope of such Restrictive Covenants.  If the courts of any one or more of such
jurisdictions hold the Restrictive Covenants unenforceable by reason of the
breadth of such scope or otherwise, it is the intention of the Company that
such determination not bar or in any way affect the right of the Company to the
relief provided above in the courts of any other jurisdiction within the
geographical scope of such Restrictive Covenants, as to breaches of such
Restrictive Covenants in such other respective jurisdictions, such Restrictive
Covenants as they relate to each jurisdiction being, for this purpose,
severable into diverse and independent covenants.

 

5.17        Extension of Post-Employment Restrictions.  In
the event Executive breaches Section 5
above, the restrictive time periods contained in those provisions will be
extended by the period of time Executive was in violation of such provisions.

 

6.                                      INDEMNIFICATION

 

6.1          General.  The Company agrees
that if the Executive is made a party or is threatened to be made a party to
any action, suit or proceeding, whether civil, criminal, administrative or
investigative (a “Proceeding”),
by reason of the fact that the Executive is or was a trustee, director or
officer of the Company, the Company, or any predecessor to the Company
(including any sole proprietorship owned by the Executive) or any of their
affiliates or is or was serving at the request of the Company, the Company, any
predecessor to the Company (including any sole proprietorship owned by the
Executive), or any of their affiliates as a trustee, director, officer, member,
employee or agent of another corporation or a partnership, joint venture,
limited liability company, trust or other enterprise, including, without
limitation, service with respect to employee benefit plans, whether or not the
basis of such Proceeding is alleged action in an official capacity as a
trustee, director, officer, member, employee or agent while serving as a
trustee, director, officer, member, employee or agent, the Executive shall be
indemnified and held harmless by the Company to the fullest extent authorized
by Texas or Delaware law, as the same exists or may hereafter be amended,
against all Expenses incurred or suffered by the Executive in connection therewith,
and such indemnification shall continue as to the Executive even if the
Executive has ceased to be an officer, director, trustee or agent, or is no 

 

18

 

longer employed by the
Company and shall inure to the benefit of his heirs, executors and
administrators.

 

6.2          Expenses.  As used in this
Section, the term “Expenses”
shall include, without limitation, damages, losses, judgments, liabilities,
fines, penalties, excise taxes, settlements, and costs, attorneys’ fees,
accountants’ fees, and disbursements and costs of attachment or similar bonds,
investigations, and any expenses of establishing a right to indemnification
under this Agreement.

 

6.3          Enforcement.  If a claim or
request under this Section 6
is not paid by the Company or on its behalf, within thirty (30) days after a
written claim or request has been received by the Company, the Executive may at
any time thereafter bring an arbitration claim against the Company to recover
the unpaid amount of the claim or request and if successful in whole or in
part, the Executive shall be entitled to be paid also the expenses of
prosecuting such suit.  All obligations for indemnification hereunder
shall be subject to, and paid in accordance with, applicable Texas or Delaware
law.

 

6.4          Partial Indemnification.  If
the Executive is entitled under any provision of this Agreement to
indemnification by the Company for some or a portion of any Expenses, but not,
however, for the total amount thereof, the Company shall nevertheless indemnify
the Executive for the portion of such Expenses to which the Executive is
entitled.

 

6.5          Advances of Expenses.  Expenses
incurred by the Executive in connection with any Proceeding shall be paid by
the Company in advance upon request of the Executive that the Company pay such
Expenses, but only in the event that the Executive shall have delivered in
writing to the Company (i) an undertaking to reimburse the Company for
Expenses with respect to which the Executive is not entitled to indemnification
and (ii) a statement of his good faith belief that the standard of conduct
necessary for indemnification by the Company has been met.

 

6.6          Notice of Claim.  The
Executive shall give to the Company notice of any claim made against him for
which indemnification will or could be sought under this Agreement.  In addition, the Executive shall give the
Company such information and cooperation as it may reasonably require and as
shall be within the Executive’s power and at such times and places as are
convenient for the Executive.

 

6.7          Defense of Claim.  With
respect to any Proceeding as to which the Executive notifies the Company of the
commencement thereof:

 

(a)           The
Company will be entitled to participate therein at its own expense.

 

(b)           Except
as otherwise provided below, to the extent that it may wish, the Company will
be entitled to assume the defense thereof, with counsel reasonably satisfactory
to the Executive, which in the Company’s sole discretion may be regular counsel
to the Company and may be counsel to other officers and directors of the
Company or any subsidiary.  The Executive
also shall have the right to employ his own counsel in such action, suit or
proceeding if he reasonably concludes that failure to do so 

 

19

 

would involve a conflict
of interest between the Company and the Executive, and under such circumstances
the fees and expenses of such counsel shall be at the expense of the Company.

 

(c)           The
Company shall not be liable to indemnify the Executive under this Agreement for
any amounts paid in settlement of any action or claim effected without its
written consent.  The Company shall not
settle any action or claim in any manner which would impose any penalty that
would not be paid directly or indirectly by the Company or limitation on the
Executive without the Executive’s written consent. Neither the Company nor the
Executive will unreasonably withhold or delay their consent to any proposed
settlement.

 

6.8          Non-exclusivity.  The right to
indemnification and the payment of expenses incurred in defending a Proceeding
in advance of its final disposition conferred in this Section 6 shall not be exclusive of any other right
which the Executive may have or hereafter may acquire under any statute or
certificate of incorporation or by-laws of the Company or any subsidiary,
agreement, vote of shareholders or disinterested directors or trustees or
otherwise.

 

7.                                      LEGAL FEES AND EXPENSES

 

If any contest or dispute
shall arise between the Company and the Executive regarding any provision of
this Agreement, the Company shall reimburse the Executive for all legal fees
and expenses reasonably incurred by the Executive in connection with such
contest or dispute, but only if the Executive prevails to a substantial extent
with respect to the Executive’s claims brought and pursued in connection with
such contest or dispute.  Such
reimbursement shall be made as soon as practicable following the resolution of
such contest or dispute (whether or not appealed) to the extent the Company
receives reasonable written evidence of such fees and expenses. The Company
shall advance the Executive reasonable attorney’s fees during any arbitration
proceedings if brought by the Executive, up to but not to exceed Three Hundred Thousand
Dollars ($300,000.00).

 

8.                                      BREACH

 

Executive agrees that any
breach of restrictive covenants above cannot be remedied solely by money
damages, and that in addition to any other remedies Company may have, Company
is entitled to obtain injunctive relief against Executive.  Nothing herein, however, shall be construed
as limiting Company’s right to pursue any other available remedy at law or in
equity, including recovery of damages and termination of this Agreement and/or
any payments that may be due pursuant to this Agreement.

 

9.                                      RIGHT TO ENTER AGREEMENT

 

Executive represents and
covenants to Company that he has full power and authority to enter into this
Agreement and that the execution of this Agreement will not breach or
constitute a default of any other agreement or contract to which he is a party
or by which he is bound.

 

20

 

10.                               COMPLIANCE WITH SECTION 409A

 

10.1        It is the
intention of the Company and the Executive that this Agreement not result in unfavorable
tax consequences to the Executive under Section 409A of the Internal
Revenue Code of 1986, as amended (the “Code”).  The
Company and the Executive acknowledge that Section 409A of the Code was
enacted pursuant to the American Jobs Creation Act of 2004, generally effective
with respect to amounts deferred after January 1, 2005, and only limited
guidance has been issued by the Internal Revenue Service with respect to the
application of Code Section 409A to certain arrangements, such as this
Agreement.  The Internal Revenue Service
has indicated that it will provide further guidance regarding interpretation
and application of Section 409A of the Code during 2005. The Company and
the Executive acknowledge further that the full effect of Section 409A of
the Code on potential payments pursuant to this Agreement cannot be fully
determined at the time that the Company and the Executive are entering into
this Agreement. The Company and the Executive agree to work together in good
faith in an effort to comply with Section 409A of the Code including, if
necessary, amending the Agreement based on further guidance issued by the
Internal Revenue Service from time to time, provided that the Company shall not
be required to assume any increased economic burden.

 

10.2        Certain Definitions.  As used
in this Agreement, the following terms have the following meanings unless the
context otherwise requires:

 

(a)           “affiliate” means any person
controlled by or under common control with the Company but shall not include
any stockholder or director of the Company, as such.

 

(b)           “person” means any individual,
corporation, partnership, limited liability company, firm, joint company,
association, joint-stock company, trust, unincorporated organization,
governmental or regulatory body or other entity.

 

10.3        Delay in Payments.  Notwithstanding
anything to the contrary in this Agreement, (i) if upon the date of
Executive’s termination of employment with the Company, Executive is a “specified
employee” within the meaning of Section 409A of the Internal Revenue Code
of 1986, as amended, or any regulations or Treasury guidance promulgated
thereunder (the “Code”)
and the deferral of any amounts otherwise payable under this Agreement as a
result of Executive’s termination of employment is necessary in order to
prevent any accelerated or additional tax to Executive under Code Section 409A,
then the Company will defer the payment of any such amounts hereunder until the
date that is six months following the date of Executive’s termination of employment
with the Company, at which time any such delayed amounts will be paid to
Executive in a single lump sum, with interest from the date otherwise payable
at the prime rate as published in The Wall Street Journal on the date of
Executive’s termination of employment with the Company, and (ii) if any
other payments of money or other benefits due to Executive hereunder could
cause the application of an accelerated or additional tax under Code Section 409A,
such payments or other benefits shall be deferred if deferral will make such
payment or other benefits compliant under Code Section 409A.

 

21

 

10.4        Reformation.  If any
provision of this Agreement would cause Executive to occur any additional tax
under Code Section 409A, the parties will in good faith attempt to reform
the provision in a manner that maintains, to the extent possible, the original
intent of the applicable provision without violating the provision of Code Section 409A.

 

11.                               ENFORCEABILITY

 

The agreements contained
in the restrictive covenant provisions of this Agreement are independent of the
other agreements contained herein. 
Accordingly, failure of the Company to comply with any of its
obligations outside of such Sections do not excuse Executive from complying
with the agreements contained herein.

 

12.                               SURVIVABILITY

 

The agreements contained
in Sections 5 shall survive the
termination of this Agreement for any reason.

 

13.                               ASSIGNMENT

 

This Agreement cannot be
assigned by Executive. The Company may assign this Agreement only to a
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially Al of the business and assets of the Company
provided such successor expressly agrees in writing reasonably satisfactory to
Executive to assume and perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession and assignment had taken place. 
Failure of the Company to obtain such written agreement prior to the
effectiveness of any such succession shall be a material breach of this
Agreement.

 

14.                               BINDING AGREEMENT

 

Executive understands
that his obligations under this Agreement are binding upon Executive’s heirs,
successors, personal representatives, and legal representatives.

 

15.                               NOTICES

 

All notices pursuant to
this Agreement shall be in writing and sent certified mail, return receipt
requested, addressed as set forth below, or by delivering the same in person to
such party, or by transmission by facsimile to the number set forth below.  Notice deposited in the manner described
hereinabove, shall be effective upon deposit.  Notice given in any
other manner shall be effective only if and when received:

 

If to Executive:

 

	
   

  	
  Douglas Halkett

  	
   

  
	
   

  	
  Singapore

  	
   

  

 

22

 

If to Company:

 

	
   

  	
  with a copy
  (which shall not constitute notice) to:

  
	
   

  	
   

  
	
   

  	
  Vantage
  International Payroll Company

  
	
   

  	
  c/o Vantage
  Energy Services, Inc.

  
	
   

  	
  777 Post Oak
  Blvd., Suite 610

  
	
   

  	
  Houston, Texas
  77056

  

 

16.                               WAIVER

 

No waiver by either party
to this Agreement of any right to enforce any term or condition of this
Agreement, or of any breach hereof shall be deemed a waiver of such right in
the future or of any other right or remedy available under this Agreement.  The Executive’s or the Company’s failure to
insist upon strict compliance with any provision hereof or any other provision
of this Agreement or the failure to assert any right the Executive or the
Company may have hereunder, including, without limitation, the right of the
Executive to terminate employment for Good Reason pursuant to Section 3.2 hereof, shall not
be deemed to be a waiver of such provision or right or any other provision or
right of this Agreement.

 

17.                               SEVERABILITY

 

If any provision of this
Agreement is determined to be void invalid, unenforceable, or against public
policy, such provisions shall be deemed severable from the Agreement, and the
remaining provisions of the Agreement will remain unaffected and in full force
and effect.  The invalidity or
unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement.

 

18.                               ARBITRATION

 

In the event any dispute
arises out of Executive’s employment with or by the Company, or
separation/termination therefrom, whether as an employee, which cannot be
resolved by the Parties to this Agreement, such dispute shall be submitted to
final and binding arbitration.  The arbitration
shall be conducted in accordance with the National Rules for the
Resolution of Employment Disputes of the American Arbitration Association (“AAA”).  If the Parties cannot agree on an arbitrator,
a list of seven (7) arbitrators will be requested from AAA, and the
arbitrator will be selected using alternate strikes with Executive striking
firm. The cost of the arbitration will be borne solely by the Company.  Arbitration of such disputes is mandatory and
in lieu of any and all civil causes of action and lawsuits either party may
have against the other arising out of Executive’s employment with Company, or
separation therefrom.  Such arbitration
shall be held in Houston, Texas.  This
provision shall not, however, preclude the Company from obtaining injunctive
relief in any court of competent jurisdiction to enforce Section 5
of this Agreement.

 

23

 

19.                               ENTIRE AGREEMENT

 

The terms and provisions contained herein shall
constitute the entire agreement between the parties with respect to Executive’s
employment with Company during the time period covered by this Agreement. This
Agreement replaces and supersedes any and all existing Agreements entered into
between Executive and the Company relating generally to the same subject
matter, if any, except the offer of employment to Executive, dated October 31,
2007, and shall be binding upon Executive’s heirs, executors, administrators,
or other legal representatives or assigns.

 

20.                               SECTION HEADINGS

 

The section headings in
this Employment Agreement are for convenience of reference only, and they form
no part of this Agreement and shall not affect its interpretation.

 

21.                               MODIFICATION OF AGREEMENT

 

This Agreement may not be
changed or modified or released or discharged or abandoned or otherwise
terminated, in whole or in part, except by an instrument in writing signed by
the Executive and an officer or other authorized executive of Company.

 

22.                               UNDERSTANDING OF AGREEMENT

 

Executive represents and
warrants that he has read and understood each and every provision of this
Agreement, and Executive understands that he has the right to obtain advice
from legal counsel of choice, if necessary and desired, in order to interpret
any and all provisions of this Agreement, and that Executive has freely and
voluntarily entered into this Agreement.

 

23.                               GOVERNING LAW

 

This Agreement shall be
governed by and construed in accordance with the laws of the State of Texas.

 

24.                               WITHHOLDING

 

All payments hereunder
shall be subject to any required withholding of Federal, state and local taxes
pursuant to any applicable law or regulation, except as provided in any tax
equalization program or policy adopted by the Company for expatriate employees.

 

25.                               JURISDICTION AND VENUE

 

With respect to any
litigation regarding this Agreement, Executive agrees to venue in the state or
federal courts in Harris County, Texas and agrees to waive and does hereby
waive any defenses and/or arguments based upon improper venue and/or lack of
personal jurisdiction.  By entering into
this Agreement, Executive agrees to personal jurisdiction in the state and
federal courts in Harris County, Texas.

 

24

 

26.                               NO PRESUMPTION AGAINST INTEREST

 

This Agreement has been
negotiated, drafted, edited and reviewed by the respective parties, and
therefore, no provision arising directly or indirectly herefrom shall be
construed against any party as being drafted by said party.

 

IN WITNESS WHEREOF, the
parties hereto have executed this Agreement on the date first above written.

 

EXECUTIVE

 

 

	
  /s/ Douglas Halkett

  	
   

  
	
  DOUGLAS HALKETT

  	
   

  

 

VANTAGE INTERNATIONAL PAYROLL
COMPANY

 

	
  By:

  	
  /s/ Paul A. Bragg

  	
   

  
	
  Name:

  	
  Paul A. Bragg

  	
   

  
	
  Title:

  	
   

  	
   

  
					

 

25EXHIBIT 10.5

 

THIS AMENDMENT TO
FACILITIES AND SUPPORT SERVICES AGREEMENT is effective as of January 1,
2008 between Tecogen Inc., a Delaware corporation (“Tecogen”), and
American DG Energy Inc., a Delaware corporation (“ADG Energy”).

 

                NOW, THEREFORE, for good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties hereby
reaffirm all of the provisions of the Facilities and Support Services
Agreement, dated  January 1, 2006
(the “Agreement”), except that the following paragraphs shall be substituted
for the corresponding paragraphs in the Agreement.

 

1.             Office and Infrastructure

 

Tecogen will provide to
ADG Energy the following office and infrastructure support services for a
period from the date of this Agreement through the Termination Date (as such
term is defined in Section 2 below):

 

(a)           Office
Space. Approximately 1,199 allocated square feet of space in Tecogen’s offices
located at 45 First Avenue, Waltham, Massachusetts 02451 (the “Building”),
which shall include three (3) offices and a shared conference room.
Tecogen will also provide ADG Energy with water, sewer, electrical, phones and
other utility services, heating, ventilation and air-conditioning, and cleaning
and janitorial services. Tecogen may change the space in the Building occupied
by ADG Energy from time to time during the term of this Agreement. Tecogen will
provide such space and services at a flat rate of $2,053.00 per month. If
additional space is provided, this flat fee will increase at an annual rate of
$15.93 per square foot for any additional office space and $12.96 per square
foot for any additional manufacturing space. Copy machine usage, office
supplies, postage and shipping, secretarial & receptionist services,
Internet service, telephone support and IT support are not included in the
monthly rate and will be billed separately.

 

(c)           Insurance and Employee Benefit Plans.
To the extent it is able to do under its then current plans and policies,
Tecogen will include ADG Energy as a covered entity under its liability,
property and casualty, workers compensation and other applicable business
insurance policies. Tecogen will allow ADG Energy employees to participate in
Tecogen’s medical and dental insurance plans, and other group insurance plans
for its employees, including life, AD&D, and short and long-term disability
plans. The costs of these insurance programs will be charged to ADG Energy on
an actual cost basis when available, or in the case of general insurance be
allocated to ADG Energy for it’s pro rata share of the premiums. Management of
the plans will be carried out jointly by both companies and with no charge to
each other.

 

(g)           Exclusivity: ADG Energy shall be
granted exclusive representation rights to the Tecogen Cogeneration Product in
the New England States, and Tecogen shall be granted exclusive representation
rights to the ADG Energy Cogeneration Product in California. The relevant
portions of Tecogen’s standard rep agreement shall apply except where in
conflict with this agreement. ADG Energy will be eligible for split commissions
for cogeneration and chiller products as presented in Tecogen’s standard rep
agreement.

 

2.             Term

 

                The term of the Agreement, as
amended hereby, commenced as of the effective date for one year, renewable
annually upon mutual written agreement.

 

IN
WITNESS WHEREOF, the parties hereto have caused this amendment to be duly
executed and delivered by their proper and duly authorized representatives as
of the day and year first above written.

 

Dated:
April 1, 2008 (but effective as set forth above).

 

	
  TECOGEN
  INC.

  	
   

  	
  AMERICAN
  DG ENERGY INC.

  
	
   

  	
   

  	
   

  
	
  /s/
  Robert A. Panora

  	
   

  	
   

  	
  /s/
  Barry J. Sanders

  	
   

  
	
  President

  	
   

  	
  President

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