Document:

rwc_ex101.htm

EXHIBIT 10.1

 

THIRD AMENDMENT TO

 

LOAN AND SECURITY AGREEMENT

 

THIS THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT (this “Amendment”) is entered into this 18th day of December, 2012, by and  SILICON VALLEY BANK (“Bank”), RELM WIRELESS CORPORATION, a Nevada corporation whose address is 7100 Technology Drive, West Melbourne, Florida  32904 (“Relm Wireless”), and RELM COMMUNICATIONS, INC., a Florida corporation (“Relm Communications”; Relm Wireless and Relm Communications are sometimes hereinafter referred to individually as a “Borrower” and collectively as the “Borrowers”).

 

Recitals

 

A.           Bank and Borrowers have entered into that certain Loan and Security Agreement dated as of October 23, 2008 (as the same may from time to time be further amended, modified, supplemented or restated, the “Loan Agreement”).

 

B.           Bank has extended credit to Borrower for the purposes permitted in the Loan Agreement.

 

C.           Borrowers have requested that Bank amend the Loan Agreement to (i) extend the maturity date, (ii) modify the interest rate payable on the Advances, and (iii) make certain other revisions to the Loan Agreement as more fully set forth herein.

 

D.           Bank has agreed to so amend certain provisions of the Loan Agreement, but only to the extent, in accordance with the terms, subject to the conditions and in reliance upon the representations and warranties set forth below.

 

Agreement

 

NOW, THEREFORE, in consideration of the foregoing recitals and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:

 

1. Definitions.  Capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Loan Agreement.

 

2. Amendments to Loan Agreement.

 

2.1 Section 2.1.2 (Letters of Credit Sublimit).  Section 2.1.2 of the Loan Agreement is hereby amended by deleting it in its entirety and replacing it with the following:

 

2.1.2           [Intentionally Omitted].

2.2 Section 2.1.3 (Foreign Exchange Sublimit).  Section 2.1.3 of the Loan Agreement is hereby amended by deleting it in its entirety and replacing it with the following:

 

2.1.3           [Intentionally Omitted].

2.3 Section 2.1.4 (Cash Management Services Sublimit).  Section 2.1.4 of the Loan Agreement is hereby amended by deleting it in its entirety and replacing it with the following:

 

2.1.4           [Intentionally Omitted].

2.4 Section 2.2 (Overadvances).  Section 2.2 of the Loan Agreement is hereby amended by deleting it in its entirety and replacing it with the following:

 

2.2           Overadvances.

 

  

 

  

If, at any time, the outstanding principal amount of any Advances exceeds the lesser of either the Revolving Line or the Borrowing Base (the amount of such excess amount being an “Overadvance”), Borrowers shall immediately pay to Bank in cash such excess.  Without limiting Borrowers’ obligation to repay Bank any amount of the Overadvance, Borrowers agree to pay Bank interest on the outstanding amount of any Overadvance, on demand, at the Default Rate.

2.5 Section 2.3 (Payment of Interest on the Credit Extensions)  Section 2.3(a) of the Loan Agreement is hereby amended by deleting it in its entirety and replacing it with the following

 

(a) Interest Rate.  Subject to Section 2.3(b), the principal amount outstanding under the Revolving Line shall accrue interest at a floating per annum rate equal to half a percentage point (0.50%) above the Prime Rate, which interest shall be payable monthly in accordance with Section 2.3(f) below; provided, however, that during any period in which the Borrowers’ Adjusted Quick Ratio, as reflected on the Compliance Certificate most recently delivered in accordance with the terms of this Agreement, is greater than or equal to 1.25:1.00, the amounts outstanding under the Revolving Line shall accrue interest at a rate per annum equal to the Prime Rate; provided, further, that during any period for which the Borrowers have failed to timely deliver a Compliance Certificate as required under Section 6.2(v), the Borrowers’ Adjusted Quick Ratio shall, for purposes of this Section, be deemed to be less than 1.25:1.00.  Adjustments in the interest rate resulting from a change (or deemed change) in Adjusted Quick Ratio as of the last day of any quarter shall be effective following delivery of the Compliance Certificate reflecting such change (or upon the failure to so deliver such Compliance Certificate when due), and, subject to clause (b) below, the applicable margin (if any) used to determine the interest rate hereunder shall remain in effect until delivery (or, if not delivered, on the due date) of the Compliance Certificate for the last day of next quarter.  Accrued interest on amounts outstanding under the Revolving Line shall be payable monthly.

 

2.6 Section 2.4 (Fees). Sections 2.4(b) and (c) of the Loan Agreement are hereby amended by deleting such sections in their entirety and replacing them with the following:

 

(b)           [Intentionally Omitted];

(c)           [Intentionally Omitted];

2.7 Section 4.1 (Grant of Security Interest).  Section 4.1 of the Loan Agreement is hereby amended by adding the following new paragraphs immediately after the first paragraph as follows:

 

Each Borrower acknowledges that it previously has entered, and/or may in the future enter, into Bank Services Agreements with Bank.  Regardless of the terms of any Bank Services Agreement, each Borrower agrees that any amounts either Borrower owes Bank thereunder shall be deemed to be Obligations hereunder and that it is the intent of Borrowers and Bank to have all such Obligations secured by the first priority perfected security interest in the Collateral granted herein (subject only to Permitted Liens that may have superior priority to Bank’s Lien in this Agreement).

 

If this Agreement is terminated, Bank’s Lien in the Collateral shall continue until the Obligations (other than inchoate indemnity obligations and Bank Services obligations that are fully cash collateralized as set forth below) are satisfied in full, and at such time, Bank shall, at Borrowers’ sole cost and expense, terminate its security interest in the Collateral and all rights therein shall revert to Borrowers.  In the event (x) all Obligations (other than inchoate indemnity obligations and Bank Services obligations that are fully cash collateralized as set forth below), except for Bank Services, are satisfied in full, and (y) this Agreement is terminated, Bank shall terminate the security interest granted herein upon Borrowers providing cash collateral acceptable to Bank in its good faith business judgment for Bank Services, if any.  In the event such Bank Services consist of outstanding Letters of Credit, Borrowers shall provide to Bank cash collateral in an amount equal to 105% of the Dollar Equivalent (or 110% if the Dollar Equivalent is denominated in Foreign Currency) of the face amount of all such Letters of Credit plus all interest, fees, and costs due or to become due in connection therewith (as estimated by Bank in its good faith business judgment), to secure all of the Obligations relating  to such  Letters of Credit.

 

2.8 Section 6.7 (Financial Covenants).  Section 6.7(b) is amended in its entirety and replaced with the following:

 

(b)           Tangible Net Worth.  A Tangible Net Worth of at least $25,773,000, (i) increased by (A) 50% of quarterly net profits and (B) 75% of the net proceeds received from issuances of equity and issuances of Subordinated Debt, in each case received during the quarter ending on September 30, 2012 or any time thereafter; and (ii) decreased by the aggregate amount paid in respect of Permitted Stock Repurchases, not to exceed $2,500,000.

 

2.9 Section 7.7 (Financial Covenants).  Section 7.7 is amended in its entirety and replaced with the following:

 

7.7           Distributions; Investments.  (a) Pay any dividends or make any distribution or payment or redeem, retire or purchase any capital stock other than Permitted Distributions or Permitted Stock Repurchases; or (b) directly or indirectly acquire or own any Person, or make any Investment in any Person, other than Permitted Investments, or permit any of its Subsidiaries to do so.

 

2.10 Section 9.1 (Rights and Remedies).  Section 9.1(c) of the Loan Agreement is hereby amended by deleting it in its entirety and replacing it with the following:

 

(c)           for any Letters of Credit, demand that Borrowers (i) deposit cash with Bank in an amount equal to 105% of the Dollar Equivalent (or 110% if the Dollar Equivalent is denominated in Foreign Currency) of the aggregate face amount of all Letters of Credit remaining undrawn (plus all interest, fees, and costs due or to become due in connection therewith (as estimated by Bank in its good faith business judgment)), to secure all of the Obligations relating to such Letters of Credit, as collateral security for the repayment of any future drawings under such Letters of Credit, and Borrowers shall forthwith deposit and pay such amounts, and (ii) pay in advance all letter of credit fees scheduled to be paid or payable over the remaining term of any Letters of Credit;

 

 

  

2

  

2.11 Section 12.9 (Survival).  Section 12.9 of the Loan Agreement is hereby amended by deleting it in its entirety and replacing it with the following:

 

12.9           Survival.

All covenants, representations and warranties made in this Agreement continue in full force until this Agreement has terminated pursuant to its terms and all Obligations (other than inchoate indemnity obligations, any other obligations which, by their terms, are to survive the termination of this Agreement and Bank Services obligations that are fully cash collateralized as set forth in Section 4.1) have been paid in full and satisfied.  Without limiting the foregoing, except as otherwise provided in Section 4.1, the grant of security interest by Borrowers in Section 4.1 shall survive until the termination of all Bank Services Agreements (except for Bank Services obligations that are fully cash collateralized as set forth in Section 4.1). The obligation of Borrowers in Section 12.2 to indemnify Bank shall survive until the statute of limitations with respect to such claim or cause of action shall have run.

2.12 Section 13 (Definitions).

 

(a)           The following terms and their respective definitions set forth in Section 13.1 of the Loan Agreement are hereby amended by deleting each in its entirety and replacing each with the following:

 

“Availability Amount” is (a) the lesser of (i) the Revolving Line or (ii) the amount available under the Borrowing Base, minus (b) the outstanding principal balance of any Advances.

 

“Credit Extension” is any Advance or any other extension of credit by Bank for either or both Borrowers’ benefit under this Agreement.

 

“FX Forward Contract” is any foreign exchange contract by and between Borrowers, or either of them, and Bank under which such Borrower(s) commit to purchase from or sell to Bank a specific amount of Foreign Currency on a specified date.

 

“Letter of Credit” is a standby or commercial letter of credit issued by Bank upon request of Borrower(s) based upon an application, guarantee, indemnity, or similar agreement.

 

“Loan Documents” are, collectively, this Agreement, the Perfection Certificate, the IP Agreement, any Bank Services Agreement, any subordination agreement, any note, or notes or guaranties executed by either Borrower or any guarantor, and any other present or future agreement between either or both Borrowers, any guarantor and/or for the benefit of Bank in connection with this Agreement, all as amended, restated, or otherwise modified.

 

“Obligations” are Borrowers’ obligations to pay when due any debts, principal, interest, Bank Expenses and other amounts either Borrower owes Bank now or later, whether under this Agreement, the Loan Documents, or otherwise, including, without limitation, any interest accruing after Insolvency Proceedings begin and debts, liabilities, or obligations of each Borrower assigned to Bank, and to each perform Borrower’s duties under the Loan Documents.

 

“Revolving Line Maturity Date” is December 31, 2014.

 

(b)           The following term and its respective definition are hereby added in alphabetical order to Section 13.1 of the Loan Agreement as follows:

 

“Bank Services” are any products, credit services, and/or financial accommodations previously, now, or hereafter provided to either Borrower or any of its Subsidiaries by Bank or any Bank Affiliate, including, without limitation, any letters of credit, cash management services (including, without limitation, merchant services, direct deposit of payroll, business credit cards, and check cashing services), interest rate swap arrangements, and foreign exchange services as any such products or services may be identified in Bank’s various agreements related thereto (each, a “Bank Services Agreement”).

 

“Permitted Stock Repurchase” means a repurchase by Relm Wireless of its common stock, so long as all of the following conditions have been satisfied: (i) no Default or Event of Default shall exist at the time of such repurchase or as a result thereof; (ii) the representations and warranties in Section 5 shall be true in all material respects on the date of the such repurchase; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date; (iii) such repurchase shall occur on or after December 18, 2012 but not later than December 31, 2013; (iv) after giving effect thereto, the aggregate purchase price for all such Permitted Stock Repurchases shall not exceed $2,500,000; and (v) at the time of such repurchase, the Adjusted Quick Ratio shall be at least 1.25 to 1.00.  On the date of each repurchase of common stock by Relm Wireless as contemplated by this definition of “Permitted Stock Repurchase”, each Borrower shall be deemed to have represented and warranted on that date that the representations and warranties in Section 5 remain true in all material respects; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date

 

(c)           The defined terms “Cash Management Services”, “FX Business Day”, “FX Reduction Amount”, “FX Reserve”, “Letter of Credit Application”, “Letter of Credit Reserve”, and “Settlement Date” set forth in Section 13.1 of the Loan Agreement and all references thereto in the Loan Agreement are hereby deleted in their entirety.

 

 

  

3

  

 

2.13 Compliance Certificate.  From and after the Closing Date, Exhibit D of the Loan Agreement is replaced in its entirety with Exhibit D attached hereto and all references in the Loan Agreement to the Compliance Certificate shall be deemed to refer to Exhibit D attached hereto.

 

3. Limitation of Amendments.

 

3.1 The amendments set forth in Section 0, above, are effective for the purposes set forth herein and shall be limited precisely as written and shall not be deemed to (a) be a consent to any amendment, waiver or modification of any other term or condition of any Loan Document, or (b) otherwise prejudice any right or remedy which Bank may now have or may have in the future under or in connection with any Loan Document.

 

3.2 This Amendment shall be construed in connection with and as part of the Loan Documents and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Documents, except as herein amended, are hereby ratified and confirmed and shall remain in full force and effect.

 

4. Representations and Warranties.  To induce Bank to enter into this Amendment, each Borrower hereby represents and warrants to Bank as follows:

 

4.1 Immediately after giving effect to this Amendment (a) the representations and warranties contained in the Loan Documents are true, accurate and complete in all material respects as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date), and (b) no Event of Default has occurred and is continuing;

 

4.2 Such Borrower has the power and authority to execute and deliver this Amendment and to perform its obligations under the Loan Agreement, as amended by this Amendment;

 

4.3 The organizational documents of such Borrower delivered to Bank on the Effective Date remain true, accurate and complete and have not been amended, supplemented or restated and are and continue to be in full force and effect;

 

4.4 The execution and delivery by such Borrower of this Amendment and the performance by such Borrower of its obligations under the Loan Agreement, as amended by this Amendment, have been duly authorized;

 

4.5 The execution and delivery by such Borrower of this Amendment and the performance by such Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not and will not contravene (a) any material law or regulation binding on or affecting either Borrower, (b) any material contractual restriction with a Person binding on either Borrower, (c) any order, judgment or decree of any court or other governmental or public body or authority, or subdivision thereof, binding on either Borrower, or (d) the organizational documents of either Borrower;

 

4.6 The execution and delivery by such Borrower of this Amendment and the performance by each Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not require any order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by any governmental or public body or authority, or subdivision thereof, binding on either Borrower, except as already has been obtained or made; and

 

4.7 This Amendment has been duly executed and delivered by each Borrower and is the binding obligation of each Borrower, enforceable against each such Borrower in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors’ rights.

 

5. Commitment Fee.  In consideration of the Bank’s agreement to enter into this Amendment and to amend the Loan Agreement as set forth herein, the Borrowers agree to pay to the Bank a commitment fee in the amount of $35,000, which shall be due and payable on the date hereof, and which, once paid, will not be subject to refund or rebate for any reason.

 

6. Integration.  This Amendment and the Loan Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements.  All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of this Amendment and the Loan Documents merge into this Amendment and the Loan Documents.

 

7. Counterparts.  This Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument.

 

8. Effectiveness.  This Amendment shall be deemed effective upon (a) the due execution and delivery to Bank of this Amendment by each party hereto, (b) the due execution and delivery to Bank of such additional agreements, documents and instruments as the Bank may require, (c) payment of the Commitment Fee reflected in Section 5 of this Amendment, and (d) payment of Bank’s legal fees and expenses in connection with the negotiation and preparation of this Amendment.

 

[Signature page follows.]

 

  

4

  

 

In Witness Whereof, the parties hereto have caused this Amendment to be duly executed and delivered as of the date first written above.

 

	  	BANK
	  	  	  
	  	Silicon Valley Bank
	  	  	  
	  	By: 	/s/ Thomas Armstrong	
                                                             

	  	Name: 	Thomas Armstrong	
                                                     

	  	Title: 	Vice President	
                                                             

	  	  	  
	  	  	  
	  	BORROWERS
	  	  	  
	  	Relm Wireless Corporation
	  	  	  
	  	By:	/s/ William P. Kelley	
                                                               

	  	Name:	William P. Kelley	
                                                            

	  	Title:	Executive Vice President and CFO	
                                                            

	  	  	  
	  	  	  
	  	Relm Communications, Inc.
	  	  	  
	  	By:	/s/ William P. Kelley	
 

	  	Name:	William P. Kelley	
                                                           

	  	Title:	Executive Vice President and CFO	
                                                         

	  	  	  

 

  

[Signature Page to Third Amendment to Loan and Security Agreement]

  

 

EXHIBIT D

COMPLIANCE CERTIFICATE

TO:           SILICON VALLEY BANK                                                                                           Date:

FROM:                 RELM WIRELESS CORPORATION AND RELM COMMUNICATIONS, INC.

The undersigned authorized officer of RELM WIRELESS CORPORATION and RELM COMMUNICATIONS, INC. (“Borrowers”) certifies that under the terms and conditions of the Loan and Security Agreement among Borrowers and Bank (the “Agreement”), (1) Borrowers are in complete compliance for the period ending _______________ with all required covenants except as noted below, (2) there are no Events of Default, (3) all representations and warranties in the Agreement are true and correct in all material respects on this date except as noted below; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date, (4) Borrowers, and each of their Subsidiaries, has timely filed all required tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrowers except as otherwise permitted pursuant to the terms of Section 5.9 of the Agreement, and (5) no Liens have been levied or claims made against Borrowers or any of their Subsidiaries relating to unpaid employee payroll or benefits of which Borrower has not previously provided written notification to Bank.  Attached are the required documents supporting the certification.  The undersigned certifies that these are prepared in accordance with GAAP consistently applied from one period to the next except as explained in an accompanying letter or footnotes.  The undersigned acknowledges that no borrowings may be requested at any time or date of determination that Borrower is not in compliance with any of the terms of the Agreement, and that compliance is determined not just at the date this certificate is delivered.  Capitalized terms used but not otherwise defined herein shall have the meanings given them in the Agreement.

 

	
Please indicate compliance status by circling Yes/No under “Complies” column.

	  
	
Reporting Covenant

	
Required

	
Complies

	  	  	  
	
Monthly financial statements with

Compliance Certificate

	
Monthly within 30 days

	
Yes   No

	
Projections

	
Within 60 days prior to FYE

	
Yes   No

	
Annual Financial Statement (CPA Audited)

	
Within 15 days after filing with SEC (or within 15 days of

 filing deadline,  if not timely filed)

	
Yes   No

	
10-Q, 10-K and 8-K

	
Within 15 days after filing with SEC (or within 15 days of

 filing deadline, if not timely filed)

	
Yes   No

	
Borrowing Base Certificate, A/R & A/P Agings and Inventory Reports

	
Monthly within 30 days

	
Yes   No

	  
	
The following Intellectual Property was registered (or a registration application submitted) after the Effective Date (if no registrations, state “None”)

___________________________________________________________________________________________

___________________________________________________________________________________________

 

 

 

  

Schedule 1 to Exhibit D

  

	
Financial Covenant

	
Required

	
Actual

	
Complies

	  	  	  	  
	
Maintain on a Monthly Basis:

	  	  	  
	
Minimum Adjusted Quick Ratio

	
1.0:1.0

	
_____:1.0

	
Yes   No

	
Minimum Tangible Net Worth

	
$____________

(which equals $25,773,000 plus 50% of quarterly net profits plus 75% of equity and Subordinated Debt net proceeds), minus  100% of amount of Permitted Stock Repurchases

	
$_______

	
Yes   No

 

The following financial covenant analyses and information set forth in Schedule 1 attached hereto are true and accurate as of the date of this Certificate.

The following are the exceptions with respect to the certification above:  (If no exceptions exist, state “No exceptions to note.”)

 

 

	 
	 
	 

	
Relm Wireless Corporation

 

 

By: _______________________________                                                      

Name: _____________________________                                                    

Title: ______________________________                                                      

 

Relm Communications, Inc.

 

 

By: _______________________________                                                      

Name: _____________________________                                                     

Title: ______________________________                                                  

 

	
BANK USE ONLY

 

Received by: ____________________________

authorized signer

Date:                    __________________________

 

Verified: ________________________

authorized signer

Date:                    __________________________

 

Compliance Status:          Yes     No

  

Schedule 1 to Exhibit D

  

Schedule 1 to Compliance Certificate

Financial Covenants of Borrower

In the event of a conflict between this Schedule and the Loan Agreement, the terms of the Loan Agreement shall govern.

Dated:           ____________________

I.           Adjusted Quick Ratio (Section 6.7(a))

Required:                      1.00:1.00

Actual:

	
A.

	
Aggregate value of the unrestricted cash and cash equivalents of Borrowers and their Subsidiaries

	
$ ________           

 

	
B.

	
Aggregate value of the net billed accounts receivable of Borrowers and their Subsidiaries

	
$ ________           

 

	
C.

	
Aggregate value of the Investments with maturities of fewer than 12 months of Borrowers and their Subsidiaries

 

	
$ ________           

 

	
D.

	
Quick Assets (the sum of lines A through C)

	
$ ________           

 

	
E.

	
Aggregate value of Obligations to Bank

	
$ ________           

 

	
F.

	
Aggregate value of liabilities that should, under GAAP, be classified as liabilities on Borrowers’ consolidated balance sheet, including all Indebtedness, and not otherwise reflected in line E above that matures within one (1) year

	
 

$ ________           

 

 

	
G.

	
Current Liabilities (the sum of lines E and F)

	
$ ________           

 

	
H.

	
Aggregate value of all amounts received or invoiced by Borrowers in advance

of performance under contracts and not yet recognized as revenue

 

	
$ ________           

 

	
I.

	
Line G minus line H

	
$ ________            

 

	
J.

	
Adjusted Quick Ratio (line D divided by line I)

	   ________ 

 

Is line J equal to or greater than 1.00:1:00?

  ______ No, not in compliance                                                                                       ______Yes, in compliance

  

Schedule 1 to Exhibit D

  

 

 

II.           Tangible Net Worth (Section 6.7(b))

Required:                      $________________ (which is $25,773,000 plus 50% of quarterly net profits plus 75% of equity and Subordinated Debt net proceeds, minus 100% of amount of Permitted Stock Repurchases)

Actual:

	
A.

	
Shareholders Equity, as reflected on Borrower’s consolidated balance sheet

	
$ ________   

 

	
B.

	
Aggregate value of goodwill of Borrowers and their Subsidiaries

	
$ ________     

 

	
C.

	
Non-Cash related accounting adjustments to deferred tax

	
$ ________     

 

	
D.

	
Tangible Net Worth (line A minus line B minus line C)

	
$ ________     

 

Is line D equal to or greater than the required Tangible Net Worth as set forth above?

  ______ No, not in compliance                                                                                       ______Yes, in compliance

 

 

 

Schedule 1 to Exhibit Dinuv_ex1030.htm

EXHIBIT 10.30

 

RELEASE AGREEMENT

THIS RELEASE AGREEMENT (this “Agreement”) is made by and between Peter A. Corrao (the “Employee”) and Inuvo, Inc., a Nevada corporation (the “Company”) as of this 19th day of December, 2012 (the “Effective Date”).

W I T N E S S E T H :

 

WHEREAS, the Employee is employed by the Company as Chief Executive Officer and President pursuant to an Employment Agreement dated March 1, 2012 (the “Employment Agreement”); and

WHEREAS, Employee, by signing below, acknowledges Employee’s separation from employment with Inuvo and as an employee of Inuvo and Insperity Companies II, L.P. (“Insperity”) in any other capacity, effective January 13, 2013, as well as Employee’s resignation as a director of the Company effective as of the Effective Date.

 

WHEREAS, the Company and the Employee are sometimes referred to herein collectively as the “Parties,” or individually as a “Party.”

 

NOW, THEREFORE, in consideration of the mutual covenants and promises contained in this Agreement, the Employee and the Company agree as follows:

1.   On December 13, 2012 the Company delivered written notice of termination without Cause (as defined in the Employment Agreement) to Employee (the “Notice Date”).  Accordingly, the Employee’s employment with the Company and Insperity will be terminated effective January 13, 2013 (the “Termination Date”).  Employee no longer serves or acts as the Company’s Chief Executive Officer and President as of the Notice Date but shall remain an employee through the Termination Date.  Between the Notice Date and the Termination Date Employee shall not be required to report to work, but, as the Company directs, shall be available to assist the Company with the orderly transition of his duties.  Additionally, Employee resigns as a director of the Company effective as of the Effective Date.

 

2. Until the Termination Date, the Company shall pay the Employee (i) the earned but unpaid portion of the Employee’s Basic Salary (as defined in the Employment Agreement) through the Termination Date and (ii) any other amounts or benefits owing to the Employee under the applicable employee benefit, incentive or equity plans and programs of the Company, which shall be paid or treated in accordance with the terms of such plans and programs.  All payments made under this Paragraph 2 will be subject to applicable federal and state tax withholding and statutory deductions.

 

3.   Following the Termination Date, the Company shall pay the Employee $427,916.67 paid over a period of thirteen months in twenty-six (26) equal installments payable on the 15th and last business day of each month (collectively, the “Severance Payments”).   All payments made under this Paragraph 3 will be subject to applicable federal and state tax withholding and statutory deductions.  Employee agrees and understands that the severance payments made under this Agreement are the sole responsibility of the Company and that Insperity Companies II, L.P. (“Insperity”) has no obligation to make the severance payments even though they may be processed in whole or in part through Insperity. Furthermore, Employee understands and agrees that if the Company determines that any amounts to be paid to Executive under this Agreement are subject to Section 409A of the Internal Revenue Code of 1986, as amended (the "Code"), then the Company shall in good faith adjust the form and timing of such payments as it reasonably determines to be necessary or advisable to be in compliance with Section 409A.  During the period in which the Severance Payments are being made, Employee shall be available, at times reasonably convenient to Employee and not to exceed 40 hours in the aggregate, to provide strategic advice and consult with the Company’s then current Chief Executive Officer regarding the Company’s business, provided, however, during the course of such service the Company and Employee also agree that the Company will not provide Employee, and Employee will not seek or gain access to, internal business information of the Company which may be considered material information under federal or state securities laws or rules.  In the event of Employee's death at any time during the thirteen-month period of Severance Payments, Employee's surviving spouse will be entitled to any remaining payments under this paragraph on the same terms as stated in this paragraph. If Employee's spouse does not survive him, the Company's obligations under this paragraph will cease.

 

4.   Following the Termination Date, the Company shall pay the Employee an amount equal to 100% of the Company’s cost for employee benefits (including, without limitation, health, life, disability and pension) as if Employee were an Employee during the Severance Period (as defined in the Employment Agreement) as well as the COBRA Differential (as defined below) paid over a twelve month period in equal installments on the same payment schedule as the Severance Payments.  For purposes of this Agreement, the COBRA Differential shall mean the difference in cost between the Company’s cost for health insurance for Employee and the amount anticipated to be paid by Employee for COBRA during the Severance Period (as defined in the Employment Agreement) less the amount of the applicable copayment Employee would have had if he were still an employee of the Company. All payments made under this Paragraph 4 will be subject to applicable federal and state tax withholding and statutory deductions.  In the event of Employee's death at any time during the twelve-month period of the payments made under this Paragraph 4, Employee's surviving spouse will be entitled to any remaining payments under this paragraph on the same terms as stated in this paragraph. If Employee's spouse does not survive him, the Company's obligations under this paragraph will cease.

 

 

  

  

  

 

5.   As additional consideration for entering this Agreement, the Company agrees to issue the Employee restricted stock units for 45,045 shares of common stock under the Company’s 2010 Equity Compensation Plan, as amended.  Such restricted stock units shall be subject to forfeiture based on Employee’s compliance with this Agreement, as determined by the Company, and shall vest 50% on the first anniversary of the Notice Date and 50% on the second anniversary of the Notice Date.  All payments made under this Paragraph 5 will be subject to applicable federal and state tax withholding and statutory deductions and Employee may elect to have a net issuance of the shares to cover such taxes.  In the event of Employee's death at any time during the two-year period stated in this Paragraph 5, Employee's surviving spouse will be entitled to any remaining restricted stock units under this paragraph on the same terms as stated in this paragraph. If Employee's spouse does not survive him, the Company's obligations under this paragraph will cease.

 

6.   Notwithstanding anything to the contrary herein, in the event there is a Change in Control of the Company (as defined in the Employment Agreement) during the Severance Period, any and all amounts due hereunder that have yet to be paid to Employee shall be paid to Employee concurrently with the Change in Control transaction, and any and all unvested restricted stock units provided under Paragraph 5 of this Agreement shall vest concurrently with the Change in Control transaction, although Employee and the Company agree that no Change in Control payments as defined in the Employment Agreement shall be paid to Employee.

 

7.   The Employee hereby acknowledges and agrees that the payments and benefits specifically provided for herein are in complete satisfaction of and constitute all of the payments and benefits to which the Employee is entitled relating to severance or otherwise in connection with the termination of the Employee’s employment with the Company.  The Employee hereby acknowledges and agrees that Section 6(b) of the Employment Agreement requires, as a condition precedent to receiving the Severance Payments, the Employee to provide the Company with a written general release that releases the Company from both known and unknown claims and in which the Employee agrees not to disparage the Company or its affiliates and in which the Employee acknowledges his continuing obligations under the Non-Competition, Confidentiality and Non-Solicitation Agreement entered into by the parties (the “Non-Competition Agreement”), all of which are contained hereunder.

 

8.   In exchange for the valuable consideration hereunder, including but not limited to the Severance Payments, the Employee hereby releases the Company, Insperity and each of their respective employees, officers, directors, stockholders, agents, affiliates, subsidiaries, parent corporations, successors, legal representatives and assigns, as well as each of the above entities’ past and present officers, directors, employees, shareholders, members, trustees, joint venturers, attorneys, partners, and anyone claiming through them (collectively, the “Released Parties”), from any and all claims, actions, causes of action, demands, rights, damages, costs, expenses, attorneys’ fees and compensation in any form whatsoever, whether known or unknown, which the Employee now has or may have, or which may hereafter accrue against any of the Released Parties on account of or in any way growing out of the Employee’s employment with the Company and Insperity and the Employment Agreement or the termination thereof or otherwise arising up to and including the Termination Date, including, but not limited to, claims for wrongful discharge, breach of implied or express contracts (including the Employment Agreement), breach of an implied covenant of good faith and fair dealing, tortious interference with contract or prospective economic advantage, claims for wages, vacation and bonus compensation, violation of public policy, intentional or negligent infliction of emotional distress, negligent hiring/supervision, defamation, fraud, or other wrongful conduct, including, specifically, any claims arising out of any legal or contractual restriction on the Company’s or Insperity’s right to terminate its employees, claims for wages, bonuses, incentives, employment benefits, and claims under Title VII of the Civil Rights Act of 1964, as amended,  the Civil Rights Act of 1991 and the laws amended thereby, the Americans with Disabilities Act, the Age Discrimination in Employment Act of 1967, as amended, the Older Workers Benefit Protection Act, the Family and Medical Leave Act, the Equal Pay Act, the Fair Labor Standards Act, the Rehabilitation Act of 1973, the Employee Retirement Income Security Act of 1974, the New York Human Rights Law, the New York Equal Rights law, the New York Genetic Disorder Law, the New York City Human Rights Law, New York Labor Law Sections 194, 201(c), 201(d), 202(a), 215, 736, 740, the New York State Military Law, the New York State Whistleblower Law, New York wage and hour laws, or any other provision of federal, state or local statutory or common law or regulation.  

 

10.           To the extent not prohibited by applicable law, the Employee hereby warrants that he has not and will not institute any lawsuit, claim, action, charge, complaint, petition, appeal, accusatory pleading, or proceeding of any kind against the Company and / or Insperity and/or the Released Parties, and Employee waives, or at a minimum assigns to the Company and / or Insperity, any and all rights to any and all forms of recovery or compensation from any legal action brought by Employee or on Employee’s behalf in connection with Employee’s employment with the Company or Insperity or the termination of Employee’s employment with the Company or Insperity.  To the extent not prohibited by applicable law, in the event that a lawsuit or any of the foregoing actions are filed by Employee in breach of this covenant, it is expressly understood and agreed that this covenant shall constitute a complete defense to any such lawsuit or action.  The Employee further acknowledges and agrees that any material breach by Employee of any of the terms contained in this Agreement relieves the Company and Insperity of any and all obligations it may have pursuant to this Agreement. The Employee further agrees that should he bring any type of administrative, equitable,  or legal action arising out of claims waived under this Agreement, the Employee will bear all legal fees and costs associated therewith, including those of the Released Parties.  Furthermore, nothing in this Agreement prevents Employee from filing any claim that the law precludes him from waiving by agreement, including any administrative charge or complaint filed with the Equal Employment Opportunity Commission, any state equivalent, or any other governmental agency.  Employee, however, expressly waives and releases any right Employee may have to recover any damages (including without limitation any attorneys’ fees) resulting from such an administrative charge or any complaint that may be instituted on Employee’s behalf against the Company by the Equal Employment Opportunity Commission, any state equivalent, or any other governmental agency, or in any class or collective action that may be filed on Employee’s behalf.

 

  

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11.           To the extent not prohibited by applicable law, the Company hereby warrants that it has not and will not institute any lawsuit, claim, action, charge, complaint, petition, appeal, accusatory pleading, or proceeding of any kind against Employee, and the Company waives, or at a minimum assigns to Employee, any and all rights to any and all forms of recovery or compensation from any legal action brought by the Company or on the Company's behalf in connection with Employee’s employment with the Company or Insperity or the termination of Employee’s employment with the Company or Insperity.  To the extent not prohibited by applicable law, in the event that a lawsuit or any of the foregoing actions are filed by Company in breach of this covenant, it is expressly understood and agreed that this covenant shall constitute a complete defense to any such lawsuit or action.  The Company further acknowledges and agrees that any material breach by the Company of any of the terms contained in this Agreement relieves Employee of any and all obligations he may have pursuant to this Agreement. The Company further agrees that should it bring any type of administrative, equitable,  or legal action arising out of claims waived under this Agreement, the Company will bear all legal fees and costs associated therewith.  The Company does not release, waive or discharge Employee from any legal, equitable or administrative claim or action based on any act of fraud, dishonesty, embezzlement, intentional wrongdoing or criminal conduct committed by Employee during his employment with the Company.

12.           On or before the Termination Date, the Employee will return all Company Property within his possession, custody, or control to the Company.  As used herein, the term “Company Property” means any and all documents, electronic information,  or other tangible things that are confidential or proprietary to the Company or any affiliate thereof or otherwise relate to the business of the Company.  The Employee hereby represents and warrants that he has not retained any copies, electronic or otherwise, of any such Company Property.  The term “Company Property” does not include the Employee’s copy of this Agreement.  The Employee agrees to cooperate with the Company with regard to resigning all corporate positions and directorships he may have with the Company and/or any affiliated entities.  Employee will promptly provide such information about the corporate records of the Company as might be requested by the Company.  As part of providing such cooperation, Employee agrees to execute such documents as might be requested by the Company.  Notwithstanding the foregoing, Employee may retain his Company owned Lenovo laptop computer and Apple cell phone, after Company Property is deleted by the Company’s technology personnel on both devices.  Between the Notice Date and the end of the Separation Period the Company shall forward any personal mail received at the Company’s office to Employee’s residence.  Prior to the Termination Date, the Company shall ship Employee’s personal belongings in his office to Employee’s residence.

 

13.           Between the Notice Date and the Termination Date the Employee shall (i) have use of the Company’s corporate apartment in New York City, and (ii) have access to the Company’s VPN to access his e-mail account.

 

14.           The Employee and the Company agree that they will not directly or indirectly, individually or in concert with others, for a period of five years from the date of this Agreement, (i) disparage the Employee’s or the Company’s, as applicable, reputation, goodwill, services, business and/or the Company’s stockholders, directors, officers, employees, agents, representatives and any affiliates; or (ii) engage in any conduct, take any actions, make any statements (oral or written), or engage in any Internet or other electronic communications (such as blog posts, message boarding, text messages, e-mail, or instant messages) to the public, future employers, Company shareholders, customers, or vendors, the investment community, the media, current, former or future Company employees, or any other third party whatsoever that is calculated to disparage or could reasonably be considered to disparage the Employee’s or the Company’s, as applicable, reputation, goodwill, services, business and/or stockholders, directors, officers, employees, agents, representatives and its affiliates.  Nothing contained in this Paragraph shall alter or extend the terms of the Non-Competition Agreement..

 

15.           The Employee agrees to provide thorough and accurate information and testimony voluntarily to or on behalf of the Company or any affiliate thereof regarding any investigation, litigation or claims initiated by or against the Company or any affiliate thereof or by any entity or person(s) (individually, a “Proceeding,” and collectively, the “Proceedings”), but he agrees not to disclose or to discuss with anyone who is not directing or assisting in any Proceeding, other than his attorney, the fact of or the subject matter of any Proceeding, except as required by law.  The Employee will take all reasonable steps to cooperate fully with the Company or any affiliate thereof in supplying thorough and accurate information in each Proceeding and during the defense or prosecution thereof.  The Employee will accommodate his schedule to cooperate with the Company or any affiliate thereof and provide such information as soon as is reasonable under the circumstances.  In requesting information the Company or any affiliate thereof will attempt to work with the Employee to arrange times that reasonably accommodate his schedule and, to the extent permitted by law, the Company will reimburse the Employee for reasonable travel, commuting, parking or other similar out-of-pocket expenses incurred by him in connection with providing such information or testimony.

 

16.           The Employee acknowledges and agrees that the Company may disclose the terms of this Agreement in accordance with applicable legal requirements.  The Company also shall give the Employee the opportunity to review and comment on any press release and / or securities filing regarding Employee’s departure from the Company.

 

17.           This Agreement shall be binding on the Parties and upon their heirs, administrators, representatives, executors, successors and assigns and shall inure to their benefit and to that of their heirs, administrators, representatives, executors, successors and assigns.

 

  

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18.           The Employee and the Company agree and expressly acknowledge that this Agreement includes a waiver and release of all claims which the Employee has or may have under the Age Discrimination in Employment Act of 1967, as amended, 29 U.S.C. § 621, et seq. ("ADEA"), including the Older Workers' Benefits Protection Act ("OWBPA"). .  The following terms and conditions apply to and are part of the waiver and release of ADEA claims under this Agreement:

 

	
(a)  

	
The waiver and release of claims under the ADEA contained in this Agreement does not cover rights or claims that may arise after the date on which the Employee signs this Agreement;

 

	
(b)  

	
The Employee is advised by this writing to consult an attorney before signing this Agreement;

 

	
(c)  

	
The Employee is granted twenty-one (21) days after he is presented with this Agreement to decide whether or not to sign this Agreement;

 

	
(d)  

	
The Employee will have the right to revoke the waiver and release of claims under the ADEA within seven (7) days of his signing this Agreement, and this Agreement shall not become effective or enforceable until that revocation period has expired without the Employee having revoked this Agreement (the “Effective Date”).  In order to revoke this Agreement, the Employee must submit written notice of his revocation to:

 

Wally Ruiz

Inuvo, Inc.

143 Varick Street

New York NY 10013

such that the notice is received by said person before the expiration of the seven (7) day revocation period; and

 

	
(e)  

	
The Employee hereby acknowledges and agrees that this Agreement is written clearly in a manner which he understands he is knowingly and voluntarily waiving and releasing his rights and claims only in exchange for consideration (something of value) in addition to anything of value to which he is already entitled.

 

19.           The Parties agree that should a Party breach any of the obligations under this Agreement, (including through actions or communications prior to executing this Agreement), in addition to any other legal or equitable remedies to which the non-breaching Party may be entitled, the non-breaching Party may (1) stop any further payments or provision of any benefits that may be due and owing under the Agreement; (2) cease further performance of any other obligations under this Agreement (with the exception of the obligations set forth in Paragraph 14); and (3) recover from the breaching Party all reasonable attorneys' fees, costs and expenses in proving, by court order, judgment, jury verdict, or private settlement, the breaching Party's breach of this Agreement.

 

20.           Employee acknowledges and agree that the Company has not made any representations to the Employee regarding the tax consequences of any amounts received by the Employee pursuant to this Agreement and further the Employee agrees that he shall be solely responsible for payment of all his personal tax liabilities due on any and all payments to him set forth in this Agreement, including but not limited to federal, state and local taxes, and interest and penalties, which are or may become due.

 

21.           Nothing contained in this Agreement, or the fact of its submission to the Employee, shall be admissible evidence in any judicial, administrative, or other legal proceeding, or be construed as an admission of any liability or wrongdoing on the part of the Company or the other Released Parties of any violation of federal or state statutory or common law or regulation.

 

22.           If any portion of this Agreement is held to be invalid or legally unenforceable, such portion will be enforced to the greatest extent permitted by law and the remaining portions of this agreement will not be affected and will be given full force and effect.

 

23.           This Agreement sets forth the entire agreement between the Parties and supersedes any and all prior oral or written agreements or understandings between the Employee and the Company concerning the subject matter of this Agreement.  This Agreement may not be altered, amended or modified, except by a further written document signed by the Employee and an authorized officer of the Company.  Nothing herein, however, shall alter, limit, or modify the Non-Competition Agreement, or Employee's non-disparagement obligations set forth in Paragraph 6(b) of the Employment Agreement and Paragraph 7 of this Agreement, and the Employee expressly acknowledges that the Non-Competition Agreement and Employee's non-disparagement obligation in Paragraph 6(b) of the Employment Agreement remain in full force and effect in accordance with their terms.

 

24.           This Agreement shall be construed and enforced in accordance with the laws of the State New York without reference to its or any other state’s conflicts of law rules.

 

25.           This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.   Either Party's  facsimile, PDF'd, or emailed signature shall be deemed to be an original signature for all purposes.

 

26.           The Employee acknowledges that he has had adequate time to review this Agreement, that he has been advised by the Company to consult with legal counsel of  his choosing regarding this Agreement, and that he enters into this Agreement freely, knowingly, and voluntarily.

 

[REST OF PAGE LEFT INTENTIONALLY BLANK]

 

  

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IN WITNESS WHEREOF, the Parties hereto have executed this  Agreement as of the date specified below.

	
INUVO, INC.

	 
	 	 	 
	
By: 

	/s/ Richard Howe	 
	Name:	Richard Howe	 
	Title:	Chairman	 
	 	 	 
	Date: 12/19/12	 

 

	/s/ Peter A. Corrao	 
	Peter A. Corrao	 
	 	 
	Date: 12/19/12	 

5

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