EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of May 1, 2000, by and between Datatec Systems, Inc., a Delaware corporation
located at 23 Madison Road, Fairfield, New Jersey 07004 (the "Company") and
Isaac J. Gaon, residing at 65 Central Park West, Apt. 2D, New York, New York
10023 (the "Executive").
IN CONSIDERATION of the covenants and agreements set forth herein, and
other good and valuable consideration (the receipt and sufficiency of which is
hereby acknowledged) the parties covenant and agree as follows:
1. Employment of Executive. The Company hereby employs the Executive as
its Chief Executive Officer on a full-time basis to perform the duties and
responsibilities incident to such offices, subject at all times to the control
and direction of the Board of Directors of the Company (the "Board").
2. Acceptance of Employment; Time and Attention. The Executive hereby
accepts such employment and agrees that throughout the Employment Period (as
hereinafter defined), he will devote such full time, attention, knowledge and
skills, faithfully, diligently and to the best of his ability, in furtherance of
the business of the Company and its subsidiaries as are necessary to perform the
duties and responsibilities assigned to him pursuant to Section 1 hereof. As
Chief Executive Officer, the Executive shall control all of the day-to-day
operations of the Company including, without limitation, the ability to hire and
terminate all employees. The Executive shall also perform such specific duties
and shall exercise such specific authority related to the management of the day-
to-day operations of the Company as may be assigned to the Executive from time
to time by the Board and which are reasonably requested to be performed by the
Executive as Chief Executive Officer. The Executive shall at all times be
subject to, observe and carry out such rules, regulations, policies, directions
and restrictions as the Company shall from time to time establish. During the
Employment Period, Executive shall not, without the written approval of the
Board of Directors first had and obtained in each instance, directly or
indirectly, accept employment or compensation from, or perform services of any
nature for, any business enterprise other than the Company and its subsidiaries.
During the Employment Period, Executive shall not be entitled to additional
compensation for rendering employment services to subsidiaries of the Company or
for serving in any office of the Company or any of its subsidiaries to which he
is elected or appointed.
3. Term. The Company agrees to employ the Executive and the Executive
agrees to serve, on the terms and conditions of this Agreement, for a period
commencing as of May 1, 2000 and ending on April 30, 2003, unless earlier
terminated in accordance with Section 12 hereof (the "Employment Period").
4. Compensation. For all services rendered by the Executive under this
Agreement, the Company shall pay the Executive the following:
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(a) a base salary of $350,000 per annum, payable in
equal, bi-weekly installments, or such other greater
amount as the Board may determine at its sole
discretion upon an annual review (the "Base Salary").
The Base Salary shall be increased annually,
beginning May 1, 2001, by a percentage equal to the
percentage by which the Consumer Price Index for
Urban Wage Borrowers and Clerical Workers: New York,
N.Y. - Northeastern New Jersey (1982-84 equals 100),
as published by the Bureau of Labor Statistics of the
United States Department of Labor, shall have
increased over the preceding year (the "CPI
Adjustment"). The CPI Adjustment shall be made as
soon as possible, but in no event later than fifteen
(15) days after the date upon which the Bureau of
Labor publishes its consumer price index statistics
for the month of April. Any portion of the increase
in the Executive's compensation retroactively due
shall be payable immediately upon determination of
the adjustment. If publication of the Consumer Price
Index is discontinued, the parties hereto shall
accept comparable statistics on the cost of living
for the New York, N.Y. - Northeastern New Jersey area
as computed and published by an agency of the United
States or by a responsible financial periodical of
recognized authority then to be selected by the
parties. Notwithstanding anything herein to the
contrary, in no event shall the CPI Adjustment be
less than the cost of living increase in compensation
granted to other senior executives of the Company;
(b) In addition to his Base Salary hereunder, the
Executive shall be entitled to an additional cash
bonus (the "Cash Incentive Bonus") during each annual
period of the Employment Period of this Agreement
commencing with the annual period May 1, 2000 to
April 30, 2001 in an amount up to 25% of the Base
Salary for such annual period (the "Cash Incentive
Bonus Amount"). The Cash Incentive Bonus shall be
determined no later than ninety (90) days after the
end of each annual period and paid promptly
thereafter and shall be calculated as follows:
(i) An annual bonus equal to 60% of the Cash
Incentive Bonus Amount shall be paid to the
Executive if the net consolidated after-tax
profits (as defined below) of the Company
for each annual period exceed the Company's
Projected Earnings (as defined below) for
such annual period. The net consolidated
after-tax profits of the Company shall mean
the gross sales and other income from
operations of the Company and its
subsidiaries (whether now existing or
hereinafter created), less costs of goods
sold and operating expense, depreciation
expenses, bad debt write off and payment of
corporate income taxes. The net consolidated
after-tax profits as used herein shall be
determined by the independent public
accountants of the Company, in accordance
with generally accepted accounting
principles and their determination shall be
binding and conclusive on the parties
hereto. The Projected Earnings of the
Company shall mean the net
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consolidated after-tax profits of the
Company, as projected at the beginning of
such annual period. The Projected Earnings
shall be mutually determined in the good
faith by the Executive and the Board of
Directors or the Compensation Committee,
based upon reports prepared by analysts
providing investment coverage of the
Company. The Projected Earnings for any
annual period may be downwardly adjusted by
the Board of Directors in order to more
reasonably reflect the anticipated results
for such annual period.
(ii) An annual bonus equal to 20% of the Cash
Incentive Bonus Amount shall be paid to the
Executive if the cumulative total
stockholder return on the Common Stock of
the Company for each annual period exceeds
the cumulative total return on the Nasdaq
Market Index for such annual period.
(iii) An annual bonus of up to 20% of the Cash
Incentive Bonus Amount may be paid to the
Executive in the absolute discretion of the
Board of Directors.
(c) In addition to the Base Salary and the Cash Incentive
Bonus payable hereunder, the Executive shall be
entitled to receive an option to purchase 100,000
shares of the Company's Common Stock on May 1, 2000.
Such options shall have an exercise price equal to
the fair market value on the date of grant (as
computed using the average of the last trade price
over the ten consecutive trading days immediately
preceding the date of grant) and shall vest as
follows: 33.333% on the grant date, 33.333% on the
first anniversary of the grant date and 33.334% on
the second anniversary of the grant date.
The parties agree that the Company is authorized to deduct
from the Base Salary and the Cash Incentive Bonus of the Executive, and any
other compensation paid to the Executive, such sums as are required by law to be
deducted or withheld.
5. Executive Benefits. The Executive shall be entitled to receive
the following benefits from the Company:
(a) The Company shall pay or reimburse the Executive for
the cost of insurance, maintenance, repair and
gasoline for his automobile, provided, however, that
such expenses are reasonably related to the Company's
business;
(b) The Company shall obtain a life insurance policy
naming the Executive as the insured and such other
party as may be designated as the beneficiary by the
Executive, providing for death benefits of
$1,000,000.00, with respect to which the Company
shall pay all applicable premiums during the
Employment Period. Such policy shall include a cost
of living escalator, provided that such escalator is
available on commercially reasonable terms;
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(c) The Company shall provide the Executive and his
family with medical insurance consistent with the
Company's current and future medical plans for its
senior executives;
(d) The Company shall provide the Executive with annual
dental benefits consistent with the Company's current
dental plan for its senior executives;
(e) The Company shall provide the Executive with
long-term disability insurance providing for
disability payments of $12,500.00 per month. Such
policy may provide that no payments are required
until the Executive has been disabled for a period of
six (6) months;
(f) The Executive shall be entitled to participate in the
Company's stock option plan as available to all
senior executives of the Company, subject to the
discretion of the Board; and
(g) The Executive shall be entitled to twenty three (23)
days of paid vacation for each 12 month period during
the Employment Period. Any vacation shall be taken at
the reasonable and mutual convenience of the Company
and the Executive.
6. Reimbursement of Expenses. The Company shall reimburse the Executive
in accordance with its applicable policies for all expenses reasonably incurred
by Executive in connection with the performance of his duties hereunder and the
business of the Company, upon the submission to the Company of appropriate
receipts or vouchers.
7. D&O Insurance Coverage. The Company shall use its best efforts to
obtain and maintain, at the Company's cost and expense, directors' and officers'
liability insurance coverage for the directors and officers of the Company,
including the Executive. Nothing herein shall be deemed to require the Company
to provide such coverage for the Executive if it is not then providing such
coverage generally to its directors and officers.
8. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company, its subsidiaries and any of its
affiliates all information, knowledge and data relating to or concerned with the
Company, its subsidiaries and any of its affiliate's operations, sales, business
and affairs, and he shall not, at any time, either during the Employment Period
or after the termination of the Executive's employment with the Company, use,
disclose or divulge any such information, knowledge or data to any person, firm
or corporation (unless the Company no longer treats such information as
confidential) other than to the Company or its designees and employees or except
as may otherwise be required in connection with the business and affairs of the
Company; provided, however, that the Executive may disclose or divulge such
information, knowledge or data that is or becomes generally available to the
public through no wrongful act on the Executive's part or where such disclosure
is legally compelled by judicial or administrative action, provided that the
Executive agrees to give the Company prompt notice of any such judicial or
administrative action to enable the Company to seek an appropriate protective
order.
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9. Intellectual Property. Any idea, invention, design, written
material, manual, system, procedure, improvement, development or discovery
conceived, developed, created or made by the Executive alone or with others
relating to the businesses of the Company or any of its subsidiaries during the
Employment Period and, whether or not patentable or registrable, shall become
the sole and exclusive property of the Company. The Executive shall disclose the
same promptly and completely to the Company and shall, during the Employment
Period and at any time and from time to time hereafter (i) execute all documents
requested by the Company for vesting in the Company the entire right, title and
interest in and to the same, (ii) execute all documents requested by the Company
for filing and prosecuting such applications for patents, trademarks, service
marks and/or copyrights as the Company, in its sole discretion, may desire to
prosecute, and (iii) give the Company all assistance it reasonably requires,
including the giving of testimony in any suit, action or proceeding, in order to
obtain, maintain and protect the Company's right therein and thereto.
10. Equitable Relief. The parties hereto acknowledge that the
Executive's services are unique and that, in the event of a breach or a
threatened breach by the Executive of any of his obligations under this
Agreement, the Company shall not have an adequate remedy at law. Accordingly, in
the event of any such breach or threatened breach by the Executive, the Company
shall be entitled to such equitable and injunctive relief as may be available to
restrain the Executive and any business, firm, partnership, individual,
corporation or entity participating in such breach or threatened breach from the
violation of the provisions hereof. Nothing herein shall be construed as
prohibiting the Company from pursuing any other remedies available at law or in
equity for such breach or threatened breach, including the recovery of damages
and the immediate termination of the employment of the Executive hereunder.
11. Change of Control.
(a) If prior to the expiration of the Employment Period, there
is a Change of Control (as such term is defined herein) and thereafter any of
the following occur: (a) the Executive is placed in any position of lesser
stature than that of Chief Executive Officer of the Company; is assigned duties
inconsistent with the Chief Executive Officer or duties which, if performed,
would result in a significant change in the nature or scope of powers,
authority, functions or duties inherent in such positions on the date hereof; is
assigned performance requirements or working conditions which are at variance
with the performance requirements and working conditions in effect on the date
hereof; or is accorded treatment on a general basis that is in derogation of his
status as a Chief Executive Officer; (b) the Executive ceases to serve as a
member of the Company's Board; (c) any breach of Paragraphs 4, 5, 6, or 7,
inclusive, of this Agreement; or (d) any requirement of the Company that the
location at which the Executive performs his principal duties for the Company be
outside a radius of 50 miles from the location at which the Executive performed
such duties immediately prior to the Change of Control, then the Agreement shall
be deemed to have been terminated by the Company otherwise than by reason of
Cause and the Company shall pay to Executive within five days after notice from
Executive to such effect, as liquidated damages, a lump sum cash payment equal
to 2.99 times the "base amount" of Executive's compensation. For purposes
hereof, "base amount" shall have the meaning provided in Section 280G (b) (2)
(A) of the Internal Revenue Code of 1986, as amended, and the Proposed
Regulations thereunder.
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(b) For the purposes of this Agreement, a Change of Control
means (i) the direct or indirect sale, lease, exchange or other transfer of all
or substantially all (50% or more) of the assets of the Company to any person or
entity or group of persons or entities acting in concert as a partnership or
other group (a "Group of Persons"), (ii) the merger, consolidation or other
business combination of the Company with or into another corporation with the
effect that the shareholders of the Company, as the case may be, immediately
following the merger, consolidation or other business combination, hold 50% or
less of the combined voting power of the then outstanding securities of the
surviving corporation of such merger, consolidation or other business
combination ordinarily (and apart from rights accruing under special
circumstances) having the right to vote in the election of directors, (iii) the
replacement of a majority of the Company's Board in any given year as compared
to the directors who constituted the Company's Board at the beginning of such
year, and such replacement shall not have been approved by the Company's Board,
as the case may be, as constituted at the beginning of such year, (iv) a person
or Group of Persons shall, as a result of a tender or exchange offer, open
market purchases, privately negotiated purchases or otherwise, have become the
beneficial owner (within the meaning of Rule 13d-3 under the Securities Exchange
Act of 1934, as amended) of securities of the Company representing 50% or more
of the combined voting power of the then outstanding securities of such
corporation ordinarily (and apart from rights accruing under special
circumstances) having the right to vote in the election of directors.
12. Early Termination.
(a) The Employment Period shall terminate without action on
the part of the Company upon the death of the Executive. The Employment Period
shall also terminate upon 30 days written notice by the Company to the
Executive, (i) in the event that the Executive shall become "Permanently
Incapacitated" (as hereinafter defined); or (ii) for "Cause" (as hereinafter
defined). The Employment Period shall also terminate upon written notice by the
Executive to the Company for "Good Reason" (as hereinafter defined).
(b) For purposes of this Agreement, the Executive shall be
deemed Permanently Incapacitated in the event that the Executive shall, by
reason of his physical or mental disability as determined by the Executive's
physician or a physician designated by the Company, fail to substantially
perform his usual and regular duties for the Company for a period of 120
consecutive days or for an aggregate of 120 days in any consecutive six month
period.
(c) For purposes of this Agreement, "Cause" shall mean any
criminal conviction of the Executive for an offense involving the
misappropriation of funds or material property of the Company, or willful and
repeated refusal of the Executive to follow the lawful directives of the Board
for the performance of material duties which the Executive is required to
perform hereunder (other than for reason of becoming Permanently Incapacitated),
after at least ten (10) days prior written notice by the Company providing the
Executive with an opportunity to cure such failure.
(d) For purposes of this Agreement, "Good Reason" shall mean
any diminution of the Executive's position, duties, responsibilities or
compensation as Chief Executive Officer of the Company or the geographic
relocation of the Executive's position as Chief Executive Officer of the
Company.
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(e) In the event the Employment Period is terminated by reason
of the Executive's death, the Company shall, within 30 days, pay to the
Executive's estate the Base Salary, as adjusted, to and including the date of
such termination, any unpaid bonus payments previously determined by the Board
and all expense reimbursements due the Executive.
(f) In the event the Employment Period is terminated (i) by
the Company for Cause, or (ii) by the Executive without Good Reason, the Company
shall, within 30 days, pay to the Executive his Base Salary, as adjusted, to and
including the date of such termination, any unpaid bonus payments previously
determined by the Board and all expense reimbursements due the Executive.
(g) In the event the Employment Period is terminated due to
the Executive becoming Permanently Incapacitated, the Company shall, within 30
days, pay to the Executive an amount equal to six months of his Base Salary, as
adjusted, to and including the date of such termination, any unpaid bonus
payments previously determined by the Board and all expense reimbursements due
the Executive.
(h) In the event the Employment Period is terminated (i) by
the Company without Cause, or (ii) by the Executive with Good Reason, the
Company shall, within 30 days, pay to the Executive an amount equal to the total
of all payments of Base Salary for the remainder of the Employment Period, but
in no event shall such payment be less than $500,000. In addition, the Executive
shall be entitled to any unpaid bonus payments previously determined by the
Board for the remainder of the Employment Period, shall be paid for accrued but
unused vacation time determined on a pro-rata basis and shall be entitled to the
benefits provided pursuant to Section 5 hereof for the remainder of the
Employment Period. Notwithstanding anything to the contrary herein, no payment
shall be made to the Executive under this Section 12(h) if the Executive is paid
liquidated damages following a Change of Control of the Company as set forth in
Section 11(a) above.
13. Purchase of Options.
If the Employment Period is terminated by the Company without
Cause, or by the Executive with Good Reason, the Company shall (at Executive's
option) purchase from the Executive, any and all stock options granted by the
Company and held by the Executive at the time of termination, whether or not
vested, for a price equal to the Option Purchase Amount. The Option Purchase
Amount shall mean the average closing bid price of the Company's Common Stock on
the Nasdaq Small-Cap market or such other market in which the Company's Common
Stock is then traded over five (5) trading days prior to the termination less
the exercise price of such options. In the event the Option Purchase Amount is
not paid to the Executive within five business days of the occurrence of any
triggering event described in the first sentence of this Section 13, the Option
Purchase Agreement shall accrue interest at an interest rate of 10% per annum,
until the Option Purchase Amount, plus such accrued interest, is paid to the
Executive. The Executive shall also continue to receive his Base Salary, and be
entitled to all benefits described in Section 5, until payment of the Option
Purchase Amount, plus interest, if any, at which time payment of the Base
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Salary and entitlement to the benefits described in Section 5 shall terminate
unless otherwise provided in this Agreement.
14. Arbitration of All Disputes.
(a) Any controversy or claim arising out of or relating to
this Agreement or the breach thereof (including the arbitrability of any
controversy or claim), shall be settled by arbitration in the City of New York,
State of New York, by three arbitrators, one of whom shall be appointed by the
Company, one by the Executive and the third of whom shall be appointed by the
first two arbitrators. If the first two arbitrators cannot agree on the
appointment of a third arbitrator, then the third arbitrator shall be appointed
by the American Arbitration Association. The arbitration shall be conducted in
accordance with the rules of the American Arbitration Association, except with
respect to the selection of arbitrators which shall be as provided in this
Section. The cost of any arbitration proceeding hereunder shall be borne equally
by the Company and the Executive. In the absence of fraud, the award of the
arbitrators shall be binding upon the parties and judgment thereon may be
entered in any court having jurisdiction thereof.
(b) In the event that it shall be necessary or desirable for
the Executive to retain legal counsel and/or incur other costs and expenses in
connection with the enforcement of any or all of his rights under this
Agreement, and provided that the Executive substantially prevails in the
enforcement of such rights, the Company shall pay (or the Executive shall be
entitled to recover from the Company, as the case may be) the Executive's
reasonable attorneys' fees and costs and expenses in connection with the
enforcement of his rights, including the enforcement of any arbitration award up
to $50,000 in the aggregate.
15. Entire Agreement; Amendment. This agreement sets forth the entire
understanding of the parties with respect to the subject matter hereof and
supersedes all existing agreements between them concerning such subject matter,
provided, however, that the employment agreement between the Company and the
Executive which expires April 30, 2000 shall remain in full force and effect
until such date. No amendment to or modification of this Agreement shall be
valid or binding unless made in writing and signed by the party against whom
enforcement thereof is sought.
16. Notices. Any notice or other communication required or permitted to
be given by this Agreement shall be writing and shall be effectively given if:
(a) delivered personally by hand;
(b) sent by prepaid courier service;
(c) sent by registered mail; or
(d) sent by prepaid telecopier, telex or other similar
means of electronic communication and confirmed by
mailing the original document so sent by prepaid mail
on the same or following day,
in each case addressed as follows:
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(i) if to the Executive:
65 Central Park West, Apt. 2D
New York, NY 10023
(ii) if to the Company:
27 Madison Road
Fairfield, N.J. 07004
Attention: James Caci
Telecopier No. (973) 575-9599
or at such other address as the party to whom such notice or other communication
is to be given shall have advised the party giving same in the manner provided
in this Section. Any notice or other communication delivered personally or by
prepaid courier service shall be deemed to have been given and received on the
day it is so delivered at such address, provided that if such day is not a
business day such notice or other communication shall be deemed to have been
given and received on the next following business day. Any notice or other
communication sent by registered mail shall be deemed to have been given and
received on the third business day following the date of mailing. Any notice or
other communication transmitted by telecopier, telex or other similar form of
electronic communication shall be deemed given and received on the day of its
transmission provided that such day is a business day and such transmission is
completed before 5:00 p.m. on such day, failing which such notice or other
communication shall be deemed given and received on the first business day after
its transmission. Regardless of the foregoing, if there is a mail stoppage or
labor dispute or threatened labor dispute which has affected or could affect
normal mail delivery, then no notice or other communication may be delivered by
registered mail. If there has been a mail stoppage and if a party sends a notice
or other communication by telecopier, telex or other similar means of electronic
communication, such party shall be relieved from the obligation to mail the
original document in accordance with this Section. "Business day" means any day
other than a Saturday, a Sunday or a statutory holiday observed in New York
City, New York.
17. Waivers. No course of dealing nor any delay on the part of any
party hereto in exercising any rights hereunder shall operate as a waiver of any
such rights. No waiver of any default or breach of this Agreement shall be
deemed a continuing waiver or a waiver of any other breach or default.
18. Governing Law. This Agreement shall be governed, interpreted and
construed in accordance with the laws of the State of New York, except that body
of law relating to choice of laws.
19. Invalidity. If any clause, paragraph, section or part of this
Agreement shall be held or declared to be void, invalid or illegal, for any
reason, by any court of competent jurisdiction, such
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provision shall be ineffective but shall not in any way invalidate or affect any
other clause, paragraph, section or part of this Agreement.
20. Further Assurances. Each of the parties shall execute such
documents and take such other actions as may be reasonably requested by the
other party to carry out the provisions and purposes of this Agreement in
accordance with its terms.
21. Counterparts. This Agreement may be executed simultaneously in two
or more counterparts which may be by facsimile, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
DATATEC SYSTEMS, INC.
By: /s/ James M. Caci
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Isaac J. Gaon Name: JAMES M. CACI
-------------------------------- Title: Chief Financial Officer
ISAAC J. GAON
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