Exhibit 10.4
NETWORK SYSTEM TECHNOLOGIES, INC.
CONSULTING & SUBCONTRACTOR AGREEMENT
by and between
NETWORK SYSTEM TECHNOLOGIES, INC., located at 2050-80 Finley Road
Lombard, IL 60148 ("NST"), and TRANSITIONAL MANAGEMENT CONSULTANTS, INC.
("Consultant"), located at .
This Agreement sets forth the terms and conditions under which
Consultant shall provide services (the "Services") to NST as more
fully described in the Consultant Task List attached hereto as
Schedule One and executed by both parties. Employees of the
Consultant assigned to perform the Services are identified on the
attached Consultant Task List.
1. CONSULTANT STATUS
1.1 The Consultant is an independent contractor and shall not be
considered an employee of NST for any purpose, nor shall
Consultant be eligible for any benefits provided by NST to its
employees. Neither this Agreement nor any Consultant Task List
shall create in any way any other relationship between the
parties, including those of joint venturers, partners, associates,
or principal and agent.
1.2 Consultant agrees to pay all taxes of whatever nature for which
Consultant is legally liable as a result of the Services performed
or the fees paid hereunder, including, without limitation, all
employment taxes and Workers' Compensation Insurance.
1.3 NST reserves the right to inspect and generally to supervise the
work to ensure its conformity with the description of the Services
contracted for herein.
2. CONSULTANT FEES AND EXPENSES
2.1 NST shall pay the Monthly Rate as defined in the Consultant Task
List on the 15th day of each month beginning May 1, 2006, and
continuing through April 15, 2008.
2.2 NST shall reimburse Consultant for reasonable travel or other
expenses incurred by Consultant in the course of performing
Services for NST provided that, in providing Services, travel by
Consultant or any individuals rendering Services on behalf of
Consultant hereunder shall not require an overnight stay for more
than forty percent (40%) per month. Appropriate receipts and a
detailed written description must support all expenses for which
reimbursement is sought.
3. CONFIDENTIALITY
3.1 Consultant acknowledges that during the term of this Agreement,
certain information considered by NST to be Confidential
Information or Trade Secrets as defined below (collectively "NST
Proprietary Information") may be disclosed by NST to Consultant.
For purposes of this Consulting Agreement, Confidential
Information shall mean the proprietary and confidential data or
information of NST, other than Trade Secrets, which is of tangible
or intangible value and is not public information or is not
generally known or available to NST's competitors but is known
only to NST and those of its employees, independent contractors,
consultants or agents to whom it
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NETWORK SYSTEM TECHNOLOGIES, INC.
SUBCONTRACTOR AGREEMENT
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must be confided in order to apply it to the uses intended,
including, without limitation, information regarding customers or
prospective customers, existing or proposed agreements with third
parties, marketing or forecasting methods, business plans, pricing
and network configurations. Trade Secrets shall have the meaning
ascribed to that term by applicable law and shall include, without
limitation, confidential computer programs, software designs,
processes, procedures, formulas, improvements, online terminal
designs, and software applications, whether copyrightable or not.
If it is judicially or otherwise determined that any such items
listed above are not trade secrets, such items shall be deemed
Confidential Information pursuant to this SECTION 3.1.
3.2 Consultant agrees: (a) to hold NST Proprietary Information in
strictest confidence, disclosing it only to those employees of
Consultant who have a need to know; (b) not to make use of NST
Proprietary Information other than to perform Consultant's
obligations hereunder; (c) not to reproduce NST Proprietary
Information in any media; and (d) not to disclose, cause to be
disclosed, or otherwise release NST Proprietary Information to any
other party; provided that Consultant shall be permitted to engage
in any of the foregoing to the extent they may be necessary to
perform Consultant's obligations hereunder. Consultant agrees to
protect the NST Proprietary Information with at least the same
degree of care used to protect its own Proprietary Information,
but in no event with less than reasonable care.
3.3 The obligations of Consultant contained in SECTION 3.1 and SECTION
3.2 shall extend to any confidential or proprietary information of
third parties in NST possession to which Consultant may have
access during performance of this Agreement, including, but not
limited to, that of Incentra Solutions, Inc. and each of its
subsidiaries and information of NST customers. Consultant and its
employees shall adhere to all security regulations, rules,
policies and procedures identified by NST orally or in writing, as
applicable to performance of the Services.
3.4 The Consultant's restrictions under this SECTION 3 shall not apply
to information that (a) is or becomes publicly known through no
act or omission of Consultant; (b) becomes rightfully known to
Consultant without confidential restrictions from a source other
than NST (c) is approved by NST for disclosure without restriction
in a written document that is signed by a duly authorized officer
of NST; (d) Consultant can show by written records was rightfully
in Consultant's possession prior to disclosure by NST or was
developed independently by Consultant without reference to NST
Proprietary Information.
3.5 Consultant shall, at NST's sole option, either (a) certify the
destruction of all NST Proprietary Information received by
Consultant within ten (10) days from receipt of written request by
NST or (b) return all NST Proprietary Information by hand, courier
service, or registered mail to the NST Contact.
3.6 Consultant shall make no public statement, including without
limitation any news release, public announcement, or
advertisement, related to the performance by Consultant of
Services hereunder without the prior written approval of the NST
Contact.
4. WARRANTY AND INDEMNITY
4.1 Consultant agrees that (a) the Services will, in all material
respects, conform to the requirements established by the NST
Contact in the Consultant Task List, and (b) the
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NETWORK SYSTEM TECHNOLOGIES, INC.
SUBCONTRACTOR AGREEMENT
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Services will be performed in a professional manner. Consultant's
agrees to make all necessary corrections, alterations, or
additions to satisfy its obligations hereunder.
4.2 Consultant agrees that Consultant shall make no unauthorized
disclosure or unauthorized use of proprietary information of any
third party in Consultant's performance of the Services under this
Agreement.
4.3 Consultant shall defend and hold NST harmless from any and all tax
or withholding obligations arising out of Consultant's failure to
pay taxes or withholdings as required under this Agreement.
4.4 Consultant shall defend and hold NST, its agents, employees,
directors and officers, harmless from any and all damages,
liabilities, costs and expenses, including reasonable attorneys'
fees and expenses resulting from death or bodily injury to any
person or damage to, or loss or destruction of any tangible
property, to the extent caused by the acts or omissions of the
Consultant or Consultant's employees. NST shall defend and hold
Consultant, its agents, employees, directors and officers,
harmless from any and all damages, liabilities, costs and
expenses, including reasonable attorneys' fees and expenses
resulting from death or bodily injury to any person or damage to,
or loss or destruction of any tangible property, to the extent
caused by the acts or omissions of NST or its agents, employees,
directors or officers.
5. LIABILITY
5.1 Consultant is responsible for:
5.1.1. Any damages associated with the infringement or violation
of NST's intellectual property rights by Consultant or
Consultant's personnel;
5.1.2. all loss or damage to personal property of Consultant or
Consultant's employees, to the extent caused by the acts or
omissions of the Consultant or Consultant's employees.
5.2 NST is responsible for:
5.2.1. any damages associated with NST's failure to perform this
Agreement;
5.2.2. all loss or damage to personal property of NST or its
agents, employees, directors and officers, to the extent
caused by the acts or omissions of NST or its agents,
employees, directors and officers.
6. TERM AND TERMINATION
6.1 This agreement shall be effective as of the date of execution and
shall remain in effect for a period of two (2) years or until it
is terminated in writing by either party in accordance with its
terms. In any event, the confidentiality obligations contained in
Section 3 shall survive termination of this Agreement for a period
of one year following the termination of this Agreement.
6.2 Each Consultant Task List shall set forth the time period during
which all Services shall be performed and delivered by Consultant
("Term"). NST may terminate this Agreement and any Consultant Task
List immediately for "Cause", effective immediately upon written
notice to the Consultant. Only the following shall constitute
"Cause" for such termination:
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NETWORK SYSTEM TECHNOLOGIES, INC.
SUBCONTRACTOR AGREEMENT
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(i) dishonest or fraudulent statements or acts of the
Consultant or its representatives with respect to NST or any
affiliate of NST;
(ii) the conviction of, or entry of a plea of guilty or nolo
contendere by Consultant or any of its representatives for, (A) a
felony or (B) any misdemeanor (excluding minor traffic violations)
involving moral turpitude, deceit, dishonesty or fraud;
(iii) gross negligence, willful misconduct or insubordination of
the Consultant or its representatives with respect to NST or any
affiliate of NST; or
(iv) material breach by the Consultant of any of the
Consultant's obligations under this Agreement.
6.3 This Agreement may be terminated unilaterally by Consultant by
written notice to NST at least thirty (30) days prior to such
termination.
6.4 Subject to the payment of Termination Benefits pursuant to Section
6.5, this Agreement may be terminated by NST without Cause upon
written notice to Consultant (a termination "Without Cause").
6.5 Unless otherwise specifically provided in this Agreement or
otherwise required by law, all amounts payable to the Consultant
under this Agreement shall terminate on the date of termination of
this Agreement, if and only if such termination is consistent with
termination for Cause under Section 6.2 above, or unilateral
termination by the Consultant under Section 6.3 above.
Notwithstanding the foregoing, in the event of termination of this
Agreement by NST other than for Cause pursuant to Section 6.2
above, NST shall provide to the Consultant the following
termination benefits ("Termination Benefits"):
(i) payment to the Consultant at the rate then in
effect pursuant to the Consultant Task List then in effect,
for the period from the date of termination until the term
of this Agreement would otherwise expire as indicated in
Section 2 hereof; and
(ii) payment to Consultant of any and all other
payments called for under the terms of this Agreement, and
(i) and (ii) hereof being computed as if Consultant
continued to provide services to NST under the terms of
this Agreement through its original term, including but not
limited to, payment of the Bonus Payments as indicated in
the Consultant Task List.
6.6 Consultant's engagement hereunder is predicated on providing said
consulting services at NST's Lombard, Illinois offices except for
occasional travel s prescribed herein. Additionally, NST agrees
that if NST moves its Lombard Illinois offices, that Consultant
will not be required to perform services hereunder, and may
unilaterally cancel this Agreement unless the new location of
NST's offices is less than ten (10) miles from the Lombard
Illinois location. In the event of such a unilateral cancellation
of this Agreement by Consultant due to the change in location, all
other payments due Consultant shall continue to be paid as and if
Consultant were continuing to perform services hereunder.
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NETWORK SYSTEM TECHNOLOGIES, INC.
SUBCONTRACTOR AGREEMENT
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6.7 If the Consultant is unable to provide the services of Joseph J.
Graziano ("Graziano") due to the fact that Graziano shall be
disabled so as to be unable to perform the Services as indicated
on the Consultant Task List with reasonable accommodation, NST may
remove or reassign Graziano to another position with NST during
the period of such disability. Notwithstanding any such removal or
reassignment, in the event of reassignment Consultant shall
continue to receive all payments and benefits contemplated under
this Agreement the same as if Consultant fully performed this
Agreement by performing the Services as indicated on the
Consultant Task List, or in the case of removal of Graziano
pursuant to this Section 6.7, NST shall continue to pay Consultant
under this Agreement the same as if Consultant was terminated
Without Cause, in which case Consultant would continue to receive
all Termination Benefits payable under this Agreement.
6.8 Upon termination, NST shall be relieved of all of its obligations
and responsibilities under this Agreement except for the
obligation to pay Consultant any payments as set forth in Sections
6.5, 6.6 and 6.7. Upon termination, Consultant shall remit to NST
all work in progress upon NST's request and agreement to make
payment therefor. Consultant shall be liable for all damages
suffered by NST as a result of Consultant's breach of this
Agreement, and likewise, NST shall be liable for all damages
suffered by Consultant or Graziano as a result of NST's breach of
this Agreement.
7. INTELLECTUAL PROPERTY RIGHTS
7.1 Consultant and NST agree that all materials produced under this
Agreement are "works-for-hire," and all rights, title, and
interest in and to such materials, including, without limitation,
all copyrights, are owned solely by NST. Consultant agrees that if
materials produced under this Agreement are deemed not to be
"works-for-hire," Consultant hereby irrevocably assigns to NST all
of its rights, title and interest in and to such materials,
including without limitation, all copyrights. In any event,
Consultant shall execute, acknowledge, and deliver all instruments
and assurances reasonably necessary or expedient in order to
perfect the aforesaid rights in NST, but at no cost to Consultant.
7.2 Consultant and NST acknowledge that in the performance of this
Agreement certain designs, concepts, methods, techniques,
processes, adaptations, inventions and ideas (collectively
"Inventions") may be conceived or developed by Consultant related
to the subject matter of the Consultant Task List. All rights,
title and interest in and to the Inventions shall remain as NST
property.
8. COMPLIANCE WITH LAWS
8.1 Both parties agree to comply with all applicable Federal, State,
and Local laws, regulations, building codes, ordinances, and
standards (such as those issued by utility companies and public
authorities).
9. INSURANCE COVERAGE
9.1 Consultant agrees to maintain during the term of this Agreement,
and at Consultant's expense:
9.1.1 Automobile liability for owned, non-owned and hired
vehicles in an amount of not less than $1,000,000;
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9.1.2 Commercial General Liability insurance covering bodily
injury (including death), property damage, personal injury
arising out of the acts or omissions of Consultant and
Consultant's employees. The per occurrence limit shall not
be less than $1,000,000. (Deductible coverage will be
acceptable only upon review and acceptance by the Risk
Management Department of Managed Storage International,
Inc.);
9.1.3 Policies described shall be endorsed to the extent
possible, to provide waiver of subrogation against NST, its
employees, officers, and directors;
9.1.4 Certificates of insurance, acceptable to NST, shall be
filed with NST prior to commencement of work or service.
Certificates shall provide that coverage's afforded under
the policies shall be not canceled or modified without
thirty (30) days written notice being given to NST.
10. GENERAL
10.1 Consultant agrees that during the Consultant's association with
NST and for two (2) years after termination of status as an active
Consultant, Consultant will not compete with NST on any new
projects with a customer to which the Consultant has been either
(a) introduced by NST or (b) as to which Consultant has been
subcontracted to perform duties as defined in a Consultant Task
list. Notwithstanding the foregoing, this does not prohibit the
Consultant from working on projects for the customer that have not
been actively pursued by NST, or from working directly with a NST
competitor, but it does prohibit the Consultant from pursuing an
independent competitive working relationship in relation to a
proposed NST project with customers or prospects to which the
Consultant has been introduced in the course of Consultant's work
under this Agreement; provided, however, the foregoing shall be
null and void if: (i) NST is in material breach of this Agreement;
(ii) NST files a petition seeking relief under the liquidation
provisions, and only under the liquidation provisions, of
applicable federal or state bankruptcy law, or is otherwise
adjudicated bankrupt under such liquidation provisions of the
bankruptcy law, or consents to the appointment of a liquidator of
NST (For avoidance of doubt, NST's filing for relief under any
reorganization provisions of applicable federal or state
bankruptcy law shall not render Section 7 null and void.); or,
(iii) Incentra Solutions, Inc. ("Incentra") breaches any of its
agreements with Joseph J. Graziano ("Graziano") such as would
precipitate the cancellation of Graziano's non-competition
agreement contained in that certain Stock Purchase Agreement
entered into by and between Graziano and Incentra on or about
April 13, 2006, and subsequent to and as a result of such breach,
Graziano ceases to, directly or indirectly, provide services to
Employer, Incentra or any of Incentra's subsidiaries or
affiliates.
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SUBCONTRACTOR AGREEMENT
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10.2 This Agreement, together with each Consultant Task List
referencing this Agreement, constitute the entire understanding
between NST and Consultant with respect to Services performed
hereunder, supersede all prior oral and written communications and
proposals, and may be amended or modified only in writing signed
by both parties.
10.3 If any term or provision of this Agreement shall be found to be
illegal or unenforceable, then notwithstanding such finding, this
Agreement shall remain in full force and effect, and such illegal
or unenforceable term or provision shall be deemed stricken.
10.4 Wherever in this Agreement either party's consent or satisfaction
is required, such consent or satisfaction shall not be
unreasonably or arbitrarily withheld or delayed.
10.5 Any notices required or permitted to be given pursuant to this
Agreement shall be in writing, sent via certified mail, return
receipt requested or delivered by hand, addressed as set forth in
the Consultant Task List or to such other address as may be
specified from time to time by notice in writing to the other
party, and shall be deemed to have been given when received.
10.6 Neither NST nor Consultant shall assign any of its rights or
delegate any of its obligations with respect to any Consultant
Task List under this Agreement without the prior written consent
of the other party. Any assignment attempted in violation of this
provision shall be null and void.
10.7 Headings included in this Agreement are for convenience only and
are not to be used to interpret the Agreement between parties.
10.8 No term or provision hereof shall be deemed waived by either
party, and no breach excused by either party, unless such waiver
or consent shall be in writing signed by the other party. No
consent by either party to, or waiver of, a breach by the other
party, whether express or implied, shall constitute consent to,
waiver of, or excuse for any other different or subsequent breach
by the other party.
10.9 All provisions that, by their nature would be expected to shall
survive termination of this Agreement. This includes, without
limitation, provisions relating to confidentiality, warranties and
indemnities, rights in inventions, and legal status of the
parties.
10.10 If any litigation or arbitration shall be commenced to enforce, or
relating to, any provision of this Agreement, the prevailing party
shall be entitled to an award of reasonable attorneys fees and
reimbursement of such other costs as it incurs in prosecuting or
defending such litigation. For purposes of this section,
"prevailing party" shall include a party awarded injunctive relief
or a party prevailing based upon final, unappealable order.
10.11 This Agreement shall be governed by and interpreted in accordance
with the laws of Illinois without regard to the conflict of law
provisions thereof.
Each party hereto warrants that it has full power and authority to
enter into and perform this Agreement, and the person signing this
Agreement on such party's behalf has been duly authorized and
empowered to enter into this Agreement and has read and
understands this agreement in full.
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NETWORK SYSTEM TECHNOLOGIES, INC.
SUBCONTRACTOR AGREEMENT
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11. AUTHORIZED SIGNATURES
NETWORK SYSTEM TECHNOLOGIES, INC. TRANSITIONAL MANAGEMENT CONSULTANTS, INC.
/s/ Thomas P. Sweeney III Joseph J. Graziano
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AUTHORIZED SIGNATURE AUTHORIZED SIGNATURE
Thomas P. Sweeney III Joseph J. Graziano
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PLEASE PRINT NAME PLEASE PRINT NAME
CEO
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PLEASE PRINT TITLE PLEASE PRINT TITLE
4/13/06 4/13/06
DATE OF SIGNATURE DATE OF SIGNATURE
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NETWORK SYSTEM TECHNOLOGIES, INC.
SUBCONTRACTOR AGREEMENT
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SCHEDULE ONE
CONSULTANT TASK LIST
Consultant is Transitional Management Consultants, Inc.
Consultant will provide:
Services of Joseph J. Graziano as President of Network System
Technologies, Inc.
Consultant will report directly to Thomas P. Sweeney III.
Beginning Date: April 13, 2006
End Date: March 31, 2008
Monthly Rate: $24,251.00
Bonus: On or before May 15, 2007, and May 15, 2008, and subject to the
conditions set forth below, NST will pay a Bonus Payment to Consultant, said
bonus payment to be computed as follows:
(1) In the event Earnings Before Interest, Taxes, Depreciation and
Amortization, as defined below, ("EBITDA") of NST for the (i) twelve (12) months
ended March 31, 2007 is equal to or greater than Two Million Dollars
($2,000,000.00); or (ii) twelve (12) months ended March 31, 2008 is equal to or
greater than Two Million Dollars ($2,000,000.00), and provided that in each of
(i) or (ii) above that the Consultant has not been terminated for Cause (as
herein defined) and this Agreement has not been terminated voluntarily by
Consultant, NST shall pay to Consultant a bonus payment in the amount of One
Hundred Fifty Thousand Dollars ($150,000.00) plus twenty-five percent (25%) of
the EBITDA which exceeds the sum of Two Million Dollars ($2,000,000.00), for any
or both years during which the foregoing EBITDA threshold is met; or,
(2) In the event EBITDA of NST for the (i) twelve (12) months ended March 31,
2007 is greater than One Million Dollars ($1,000,000.00), but less than Two
Million Dollars ($2,000,000.00); or (ii) twelve (12) months ended March 31, 2008
is greater than One Million Dollars ($1,000,000.00), but less than Two Million
Dollars ($2,000,000.00), and provided that in each of (i) or (ii) above that the
Consultant has not been terminated for Cause and this Agreement has not been
terminated voluntarily by Consultant, NST shall pay to Consultant a bonus
payment in the amount equal to the EBITDA (for the time period in question) over
One Million Dollars ($1,000,000.00) divided by One Million Dollars
($1,000,000.00) times One Hundred Fifty Thousand Dollars ($150,000.00), for any
or both years during which the foregoing EBITDA threshold is met. Each of the
timeframes in this bonus provision are separate, and the EBITDA computations are
made for each period in question, are not cumulative, and are independent as to
each discrete time period. If the foregoing EBITDA thresholds as indicated above
are not met, no bonus payments are due Consultant.
(3) For purposes of this Agreement, EBITDA shall be defined as the net income
of the Company, as determined by generally accepted accounting principles, plus
interest,
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SUBCONTRACTOR AGREEMENT
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taxes, depreciation and amortization and subject to the other restrictions or
limitations on allocation of expenses as provided in this Agreement. The parties
agree that no headquarters or overhead expenses or costs of Purchaser or its
affiliates or subsidiaries or other charges of or from Purchaser will be
allocated or charged to Company for purposes of determining EBITDA under this
Agreement, except that direct costs of Purchaser, its affiliates or subsidiaries
related to the provision of revenue producing services for the Company shall be
allocated to the Company for purposes of determining EBITDA hereunder. The
parties agree that any outside or indirect costs or expenses not directly
associated with the sale of new products or services shall not be permitted to
be included as an expense in arriving at this EBITDA computation and that no new
"line items" reflecting costs or expenses shall be permitted to be included as
an expense in arriving at this EBITDA, unless previously approved by Graziano or
his designated staff at the Company. In the event of a merger, consolidation or
other combination of the Company with another entity, the EBITDA calculation,
for purposes of this Agreement, shall be made in a manner that as nearly as is
reasonably possible reflects the EBITDA of the Company as it would have been but
for such merger, consolidation or combination. Nothing in this Section 1.2(b)(4)
shall, however, be construed to prevent any such merger, consolidation or
combination or the introduction of new goods and/or services to the line of
goods and services provided by the Company. An accountant of Shareholder's
choosing shall be permitted to review and approve the computation of EBITDA
following each of the years in question, which approval will not be unreasonably
withheld.
Addresses for Notice:
Consultant: NST:
Transitional Management Consultants, Inc. Thomas P. Sweeney III
Joseph J. Graziano Network System Technologies, Inc.
c/o Incentra Solutions, Inc.
1140 Pearl Street
Boulder, CO 80302
Consultant Company
By: /s/ Joseph J. Graziano By: /s/ Thomas P. Sweeney III
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Joseph J. Graziano Thomas P. Sweeney III