Exhibit (d)(3)
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is entered into on January
22, 2004, by and between TZ Acquisition, Inc., a Delaware corporation (the
"Corporation"), and Mr. Richard E. Cree, an individual residing at 12 Nonesuch
Road, Dallas, TX 75214 (the "Executive") under the following terms and
conditions:
RECITALS:
WHEREAS, the Executive and T-NETIX, Inc., a Delaware corporation
("T-NETIX"), entered into an employment contract dated as of October 1, 2002 and
renewed as of the date hereof (the "Former Contract"), pursuant to which the
Executive was entitled to certain compensation and benefits;
WHEREAS, the execution and delivery of this Agreement, as a new
contract to completely supersede the Former Contract, is an inducement and a
condition to the agreement by TZ Holdings, Inc., a Delaware corporation
("Buyer") and the Corporation to enter into that certain Agreement and Plan of
Merger, dated as of the date hereof (the "Merger Agreement"), by and among
Buyer, the Corporation and T-NETIX; and
WHEREAS, upon the consummation of the Merger (as defined in the Merger
Agreement), the Corporation desires to employ the Executive in the capacity
hereinafter stated, and the Executive desires to enter into the employ of the
Corporation in such capacity, for the period and on the terms and conditions set
forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth below, it is hereby covenanted and agreed by the Corporation and the
Executive as follows:
1. Employment Period. The Corporation hereby agrees to employ the
Executive as its Chief Executive Officer, and the Executive, in such capacity,
agrees to provide services to the Corporation for the period beginning on the
date that the Merger, as defined in the Merger Agreement, is consummated (the
"Effective Date") and ending on the date that this Agreement is terminated in
accordance with Section 5 (the "Employment Period").
2. Performance of Duties.
(a) The Executive agrees that during the Employment Period,
while he is employed by the Corporation, he shall devote his full time, energies
and talents exclusively to serving in the capacity of Chief Executive Officer of
the Corporation in the best interests of the Corporation, and to perform the
duties assigned to him by the Board of Directors of the Corporation (the
"Board") faithfully, efficiently and in a professional manner.
(b) Except as set forth on Schedule A hereto, the Executive
shall not, without prior written consent from the Board: (i) serve as, be a
consultant to or an employee, officer, agent or director of any corporation,
partnership or other entity other than the Corporation (other than civic,
charitable, or other public service organizations); or (ii) have more than a
five percent (5%) ownership interest in any enterprise other than the
Corporation if such ownership interest
would have a material adverse effect upon the ability of the Executive to
perform his duties hereunder.
3. Compensation. Subject to the terms and conditions of this Employment
Agreement, during the Employment Period, while he is employed by the
Corporation, the Executive shall be compensated by the Corporation for his
services as follows:
(a) The Executive shall receive, for each 12-consecutive month
period beginning on the Effective Date and each anniversary thereof, a rate of
salary that is not less than $265,000 per year, payable in substantially equal
monthly or more frequent installments and subject to normal tax withholding.
During the Employment Period the Executive's salary rate shall be reviewed by
the Board on or before each anniversary of the Effective Date to determine
whether an increase in the Executive's rate of compensation is appropriate.
(b) The Executive shall be eligible to receive incentive
compensation payments from the Corporation. The Corporation intends to establish
an incentive compensation program pursuant to which such incentive payments
shall be paid to the Executive and, at the time such program is established,
payments thereunder shall be made to the Executive as if such program was in
effect as of the Effective Date based on the Executive's performance or other
relevant factors from the Effective Date.
(c) The Executive shall be entitled to participate in the
executive benefit plans maintained by the Corporation, which shall not be
materially less favorable to the Executive than the executive benefit plans
provided to the executive by T-NETIX immediately prior to the Employment Period.
(d) The Executive shall be reimbursed by the Corporation for
each reasonable business, promotional, travel and entertainment expense incurred
or paid by the Executive during the Employment Period in the performance of his
services under this Employment Agreement: (i) provided that at least fifty
percent (50%) of each such expense constitutes a business deduction from taxable
income for the Corporation and is excludable from taxable income to the
Executive under the governing laws and regulations of the Internal Revenue Code;
and (ii) to the extent that such expenses, in the aggregate, do not exceed the
amounts allocable for such expenses in budgets that are approved from time to
time by the Corporation. In order that the Corporation reimburse the Executive
for such allowable expenses, the Executive shall furnish to the Corporation, in
a timely fashion, the appropriate documentation required by the Internal Revenue
Code in connection with such expenses and shall furnish such other documentation
and accounting as the Corporation may from time to time reasonably request.
4. Restrictive Covenants. The Executive acknowledges and agrees that:
(i) the Executive has a major responsibility for the operation, development and
growth of the Corporation's business; (ii) the Executive's work for the
Corporation has brought him and will continue to bring him into close contact
with confidential information of the Corporation and its customers; and (iii)
the agreements and covenants contained in this paragraph 4 are essential to
protect the business interests of the Corporation and that the Corporation will
not enter into the
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Employment Agreement but for such agreements and covenants. Accordingly, the
Executive covenants and agrees to the following:
(a) Confidential Information. Except as may be required by the
lawful order of a court or agency of competent jurisdiction, the Executive
agrees to keep secret and confidential, both during the Employment Period and
indefinitely after the Executive's employment with the Corporation terminates,
all non-public information concerning the Corporation and its affiliates that
was acquired by, or disclosed to, the Executive during the course of his
employment by the Corporation or any of its affiliates, including information
relating to customers (including, without limitation, credit history, repayment
history, financial information and financial statements), costs, and operations,
financial data and plans, whether past, current or planned and not to disclose
the same, either directly or indirectly, to any other person, firm or business
entity, or to use it in any way; PROVIDED, HOWEVER, that the provisions of this
paragraph 4(a) shall not apply to information that: (i) was, is now, or becomes
generally available to the public (but not as a result of a breach of any duty
of confidentiality by which the Executive is bound); (ii) was disclosed to the
Executive by a third party not subject to any duty of confidentiality to the
Corporation prior to its disclosure to the Executive; or (iii) is disclosed by
the Executive in the ordinary course of the Corporation's business as a proper
part of his employment in connection with communications with customers, vendors
and other proper parties, provided that it is for a proper purpose solely for
the benefit of the Corporation. The Executive further agrees that he shall not
make any statement or disclosure that (A) would be prohibited by applicable
Federal or state laws, or (B) is intended or reasonably likely to be detrimental
to the Corporation or any of its subsidiaries or affiliates.
(b) Non-Competition.
(i) The Executive agrees that for the period
commencing on the Effective Date and ending on the second anniversary
of the date on which the Executive's employment with the Corporation is
terminated (the "Non-Competition Period"), the Executive shall not
directly or indirectly, alone or as a partner, officer, director,
employee, consultant, agent, independent contractor, member or
stockholder of any person or entity ("Person"), engage in any business
activity in North America which is directly or indirectly in
competition with the Business of the Corporation or which is directly
or indirectly detrimental to the Business or business plans of the
Corporation or its affiliates; PROVIDED, HOWEVER, that the record or
beneficial ownership by the Executive of five percent (5%) or less of
the outstanding publicly traded capital stock of any company for
investment purposes shall not be deemed to be in violation of this
paragraph 4(b) so long as the Executive is not an officer, director,
employee or consultant of such Person. The "Business" of the
Corporation shall mean the actual or intended business of the
Corporation during the Employment Period and as of the date the
Executive leaves the employment of the Corporation. As of the date
hereof, the Business of the Corporation is providing telecommunications
products and services, including security enhanced call processing,
call validation and billing, to prisons and corrections facilities. The
Executive further agrees that during the Non-Competition Period, he
shall not in any capacity, either separately or in association with
others: (A) employ or solicit for employment or endeavor in any way to
entice away from employment with the
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Corporation or its affiliates (1) any current employee of the
Corporation or its affiliates or (2) any person who was employed by the
Corporation or its Affiliates in any preceding 12-month period; (B)
solicit, induce or influence any supplier, customer, agent, consultant
or other person or entity that has a business relationship with the
Corporation to discontinue, reduce or modify such relationship with the
Corporation; nor (C) solicit any of the Corporation's identified
potential acquisition candidates.
(ii) The Employee understands that the foregoing
restrictions may limit his ability to engage in a business similar to
the Corporation's business for a two (2) year period following the
termination of this Agreement, but acknowledges that he will receive
sufficiently high remuneration and other benefits to justify such
restriction as an employee of the Corporation pursuant to this
Agreement.
(c) Remedies. If the Executive breaches, or threatens to
commit a breach of any of the provisions contained in paragraphs 4(a) and 4(b)
(the "Restrictive Covenants"), the Corporation shall have the following rights
and remedies, each of which shall be enforceable, and each of which is in
addition to, and not in lieu of, any other rights and remedies available to the
Corporation at law or in equity.
(i) The Executive shall account for and pay over to
the Corporation all compensation, profits, and other benefits which
inure to the Executive's benefit which are derived or received by the
Executive or any person or business entity controlled by the Executive,
or his relatives, resulting from any action or transactions
constituting a breach of any of the Restrictive Covenants.
(ii) Notwithstanding the provisions of subparagraph
4(c)(i) above, the Executive acknowledges and agrees that in the event
of a violation or threatened violation of any of the Restrictive
Covenants, the Corporation shall have no adequate remedy at law and
shall therefore be entitled to enforce each such provision by temporary
or permanent injunction or mandatory relief obtained in any court of
competent jurisdiction without the necessity of proving damages,
posting any bond or other security, and without prejudice to any other
rights and remedies that may be available at law or in equity, and the
Corporation shall also be entitled to recover its attorneys' fees and
costs incurred to enforce any of the Restrictive Covenants from the
Executive.
(d) Severability. If any of the Restrictive Covenants, or any
part thereof, are held to be invalid or unenforceable, the same shall not affect
the remainder of the covenant or covenants, which shall be given full effect,
without regard to the invalid or unenforceable portions. Without limiting the
generality of the foregoing, if any of the Restrictive Covenants, or any part
thereof, are held to be unenforceable because of the duration of such provision
or the area covered thereby, the parties hereto agree that the court making such
determination shall have the power to reduce the duration and/or area of such
provision and, in its reduced form, such provision shall then be enforceable.
(e) Proprietary Rights. The Executive acknowledges and agrees
that all know-how, documents, reports, plans, proposals, marketing and sales
plans, client lists, client
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files, and any materials made by the Executive or by the Corporation are the
property of the Corporation and shall not be used by the Executive in any way
adverse to the Corporation's interests. The Executive shall not deliver,
reproduce or in any way allow such documents or things to be delivered or used
by any third party without specific direction or consent of the Board. The
Executive hereby assigns to the Corporation any rights that he may have in any
such trade secret or proprietary information.
5. Termination and Compensation Due Upon Termination. Except as
otherwise provided under the executive benefit plans maintained by the
Corporation in which the Executive participates in accordance with subparagraph
3(c), the Executive's right to compensation for periods after the date the
Executive's employment with the Corporation terminates shall be determined in
accordance with the following:
(a) Termination Without Cause. In the event the Corporation
terminates the Executive's employment under this Agreement without cause, the
Corporation shall pay the Executive any compensation and benefits the
Corporation owes to the Executive through the effective date of termination.
Additionally, and conditioned upon the Executive's voluntary execution of a
written release, satisfactory to the Corporation, of any and all claims the
Executive may assert against the Corporation, the Executive shall be entitled to
receive:
(i) all payment of his salary and benefits (as of the
date of termination) in accordance with the provisions of subparagraph
3(a) for twelve (12) months after the effective date of termination;
and
(ii) payment of any incentive compensation payments
that otherwise would have been payable to the Executive under
subparagraph 3(b) through the effective date of termination.
(b) Voluntary Resignation. The Executive may terminate his
employment with the Corporation for any reason (or no reason at all) at any time
by giving the Corporation sixty (60) days prior written notice of voluntary
resignation; provided, however, that the Corporation may decide that the
Executive's voluntary resignation be effective immediately upon notice of such
resignation. The Corporation shall have no obligation to make payments to the
Executive in accordance with the provisions of paragraph 3 for periods after the
date on which the Executive's employment with the Corporation terminates due to
the Executive's voluntary resignation.
However, for purposes of this paragraph 5, if the Executive
resigns following the occurrence of one of the following events, the Executive
shall be deemed to be terminated without cause in accordance with paragraph 5(a)
above:
(i) the Executives' duties are materially reduced
from those described in paragraph 2 above;
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(ii) the relocation of the Executive's principal
place of employment more than 75 miles from his place of employment as
of the Effective Date without the consent of the Executive; or
(iii) a material breach of any of the provisions of
paragraph 3, which breach remains uncured for a period of 30 days after
written notice of such breach from the Executive to the Corporation.
(c) Termination for Cause. The Corporation shall have no
obligation to make payments to the Executive in accordance with the provisions
of paragraph 3 or otherwise for periods after the Executive's employment with
the Corporation is terminated on account of the Executive's discharge for cause.
For purposes of this paragraph 5, the Executive shall be considered terminated
for "cause" if he is discharged by the Corporation on account of the occurrence
of one or more of the following events:
(i) the Executive becomes habitually addicted to
drugs or alcohol;
(ii) the Executive discloses confidential information
in violation of paragraph 4(a) or engages in competition in violation
of paragraph 4(b);
(iii) the Corporation is directed by regulatory or
governmental authorities to terminate the employment of the Executive
or the Executive engages in activities that cause actions to be taken
by regulatory or governmental authorities that have a material adverse
effect on the Corporation;
(iv) the Executive is indicted of a felony crime
(other than a felony resulting from a minor traffic violation);
(v) the Executive flagrantly disregards his duties
under this Employment Agreement after (A) written notice has been given
to the Executive by the Board that it views the Executive to be
flagrantly disregarding his duties under this Agreement and (B) the
Executive has been given a period of ten (10) days after such notice to
cure such misconduct. However, no notice or cure period shall be
required if Executive's disregard of his duties has materially and
adversely affected the Corporation;
(vi) any event of egregious misconduct involving
serious moral turpitude to the extent that, in the reasonable judgment
of the Board, the Executive's credibility and reputation no longer
conform to the standard of the Corporation's executives; or
(vii) the Executive commits an act of fraud against
the Corporation, violates a duty of loyalty to the Corporation or
violates paragraph 2(b).
(d) Disability. The Corporation shall have no obligation to
make payments to the Executive in accordance with the provisions of paragraph 3
for periods after the date the Executive's employment with the Corporation
terminates on account of disability, except payments due and owing through the
effective date of termination. For purposes of this
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subparagraph 5(d), determination of whether the Executive is disabled shall be
determined in accordance with the Corporation's long term disability plan (if
any) and applicable law.
(e) Death. The Corporation shall have no obligation to make
payments to the Executive in accordance with the provisions of paragraph 3 for
periods after the date of the Executive's death, except payments due and owing
as of such date.
6. Successors. This Agreement shall be binding on, and inure to the
benefit of, the Corporation and its successors and assigns and any person
acquiring, whether by merger, consolidation, purchase of all or substantially
all of the Corporation's assets and business, or otherwise without further
action by the Executive; provided, however, that Executive hereby agrees to
execute an acknowledgement of assignment if requested to do so by the successor,
assign or acquiring person.
7. Nonalienation. The interests of the Executive under this Agreement
are not subject to the claims of his or her creditors, other than the
Corporation, and may not otherwise be voluntarily or involuntarily assigned,
alienated or encumbered except to the Executive's estate upon his or her death.
8. Waiver of Breach. The waiver by either the Corporation or the
Executive of a breach of any provision of this Agreement shall not operate as,
or be deemed a waiver of, any subsequent breach by either the Corporation or the
Executive.
9. Notice. Any notice to be given hereunder by a party hereto shall be
in writing and shall be deemed to have been given when received or, when
deposited in the U.S. mail, certified or registered mail, postage prepaid:
(a) If to the Executive, at the address set forth in the
preamble hereto immediately following the Executive's
name:
with a copy (which shall not constitute notice) to:
Sayles, Lidji & Werbner
1201 Elm Street
44th Floor
Dallas, Texas 75270
Attention: Brian M. Lidji, Esq.
Telephone: (214) 939-8702
Facsimile: (214) 939-8787
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(b) If to the Corporation, to it at:
c/o H.I.G. Capital, LLC
1001 Brickell Bay Drive, 27th Floor
Miami, FL 33131
Attention: Mr. Brian Schwartz
Telephone: (305) 379-2322
Facsimile: (305) 379-2013
with a copy (which shall not constitute notice) to:
White & Case LLP
200 South Biscayne Boulevard
Suite 4900
Miami, FL 33131
Attention: Jorge L. Freeland, Esq.
Telephone: (305) 995-5247
Facsimile: (305) 358-5744
10. Amendment. This Agreement may be amended or canceled by mutual
agreement of the parties in writing without the consent of any other person and
no person, other than the parties hereto (and the Executive's estate upon his
death), shall have any rights under or interest in this Agreement or the subject
matter hereof. The parties hereby agree that no oral conversations shall be
deemed to be a modification of this Agreement and neither party shall assert the
same.
11. Entire Agreement. This Agreement contains the entire understanding
of the parties hereto with respect to the subject matter contained herein and
supersedes all prior agreements and understandings, oral and written, with
respect thereto, including, but not limited to, the Former Contract.
12. Applicable Law. The provisions of this Agreement shall be construed
in accordance with the internal laws of the State of Texas.
13. WAIVER OF JURY TRIAL. THE EXECUTIVE AND THE CORPORATION EXPRESSLY
WAIVE ANY RIGHT EITHER MAY HAVE TO A JURY TRIAL CONCERNING ANY CIVIL ACTION THAT
MAY ARISE FROM THIS AGREEMENT, OR THE RELATIONSHIP OF THE PARTIES HERETO.
14. Termination. All of the provisions of this Agreement shall
terminate after the expiration of the Employment Period, except that paragraph
4(a) shall survive indefinitely and paragraph 4(b) shall terminate upon the
expiration of the Non-Competition Period.
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IN WITNESS WHEREOF, the Executive and the Corporation have executed
this Employment Agreement as of the day and year first above written.
MR. RICHARD E. CREE
/s/ Richard E. Cree
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TZ ACQUISITION, INC.
By: /s/ Brian Schwartz
-------------------------------------
Its: President
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SCHEDULE A
Current Positions and Ownership Interests
1. Director and 33-1/3% owner of Cree Industries
2. Director and 35% owner of Extended Communications, LLC