RIME 8-K
Algorhythm Holdings, Inc. (RIME)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 1.01 Entry into a Material Definitive Agreement.
On July 21, 2026, Algorhythm Holdings, Inc. (the “Company”) entered into a settlement agreement and stipulation (the “Settlement Agreement”) with Continuation Capital, Inc., a Delaware corporation (“CCI”), with respect to certain outstanding liabilities of the Company in the principal amount of $1,928,014 (the “Claim Amount”) that CCI has acquired from the former holders thereof.
Pursuant to the Agreement, the Company agreed to issue CCI up to 5,000,000 shares of the Company’s common stock, par value $0.01 per share (the “Shares”), in one or more tranches until CCI has generated aggregate proceeds equal to 120% of the Claim Amount. On July 23, 2026, the Circuit Court of the Twelfth Judicial Circuit in and for Desoto County, Florida entered an order approving the Settlement Agreement after a fairness hearing pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended (the “Securities Act”). The number of shares of common stock held by CCI at any given time cannot exceed 19.99% of the issued and outstanding shares of the Company’s common stock.
The offer and sale of these securities was and/or will be completed by the Company in private placement transactions that are exempt from the registration requirements of the Securities Act pursuant to Section 3(a)(10) of the Securities Act without payment of underwriting discounts or commissions to any person and without engaging in any advertising or general solicitation of any kind.
The foregoing is intended to be a summary of the terms of the Agreement and is subject to and qualified in its entirety by the terms of the Agreement, a copy of which is attached hereto as Exhibit 10.3.
Item 3.02 Unregistered Sales of Equity Securities.
The information contained in Item 1.01 above is incorporated by reference herein.
Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
On July 22, 2026, the Company entered into amended and restated employment agreements with: (i) Gary Atkinson, the Company’s Chief Executive Officer, which agreement supersedes and replaces that certain amended and restated employment agreement entered into with Mr. Atkinson on February 23, 2026 (the “CEO Agreement”); and (ii) Alex Andre, the Company’s Chief Financial Officer and General Counsel, which agreement supersedes and replaces that certain employment agreement entered into with Mr. Andre on February 12, 2025 (the “CFO Agreement” and together with the CEO Agreement, the “Employment Agreements”).
The Agreements harmonize the change in control treatment applicable to each of the Company’s executive officers. In furtherance thereof, each executive officer now has the right to receive a bonus if, and each time, a Change of Control (as defined in the applicable Employment Agreement) occurs during the term of their employment in a lump sum payment equal to their Base Salary and Annual Bonus (each as defined in the applicable Employment Agreement) for the year in which the Change of Control occurs. The Employment Agreements also include additional provisions designed to ensure that various payments that may in the future be made by the Company to the executive officers fully comply with Sections 280G, 4999 and 409A of the Internal Revenue Code of 1986, as amended.
The foregoing is intended to be a summary of the terms of the Employment Agreements and is subject to and qualified in its entirety by the terms of the CEO Agreement and CFO Agreement, a copy of each of which is attached hereto as Exhibits 10.1 and 10.2, respectively.
Item 9.01 Financial Statement and Exhibits.
| Exhibit No. | Description | |
| 10.1 | Second Amended and Restated Employment Agreement, dated July 22, 2026, by and between Algorhythm Holdings, Inc. and Gary Atkinson | |
| 10.2 | Amended and Restated Employment Agreement, dated July 22, 2026, by and between Algorhythm Holdings, Inc. and Alex Andre | |
| 10.3* | Settlement Agreement and Stipulation, dated July 21, 2026, by and between Algorhythm Holdings, Inc. and Continuation Capital, Inc. | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* The schedules and exhibits to this agreement have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the SEC upon request.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Date: July 24, 2026 | ALGORHYTHM HOLDINGS, INC. | |
| By: | /s/ Alex Andre | |
| Name: | Alex Andre | |
| Title: | Chief Financial Officer and General Counsel | |
Exhibit 10.1
SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Second Amended and Restated Employment Agreement (the “Agreement”) is made and entered into as of July 22, 2026, by and between Gary Atkinson (the “Executive”) and Algorhythm Holdings, Inc., a Delaware corporation (the “Company”), and sets forth the terms and conditions with respect to the Executive’s employment with the Company during the Term (as defined below).
WHEREAS, the Company and the Executive are parties to that certain Amended and Restated Employment Agreement dated February 23, 2026 (the “Amended Employment Agreement”); and
WHEREAS, the Company and the Executive wish to amend certain of the terms of the Amended Employment Agreement as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants, promises, and obligations set forth herein, the parties agree as follows:
1. Term. The Executive’s term of employment under this Agreement (such term of employment, as it may be extended or terminated, is herein referred to as the “Employment Term”) shall be for a term commencing on February 23, 2026 (the “Effective Date”) and, unless terminated earlier as provided in Section 5 hereof, ending on the third anniversary of the Effective Date (the “Original Employment Term”); provided that, on such third anniversary of the Effective Date and each annual anniversary thereafter (such date and each annual anniversary thereof, a “Renewal Date”), the Agreement shall be deemed to be automatically extended, upon the same terms and conditions, for successive periods of one year, unless either party provides written notice of its intention not to extend the term of the Agreement at least ninety 90 days’ prior to the applicable Renewal Date. The period during which the Executive is employed by the Company hereunder is hereinafter referred to as the “Employment Term.”
2. Position and Duties.
2.1 Position. During the Employment Term, the Executive shall serve as the Chief Executive Officer of the Company, reporting to the Board. In this capacity the Executive shall have such duties, authorities and responsibilities commensurate with the duties, authorities and responsibilities of persons in similar capacities in similarly sized companies and such other duties and responsibilities as the Board of Directors of the Company (the “Board”) shall designate that are consistent with the Executive’s position as Chief Executive Officer.
2.2 Duties. During the Employment Term, the Executive shall devote substantially all of the Executive’s business time (excluding periods of vacation and other approved leaves of absence) to the performance of the Executive’s duties hereunder and will not engage in any other business, profession, or occupation for compensation or otherwise which would conflict or interfere with the performance of such services either directly or indirectly without the prior written consent of the Board. Notwithstanding the foregoing, the Executive will be permitted to (a) with the prior written consent of the Board act or serve as a director, trustee, committee member, or principal of any type of business, civic, or charitable organization as long as such activities are disclosed in writing to the Company’s Board of Directors, and (b) purchase or own less than five percent (5%) of the publicly traded securities of any corporation; provided that, such ownership represents a passive investment and that the Executive is not a controlling person of, or a member of a group that controls, such corporation; and provided further that, the activities described in clauses (a) and (b) do not interfere with the performance of the Executive’s duties and responsibilities to the Company as provided hereunder, including, but not limited to, the obligations set forth in Section 2 hereof. Notwithstanding anything herein to the contrary, for the sake of clarity, that certain consulting arrangement that Executive previously entered into with Stingray Music USA, Inc. in August 2025 and the performance by Executive of his duties and responsibilities thereunder has been expressly approved by the Board and shall not constitute a breach of any provision of this Agreement.
3. Place of Performance. The principal place of Executive’s employment shall be the Company’s principal executive office currently located in Fort Lauderdale, Florida; provided that, the Executive may be required to travel from time to time on Company business during the Employment Term. The Executive may work remotely from Executive’s primary residence so long as doing so does not interfere with the Executive’s responsibilities under this Agreement; provided that, subject to any health or safety concerns related to the COVID-19 pandemic or other similar extraordinary circumstances, the Executive shall be required to spend on average two (2) days per week in the office.
4. Compensation.
4.1 Base Salary. The Company shall pay the Executive an annual base salary of $360,000. The annual base salary shall be paid in periodic installments in accordance with the Company’s customary payroll practices and applicable wage payment laws, but no less frequently than monthly. The Executive’s base salary shall be reviewed at least annually by the Board (or a committee thereof) and the Board may, but shall not be required to, increase the base salary during the Employment Term. However, the Executive’s base salary may not be decreased during the Employment Term without the Executive’s written consent. The Executive’s annual base salary, as in effect from time to time, is hereinafter referred to as “Base Salary”.
4.2 Annual Bonus. For each fiscal year of the Employment Term, the Executive shall be eligible to receive an annual bonus (the “Annual Bonus”) of up to fifty percent (50%) of the Base Salary. Of this amount, fifty percent (50%) of the Annual Bonus will be earned in full by the Executive if the Executive is continuously employed by the Company for the entirety of the applicable fiscal year. The remaining fifty percent (50%) of the Annual Bonus will be subject to the satisfaction of the following performance objectives (the “Performance Bonus”):
(a) Two-thirds (2/3) of the Performance Bonus will be earned in full by the Executive if the Executive successfully raises sufficient capital, whether through the issuance of debt or equity, to ensure the viability of the Company for the entirety of the applicable fiscal year; and
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(b) The remaining one-third (1/3) of the Performance Bonus will be earned in full by the Executive if the Company generates at least $10 million of revenue during the fiscal year ended December 31, 2026 and, in the following fiscal years, if the Company generates that amount of revenue as shall be determined annually by the Board.
Any earned Annual Bonus will be paid within the period necessary for compliance with Section 409A (“Section 409A” of the Internal Revenue Code of 1986, as amended (the “Code”). Except as otherwise provided in Section 5 hereof, the Executive must be employed by the Company on the last day of the applicable fiscal year in order to be eligible to earn any part of the Annual Bonus.
4.3 Change in Control Bonus. If, and each time, a Change of Control (as defined below) occurs during the Employment Term, the Executive shall be entitled to receive a lump sum payment equal to the sum of the Executive’s Base Salary and Annual Bonus (assuming the maximum Annual Bonus would have been earned) for the year in which the Change in Control occurs, which shall be paid to the Executive immediately after the Change in Control occurs.
4.4 Equity Awards. During the Employment Term, the Executive shall be eligible to participate in the Company’s 2022 Equity Incentive Plan (the “2022 Equity Incentive Plan”) or any successor plan, subject to the terms of the 2022 Equity Incentive Plan or successor plan, as determined by the Board (or a committee thereof) in its discretion. In addition, on the Effective Date, the Executive shall be granted a stock option, substantially in the form attached hereto as Exhibit A (the “Stock Option”), exercisable into that number of shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”), representing approximately five percent (5%) of the total shares of Common Stock issued and outstanding and calculated on a fully diluted basis on the Effective Date, such stock option to be exercisable at an exercise price equal to the closing price of the Common Stock on the Nasdaq Stock Market on the Effective Date and to vest in equal quarterly installments over a four (4) year period commencing on the Effective Date.
In the event that the shares of Common Stock underlying Stock Option have not been registered for sale by the Executive under the Registration Statement on Form S-8, File Number 333-268106, filed by the Company with the Securities and Exchange Commission (the “SEC”) on November 1, 2022 (the “Registration Statement”), the Company agrees that, on or prior to the first anniversary of the Effective Date, it will amend the Registration Statement and take such other action as may be necessary to register such shares of Common Stock for sale by the Executive under the Registration Statement or file an additional registration statement on Form S-8 or other form of registration statement with the SEC and take such other action as may be necessary to register such shares of Common Stock for sale by the Executive.
In the event of a conflict between the terms of this Agreement and the Stock Option, the 2022 Equity Incentive Plan, or the stock option grant notice issued in connection with the grant of the Stock Option (the “Stock Option Grant Notice”), the terms of this Agreement shall control and supersede the conflicting terms of the Stock Option, the 2022 Equity Incentive Plan, and the Stock Option Grant Notice.
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4.5 Perquisites. During the Employment Term, the Company shall provide to the Executive all employee and executive perquisites which other senior executives of the Company are generally entitled to receive, in accordance with Company policy set by the Board from time to time.
4.6 Benefit Plans. During the Employment Term, the Executive shall be entitled to participate in all employee and executive benefit plans of the Company, as in effect from time to time (collectively, “Employee Benefit Plans”) including, but not limited to, equity, pension, thrift, profit sharing, 401(k), medical coverage, education, or other retirement or welfare benefits that the Company has adopted or may adopt, maintain or contribute to for the benefit of its executives at a level commensurate with the Executive’s position subject to satisfying the applicable eligibility requirements. Such benefits, in the aggregate, shall be no less favorable than is provided to other similarly situated executives of the Company. The Company reserves the right to amend or terminate any Employee Benefit Plans at any time in its sole discretion, subject to the terms of such Employee Benefit Plan and applicable law.
4.7 Vacation; Paid Time Off. During the Employment Term, the Executive shall be entitled to the prescribed number of weeks of paid vacation days per calendar year (prorated for partial years) in accordance with the Company’s vacation policies, as in effect from time to time. The Executive shall receive other paid time off in accordance with the Company’s policies for executive officers as such policies may exist from time to time.
4.8 Business Expenses. The Executive shall be entitled to reimbursement for all reasonable and necessary out-of-pocket business, entertainment, and travel expenses incurred by the Executive in connection with the performance of the Executive’s duties hereunder in accordance with the Company’s expense reimbursement policies and procedures.
4.9 Indemnification.
(a) The Company will enter into a standard form of officer and director indemnification agreement with the Executive, in the form of which is approved by the Board.
(b) The Company will use commercially reasonable efforts to maintain third party directors and officers indemnification insurance for the Executive on the same terms and conditions as apply to the members of the Board and similarly situated executive officers.
4.10 Clawback Provisions. Notwithstanding any other provisions in this Agreement to the contrary, any incentive-based or other compensation paid to the Executive under this Agreement or any other agreement or arrangement with the Company which is subject to recovery under any law, government regulation, or stock exchange listing requirement will be subject to such deductions and clawback as may be required to be made pursuant to such law, government regulation, or stock exchange listing requirement (or any policy adopted by the Company pursuant to any such law, government regulation or stock exchange listing requirement).
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5. Termination of Employment. The Employment Term and the Executive’s employment hereunder may be terminated by either the Company or the Executive at any time and for any reason; provided that, unless otherwise provided in this Agreement, either party shall be required to give the other party at least thirty (30) days advance written notice of any termination of the Executive’s employment. On termination of the Executive’s employment during the Employment Term, the Executive shall be entitled to the compensation and benefits described in this Section 5 and shall have no further rights to any compensation or any other benefits from the Company or any of its affiliates.
5.1 Expiration of the Term, For Cause, or Without Good Reason.
(a) The Executive’s employment hereunder may be terminated upon the Executive’s election not to renew the Agreement in accordance with Section 1 hereof, by the Company for Cause, or by the Executive without Good Reason. If the Executive’s employment is terminated upon the Executive’s election not to renew the Agreement, by the Company for Cause, or by the Executive without Good Reason, the Executive shall be entitled to receive:
(i) any accrued but unpaid Base Salary and accrued but unused vacation which shall be paid within one (1) week following the Termination Date (as defined below) in accordance with the Company’s customary payroll procedures;
(ii) any earned but unpaid Annual Bonus with respect to any completed fiscal year immediately preceding the Termination Date, which shall be paid on the otherwise applicable payment date except to the extent payment is otherwise deferred pursuant to any applicable deferred compensation arrangement;
(iii) any other accrued but unpaid compensation or consideration owed to the Executive;
(iv) reimbursement for unreimbursed business expenses properly incurred by the Executive, which shall be subject to and paid in accordance with the Company’s expense reimbursement policy; and
(v) such employee benefits (including equity compensation), if any, to which the Executive may be entitled under the Company’s employee benefit plans and equity incentive plans as of the Termination Date; provided that, in no event shall the Executive be entitled to any payments in the nature of severance or termination payments except as specifically provided herein.
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Items 5.1(a)(i) through 5.1(a)(v) are referred to herein collectively as the “Accrued Amounts”. The treatment of any outstanding equity awards shall be determined in accordance with the terms of the 2022 Equity Incentive Plan and the applicable award agreements and notices.
(b) For purposes of this Agreement, “Cause” shall mean:
(i) the Executive’s willful failure, without substantial justification, to perform Executive’s duties (other than any such failure resulting from incapacity due to physical or mental illness);
(ii) the Executive’s willful failure to comply with any valid and legal directive of such officer or director as may be designated by the Board;
(iii) the Executive’s willful engagement in illegal conduct which is, in each case, materially injurious to the Company or its affiliates;
(iv) the Executive’s conviction of embezzlement, misappropriation, or fraud, whether or not related to the Executive’s employment with the Company;
(v) the Executive’s conviction of or plea of guilty to a crime that constitutes a felony (or state law equivalent) or a crime that constitutes a misdemeanor involving moral turpitude, if such felony or other crime is work-related, materially impairs the Executive’s ability to perform services for the Company, or results in material reputational or financial harm to the Company or its affiliates;
(vi) the Executive’s material violation of the Company’s written policies or codes of conduct, including written policies related to discrimination, harassment, performance of illegal or unethical activities, and unethical misconduct:
(vii) the Executive’s willful unauthorized disclosure of Confidential Information (as defined below); or
(viii) the Executive’s material breach of any material obligation under this Agreement or any other written agreement between the Executive and the Company.
For purposes of this provision, no act on the part of the Executive shall be considered “willful” unless it is done, or omitted to be done by the Executive in bad faith. Any act, however, based on authority given pursuant to a resolution duly adopted by the Board or on the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company.
Termination of the Executive’s employment shall not be deemed to be for Cause unless and until the Company delivers to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than two-thirds (2/3) of the Board (after thirty (30) days prior written notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that the Executive has engaged in the conduct described in any of (i)-(viii) above, and that the Executive’s employment should accordingly be terminated for Cause.
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(c) For purposes of this Agreement, the Executive may not be subject to any of the following events without Executive’s written consent. For the purposes of this Agreement, it shall be deemed a “Good Reason” for the Executive to terminate employment in the event that the Company subjects the Executive to any of the following occurrences:
(i) a material reduction in the Executive’s Base Salary;
(ii) a relocation of the Executive’s principal place of employment by more than fifty (50) miles;
(iii) any material breach by the Company of any material provision of this Agreement or any material provision of any other agreement between the Executive and the Company;
(iv) the Company’s failure to obtain an agreement from any successor to the Company to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no succession had taken place, except where such assumption occurs by operation of law;
(v) a material, adverse change in the Executive’s title, authority, duties, or responsibilities (other than temporarily while the Executive is physically or mentally incapacitated or as required by applicable law) taking into account the Company’s size, status as a public company, and capitalization as of the date of this Agreement; or
(vi) a material adverse change in the reporting structure applicable to the Executive.
The Executive cannot terminate employment for Good Reason unless the Executive has provided written notice to the Company of the existence of the circumstances providing grounds for termination for Good Reason within fifteen (15) days of the initial existence of such grounds and the Company has had at least fifteen (15) days from the date on which such notice is provided to cure such circumstances. If the Executive does not terminate employment for Good Reason within thirty (30) days after the first occurrence of the applicable grounds, then the Executive will be deemed to have waived the right to terminate for Good Reason with respect to such grounds.
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5.2 Non-Renewal by the Company, Without Cause, or for Good Reason. The Employment Term and the Executive’s employment hereunder may be terminated by the Executive for Good Reason or by the Company without Cause or on account of the Company’s election to not renew the Agreement in accordance with Section 1 hereof. In the event of such termination, the Executive shall be entitled to receive the Accrued Amounts and subject to the Executive’s compliance with Section 6, Section 7, Section 8 and Section 9 of this Agreement and the Executive’s execution of a release of claims in favor of the Company, its affiliates and their respective officers and directors in a form provided by the Company (the “Release”) which becomes effective within twenty-one (21) days following the Termination Date (such twenty-one (21) -day period, the “Release Execution Period”), the Executive shall be entitled to receive the Accrued Amounts and the following severance benefits:
(a) a lump sum payment equal to two (2) times the sum of the Executive’s Base Salary and target Annual Bonus (assuming the maximum Annual Bonus would have been earned) for the year in which the Termination Date occurs, which, unless otherwise provided in this Agreement, shall be paid immediately after the expiration of the Release Execution Period;
(b) If the Executive timely and properly elects health continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), the Company shall maintain for Executive the same health insurance policies that it had in place on the Termination Date for the duration of the time that Executive utilizes COBRA and shall reimburse the Executive for the monthly COBRA premium paid by the Executive for the Executive and the Executive’s spouse and dependents. Such reimbursement shall be paid to the Executive on the fifth day of the month immediately following the month in which the Executive timely remits the premium payment. The Executive shall be eligible to receive such reimbursement until the earliest of: (i) the eighteen-month anniversary of the Termination Date; (ii) the date the Executive is no longer eligible to receive COBRA continuation coverage; and (iii) the date on which the Executive obtains substantially similar coverage from another employer or other source (which, for the sake of clarity, the Executive has no obligation whatsoever to obtain). Notwithstanding the foregoing, if the Company making payments under this Section 5.2(b) would violate the nondiscrimination rules applicable to non-grandfathered plans under the Affordable Care Act (the “ACA”), or result in the imposition of penalties under the ACA and the related regulations and guidance promulgated thereunder), the parties agree to reform this Section 5.2(b) in a manner as is necessary to comply with the ACA.
(c) The treatment of any outstanding equity awards shall be determined in accordance with the terms of the 2022 Equity Incentive Plan and the applicable award agreements and notices.
(d) Notwithstanding the foregoing, all outstanding equity-based compensation awards, including the Stock Option, shall remain outstanding and shall vest in full immediately on the Termination Date.
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5.3 Death or Disability.
(a) The Executive’s employment hereunder shall terminate automatically on the Executive’s death during the Employment Term, and the Company may terminate the Executive’s employment on account of the Executive’s Disability.
(b) If the Executive’s employment is terminated during the Employment Term on account of the Executive’s death or Disability, the Executive (or the Executive’s estate and/or beneficiaries, as the case may be) shall be entitled to receive the following:
(i) the Accrued Amounts; and
(ii) a lump sum payment equal to the Annual Bonus that the Executive would have earned for the fiscal year in which the Termination Date occurs (assuming the maximum Annual Bonus would have been earned), which shall be payable on the date that annual bonuses are paid to the Company’s similarly situated executives, but in no event later than two-and-a-half (2 1/2) months following the end of the fiscal year in which the Termination Date occurs.
Notwithstanding any other provision contained herein, all payments made in connection with the Executive’s Disability shall be provided in a manner which is consistent with federal and state law.
(c) For purposes of this Agreement, “Disability” shall mean a condition that entitles the Executive to receive long-term disability benefits under the Company’s long-term disability plan, or if there is no such plan, the Executive’s inability, due to physical or mental incapacity, to perform the essential functions of the Executive’s job, with or without reasonable accommodation, for one hundred eighty (180) days out of any three hundred sixty-five (365) day period or one hundred twenty (120) consecutive days. Any question as to the existence of the Executive’s Disability as to which the Executive and the Company cannot agree shall be determined in writing by a qualified independent physician mutually acceptable to the Executive and the Company. If the Executive and the Company cannot agree as to a qualified independent physician, each shall appoint such a physician and those two physicians shall select a third who shall make such determination in writing. The determination of Disability made in writing to the Company and the Executive shall be final and conclusive for all purposes of this Agreement.
5.4 Change in Control Termination.
(a) Notwithstanding any other provision contained herein, if the Executive’s employment hereunder is terminated by the Executive for Good Reason, by the Company on account of the Company’s election to not renew the Agreement in accordance with Section 1 hereof or by the Company without Cause (other than on account of the Executive’s death or Disability), in each case within twelve (12) months following a Change in Control, the Executive shall be entitled to receive the Accrued Amounts and the compensation described in Section 5.2 hereof, and, subject to the Executive’s compliance with Section 6, Section 7, Section 8 and Section 9 of this Agreement, the Executive shall be entitled to receive a lump sum payment equal to the sum of the Executive’s Base Salary and Annual Bonus (assuming the maximum Annual Bonus would have been earned) for the year in which the Termination Date occurs (or if greater, the year immediately preceding the year in which the Change in Control occurs), which shall be paid immediately following the termination of the Executive’s employment. For the sake of clarity, the compensation payable to the Executive under this Section 5.4 is in addition to, and not in substitution for or as an alternative to, the compensation payable to the Executive under Section 5.2 hereof. Accordingly, in the event that Executive’s employment hereunder is terminated by the Executive for Good Reason, by the Company on account of its election to not renew the Agreement in accordance with Section 1 hereof or by the Company without Cause, in each case within twelve (12) months following a Change in Control, the Executive will be entitled to receive the compensation described in Section 5.2 hereof and will also receive the compensation described in this Section 5.4.
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(b) If the Executive timely and properly elects health plan continuation coverage under COBRA, the Company shall reimburse the Executive for the monthly COBRA premium paid by the Executive for the Executive and the Executive’s spouse and dependents. Such reimbursement shall be paid to the Executive on the fifth day of the month immediately following the month in which the Executive timely remits the premium payment. The Executive shall be eligible to receive such reimbursement until the earliest of: (i) the eighteen-month anniversary of the Termination Date; (ii) the date the Executive is no longer eligible to receive COBRA continuation coverage; and (iii) the date on which the Executive obtains substantially similar coverage from another employer or other source (which, for the sake of clarity, the Executive has no obligation whatsoever to obtain). Notwithstanding the foregoing, if the Company’s payments under this Section 5.4(b) would violate the nondiscrimination rules applicable to non-grandfathered, insured group plans under the ACA, or result in the imposition of penalties under the ACA, the parties agree to reform this Section 5.4(b) in a manner as is necessary to comply with the ACA.
(c) Notwithstanding the terms of the 2022 Equity Incentive Plan or any applicable award agreements or notices, as applicable, all outstanding equity-based compensation awards, including the Stock Option, shall remain outstanding and shall vest in full immediately prior to the consummation of the Change in Control.
(d) For purposes of this Agreement, “Change in Control” shall mean the occurrence of any of the following after the Effective Date:
(i) any person or group of persons, excluding for this purpose, (A) the Company or any subsidiary of the Company, or (B) any employee benefit plan of the Company or any subsidiary of the Company, or any person or entity organized, appointed or established by the Company for or pursuant to the terms of any such plan which acquires beneficial ownership of voting securities of the Company, through a single transaction or a series of transactions, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than thirty percent (30%) or more of the of the combined voting power of the Company’s then outstanding securities; provided, however, that no Change in Control will be deemed to have occurred as a result of a change in ownership percentage resulting solely from an acquisition of securities by the Company;
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(ii) a majority of the individuals who, as of the date hereof, constitute the Board are replaced during any twelve-month period for any reason; or
(iii) consummation of a reorganization, merger or consolidation of the Company or sale or other disposition of all or substantially all of the assets of the Company through a single transaction or a series of transactions (a “Business Combination”), in each case, unless, following such Business Combination, all or substantially all of the individuals and entities who were the beneficial owners of outstanding voting securities of the Company immediately prior to such Business Combination beneficially own, directly or indirectly, more than fifty percent (50%) of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the company after such Business Combination (including, without limitation, an entity which, as a result of such transaction, owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Business Combination; or
(iv) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.
For the purposes of this Section 5.4, “group” includes, but is not limited to, persons that own an entity that enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with the Company.
5.5 Notice of Termination. Any termination of the Executive’s employment hereunder by the Company or by the Executive during the Employment Term (other than termination pursuant to Section 5.3(a) hereof on account of the Executive’s death) shall be communicated by written notice of termination (“Notice of Termination”) to the other party hereto in accordance with Section 24 hereof. The Notice of Termination shall specify:
(a) The termination provision of this Agreement relied upon;
(b) To the extent applicable, the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated; and
(c) The applicable Termination Date.
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5.6 Termination Date. The Executive’s “Termination Date” shall be:
(a) If the Executive’s employment hereunder terminates on account of the Executive’s death, the date of the Executive’s death;
(b) If the Executive’s employment hereunder is terminated on account of the Executive’s Disability, the date that it is determined that the Executive has a Disability;
(c) If the Company terminates the Executive’s employment hereunder for Cause, the date the Notice of Termination is delivered to the Executive;
(d) If the Company terminates the Executive’s employment hereunder without Cause, the date specified in the Notice of Termination, which shall be no less than thirty (30) days following the date on which the Notice of Termination is delivered to the Executive; provided that, the Company shall have the option to provide the Executive with a lump sum payment equal to thirty (30) days’ Base Salary in lieu of such notice, which shall be paid in a lump sum on the Executive’s Termination Date and for all purposes of this Agreement, the Executive’s Termination Date shall be the date on which such Notice of Termination is delivered to the Executive;
(e) If the Executive terminates the Executive’s employment hereunder with or without Good Reason, the date specified in the Executive’s Notice of Termination, which shall be no less than five (5) days following the date on which the Notice of Termination is delivered to the Company; provided that, the Company may waive all or any part of the five (5) day notice period for no consideration by giving written notice to the Executive and for all purposes of this Agreement, the Executive’s Termination Date shall be the date determined by the Company; and
(f) If the Executive’s employment hereunder terminates because either party provides notice of non-renewal pursuant to Section 1 hereof, the Renewal Date immediately following the date on which the applicable party delivers notice of non-renewal.
Notwithstanding anything contained herein, the Termination Date shall not occur until the date on which the Executive incurs a “separation from service” within the meaning of Section 409A.
5.7 Resignation of All Other Positions. On termination of the Executive’s employment hereunder for any reason, the Executive agrees to resign, effective on the Termination Date, or shall be deemed to have resigned, from all positions that the Executive holds as an officer or member of the Board (or a committee thereof) of the Company or any of its affiliates.
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6. Cooperation. The parties agree that certain matters in which the Executive will be involved during the Employment Term may necessitate the Executive’s cooperation in the future. Accordingly, following the termination of the Executive’s employment for any reason, to the extent reasonably requested by the Board, the Executive shall cooperate with the Company in connection with matters arising out of the Executive’s service to the Company; provided that, the Company shall make reasonable efforts to minimize disruption of the Executive’s other activities. The Company shall reimburse the Executive for reasonable expenses incurred in connection with such cooperation and, to the extent that the Executive is required to spend substantial time on such matters, the Company shall compensate the Executive at an hourly rate based on the Executive’s Base Salary on the Termination Date.
7. Confidential Information. The Executive understands and acknowledges that during the Employment Term, the Executive will have access to and learn about Confidential Information, as defined below.
7.1 Confidential Information Defined.
(a) Definition.
For purposes of this Agreement, “Confidential Information” includes, but is not limited to, all information not generally known to the public, in spoken, printed, electronic or any other form or medium, relating directly or indirectly to: business processes, practices, methods, policies, plans, publications, documents, research, operations, services, strategies, techniques, agreements, contracts, terms of agreements, transactions, potential transactions, negotiations, pending negotiations, know-how, trade secrets, computer programs, computer software, applications, operating systems, software design, web design, work-in-process, databases, device configurations, embedded data, compilations, metadata, technologies, manuals, records, articles, systems, material, sources of material, supplier information, vendor information, financial information, results, accounting information, accounting records, legal information, marketing information, advertising information, pricing information, credit information, design information, payroll information, staffing information, personnel information, employee lists, supplier lists, vendor lists, developments, reports, internal controls, security procedures, graphics, drawings, sketches, market studies, sales information, revenue, costs, formulae, notes, communications, algorithms, product plans, designs, styles, models, ideas, audiovisual programs, inventions, unpublished patent applications, original works of authorship, discoveries, experimental processes, experimental results, specifications, customer information, customer lists, client information, client lists, manufacturing information, factory lists, distributor lists, and buyer lists of the Company or any existing or prospective customer, supplier, investor or other associated third party, or of any other person or entity that has entrusted information to the Company in confidence.
The Executive understands that the above list is not exhaustive, and that Confidential Information also includes other information that is marked or otherwise identified as confidential or proprietary, or that would otherwise appear to a reasonable person to be confidential or proprietary in the context and circumstances in which the information is known or used.
The Executive understands and agrees that Confidential Information includes information developed by Executive in the course of employment by the Company as if the Company furnished the same Confidential Information to the Executive in the first instance. Confidential Information shall not include information that is generally available to and known by the public at the time of disclosure to the Executive; provided that, such disclosure is through no direct or indirect fault of the Executive or person(s) acting on the Executive’s behalf.
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(b) Company Creation and Use of Confidential Information. The Executive understands and acknowledges that the Company has invested, and continues to invest, substantial time, money, and specialized knowledge into developing its resources, creating a customer base, generating customer and potential customer lists, training its employees, and improving its offerings relating to its artificial intelligence business and such other businesses as the Company may engage in during the Employment Term. The Executive understands and acknowledges that as a result of these efforts, the Company has created, and continues to use and create Confidential Information. This Confidential Information provides the Company with a competitive advantage over others in the marketplace.
(c) Disclosure and Use Restrictions. The Executive agrees and covenants: (i) to treat all Confidential Information as strictly confidential; (ii) not to directly or indirectly disclose, publish, communicate, or make available Confidential Information, or allow it to be disclosed, published, communicated, or made available, in whole or part, to any entity or person whatsoever (including other employees of the Company) not having a need to know and authority to know and use the Confidential Information in connection with the business of the Company and, in any event, not to anyone outside of the direct employ of the Company except as required in the performance of the Executive’s authorized employment duties to the Company or with the prior consent of such officer or director as may be designated by the Board acting on behalf of the Company in each instance (and then, such disclosure shall be made only within the limits and to the extent of such duties or consent); and (iii) not to access or use any Confidential Information, and not to copy any documents, records, files, media, or other resources containing any Confidential Information, or remove any such documents, records, files, media, or other resources from the premises or control of the Company, except as required in the performance of the Executive’s authorized employment duties to the Company or with the prior consent of such officer or director as may be designated by the Board acting on behalf of the Company in each instance (and then, such disclosure shall be made only within the limits and to the extent of such duties or consent).
(d) Permitted disclosures. Nothing herein shall be construed to prevent disclosure of Confidential Information as may be required by applicable law or regulation, or pursuant to the valid order of a court of competent jurisdiction or an authorized government agency, provided that the disclosure does not exceed the extent of disclosure required by such law, regulation, or order. The Executive shall promptly provide written notice of any such order to such officer or director of the Company as may be designated by the Board.
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(e) Permitted Communications. Nothing herein prohibits or restricts the Executive (or the Executive’s attorney) from initiating communications directly with, responding to an inquiry from, or providing testimony before the Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), any other self-regulatory organization, or any other federal or state regulatory authority regarding a possible securities law violation.
(f) Notice of Immunity Under the Economic Espionage Act of 1996, as amended by the Defend Trade Secrets Act of 2016 (“DTSA”). Notwithstanding any other provision of this Agreement:
(i) The Executive will not be held criminally or civilly liable under any federal or state trade secret law for any disclosure of a trade secret that:
(A) is made (1) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (2) solely for the purpose of reporting or investigating a suspected violation of law; or
(B) is made in a complaint or other document filed under seal in a lawsuit or other proceeding.
(ii) If the Executive files a lawsuit for retaliation by the Company for reporting a suspected violation of law, the Executive may disclose the Company’s trade secrets to the Executive’s attorney and use the trade secret information in the court proceeding if the Executive:
(A) files any document containing trade secrets under seal; and
(B) does not disclose trade secrets, except pursuant to court order.
The Executive understands and acknowledges that the Executive’s obligations under this Agreement with regard to any particular Confidential Information shall commence immediately upon the Executive first having access to such Confidential Information (whether before or after the Executive begins employment by the Company) and shall continue during and after the Executive’s employment by the Company until such time as such Confidential Information has become public knowledge other than as a result of the Executive’s breach of this Agreement or breach by those acting in concert with the Executive or on the Executive’s behalf.
8. Restrictive Covenants.
8.1 Acknowledgement. The Executive acknowledges and agrees that, as a result of the nature of the Company’s business and the nature of the Executive’s position with the Company, the Executive has been or will come into contact with, and will have access to, Confidential Information belonging to the Company. The Executive acknowledges that the aforementioned Confidential Information is unique and not generally known to the public with respect to the Company and has been developed, acquired, and compiled by the Company at its great effort and expense.
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The Executive further acknowledges and agrees that any disclosure or use of the Company’s Confidential Information by the Executive, other than in connection with the Company’s business or as specifically authorized by the Company, will be or may become highly detrimental to the business of the Company, and serious loss of business and damage to the Company will or may result.
Accordingly, the Executive agrees to hold all Confidential Information in the strictest confidence and agrees to safeguard and not use, disclose, divulge or reveal the Company’s Confidential Information to any person, either during the Executive’s employment or at any time after the termination of the Executive’s employment with the Company, without specific prior written authorization from an officer or director of the Company as may be designated by the Board.
8.2 Non-Competition. Because of the Company’s legitimate business interest as described herein and the good and valuable consideration offered to the Executive, during the Employment Term and for the one (1) year, beginning on the last day of the Executive’s employment with the Company, except in the instance where Executive is terminated by the Company without Cause or the Executive terminates for a Good Reason, the Executive agrees and covenants not to engage in Prohibited Activity.
For purposes of this Section 8, “Prohibited Activity” is activity in which the Executive contributes the Executive’s knowledge, directly or indirectly, in whole or in part, as an employee, employer, owner, operator, manager, advisor, consultant, agent, employee, partner, director, stockholder, officer, volunteer, intern, or any other similar capacity to an entity engaged in its artificial intelligence business and such other businesses as the Company may be engaged in during the Employment Term within 20 miles of the Company’s main office. Prohibited Activity also includes activity that may require or inevitably requires disclosure of trade secrets, proprietary information, or Confidential Information.
Nothing herein shall prohibit the Executive from purchasing or owning less than five percent (5%) of the publicly traded securities of any corporation, provided that such ownership represents a passive investment and that the Executive is not a controlling person of, or a member of a group that controls, such corporation.
This Section 8 does not, in any way, restrict or impede the Executive from exercising protected rights to the extent that such rights cannot be waived by agreement or from complying with any applicable law or regulation or a valid order of a court of competent jurisdiction or an authorized government agency, provided that such compliance does not exceed that required by the law, regulation, or order.
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8.3 Non-Solicitation of Employees. The Executive agrees and covenants not to directly or indirectly solicit, hire, recruit, attempt to hire or recruit, or induce the termination of employment of any employee of the Company, or attempt to do so during one (1) year, beginning on the last day of the Executive’s employment with the Company.
8.4 Non-Solicitation of Customers. The Executive understands and acknowledges that because of the Executive’s experience with and relationship to the Company, the Executive will have access to and learn about much or all of the Company’s customer information. “Customer Information” includes, but is not limited to, names, phone numbers, addresses, email addresses, order history, order preferences, chain of command, decision makers, pricing information, and other information identifying facts and circumstances specific to the customer and relevant to sales or services.
The Executive understands and acknowledges that loss of this customer relationship and/or goodwill will cause significant and irreparable harm to the Company.
The Executive agrees and covenants that for a period of one (1) year beginning on the last day of the Executive’s employment with the Company, not to use the Company’s Confidential Information for purposes of offering or goods or services similar to or competitive with those offered by the Company.
This restriction shall only apply to:
(a) Customers or prospective customers the Executive contacted in any way during the twelve (12) months prior to termination;
(b) Customers about whom the Executive has trade secret or confidential information; and
(c) Customers about whom the Executive has information that is not available publicly.
9. Remedies. In the event of a breach or threatened breach by the Executive of Section 7, Section 8 or Section 9 of this Agreement, the Executive hereby consents and agrees that the Company shall be entitled to seek, in addition to other available remedies, a temporary or permanent injunction or other equitable relief against such breach or threatened breach from any court of competent jurisdiction, and that money damages would not afford an adequate remedy, without the necessity of showing any actual damages, and without the necessity of posting any bond or other security. The aforementioned equitable relief shall be in addition to, not in lieu of, legal remedies, monetary damages, or other available forms of relief.
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10. Proprietary Rights.
10.1 Work Product. At all times while Executive is employed by the Company, the Executive is free to use Work Product and Intellectual Property which is not gained as result of a breach of this Agreement. “Work Product” and “Intellectual Property” that is developed by Executive through Executive’s own skill, knowledge, know-how and experience without the assistance or use of Company assets, that does not relate to the Executive’s work for the Company may, however, be owned and used by the Executive to whatever extent and in whichever way Executive chooses both during and after the Employment Term. Except as set forth in this paragraph “Work Product” and “Intellectual Property” shall belong to the Company. The term “Work Product” shall mean all writings, works of authorship, technology, inventions, discoveries, processes, techniques, methods, ideas, concepts, research, proposals, materials, and all other work product of any nature whatsoever, that are created, prepared, produced, authored, edited, amended, conceived, or reduced to practice by the Executive individually or jointly with others during the Employment Term that relate to the business or contemplated business, products, activities, research, or development of the Company. “Work Product” does not include any of the foregoing that are (a) trade secrets, inventions, products, ideas, processes, formulas, know-how, improvements, discoveries, developments, designs and techniques; and (b) information regarding plans for research, development, new products, marketing and selling, business plans, budgets and unpublished financial statements, licenses, prices and costs, suppliers, distributors and customers; and (c) information regarding the skills and compensation of other employees of the Company. The term “Intellectual Property Rights” shall mean any and all rights in and to the Company’s US and foreign (a) patents, patent disclosures and inventions (whether patentable or not), (b) trademarks, service marks, trade dress, trade names, logos, corporate names, and domain names, and other similar designations of source or origin, together with the goodwill symbolized by any of the foregoing, (c) copyrights and copyrightable works (including computer programs), and rights in data and databases, (d) trade secrets, know-how, and other confidential information, and (e) all other intellectual property rights, in each case whether registered or unregistered and including all registrations and applications for, and renewals and extensions of, such rights, all improvements thereto and all similar or equivalent rights or forms of protection in any part of the world.
10.2 Work Made for Hire. Except as otherwise excluded by this paragraph, the Executive acknowledges that, by reason of being employed by the Company at the relevant times, to the extent permitted by law, all of the Work Product consisting of copyrightable subject matter is “work made for hire” as defined in 17 U.S.C. § 101 and such copyrights are therefore owned by the Company. To the extent that the foregoing does not apply, the Executive hereby irrevocably assigns to the Company, for no additional consideration, the Executive’s entire right, title, and interest in and to all Work Product and Intellectual Property Rights therein, including the right to sue, counterclaim, and recover for all past, present, and future infringement, misappropriation, or dilution thereof, and all rights corresponding thereto throughout the world. Nothing contained in this Agreement shall be construed to reduce or limit the Company’s rights, title, or interest in any Work Product or Intellectual Property Rights so as to be less in any respect than that the Company would have had in the absence of this Agreement.
10.3 Further Assurances; Power of Attorney. During and after the Employment Term, the Executive agrees to reasonably cooperate with the Company to (a) apply for, obtain, perfect, and transfer to the Company the Work Product as well as any and all Intellectual Property Rights in the Work Product in any jurisdiction in the world; and (b) maintain, protect and enforce the same, including, without limitation, giving testimony and executing and delivering to the Company any and all applications, oaths, declarations, affidavits, waivers, assignments, and other documents and instruments as shall be requested by the Company. The Executive hereby irrevocably grants the Company power of attorney to execute and deliver any such documents on the Executive’s behalf in the Executive’s name and to do all other lawfully permitted acts to transfer the Work Product to the Company and further the transfer, prosecution, issuance, and maintenance of all Intellectual Property Rights therein, to the full extent permitted by law, if the Executive does not promptly cooperate with the Company’s request (without limiting the rights the Company shall have in such circumstances by operation of law). The power of attorney is coupled with an interest and shall not be affected by the Executive’s subsequent incapacity.
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10.4 No License. The Executive understands that this Agreement does not, and shall not be construed to grant the Executive any license or right of any nature with respect to any Work Product or Intellectual Property Rights or any Confidential Information, materials, software, or other tools made available to the Executive by the Company.
11. Security.
11.1 Security and Access. The Executive agrees and covenants (a) to comply with all Company security policies and procedures as in force from time to time, including without limitation those regarding computer equipment, telephone systems, voicemail systems, facilities access, monitoring, key cards, access codes, Company intranet, internet, social media and instant messaging systems, computer systems, email systems, computer networks, document storage systems, software, data security, encryption, firewalls, passwords and any and all other Company facilities, IT resources and communication technologies (“Facilities and Information Technology Resources”); (b) not to access or use any Facilities and Information Technology Resources except as authorized by the Company; and (iii) not to access or use any Facilities and Information Technology Resources in any manner after the termination of the Executive’s employment by the Company, whether termination is voluntary or involuntary. The Executive agrees to notify the Company promptly in the event the Executive learns of any violation of the foregoing by others, or of any other misappropriation or unauthorized access, use, reproduction, or reverse engineering of, or tampering with any Facilities and Information Technology Resources or other Company property or materials by others.
11.2 Exit Obligations. Upon (a) voluntary or involuntary termination of the Executive’s employment or (b) the Company’s request at any time during the Executive’s employment, the Executive shall (i) provide or return to the Company any and all Company property, including keys, key cards, access cards, identification cards, security devices, employer credit cards, network access devices, computers, cell phones, smartphones, PDAs, pagers, fax machines, equipment, speakers, webcams, manuals, reports, files, books, compilations, work product, email messages, recordings, tapes, disks, thumb drives or other removable information storage devices, hard drives, negatives, and data and all Company documents and materials belonging to the Company and stored in any fashion, including but not limited to those that constitute or contain any Confidential Information or Work Product, that are in the possession or control of the Executive, whether they were provided to the Executive by the Company or any of its business associates or created by the Executive in connection with the Executive’s employment by the Company; and (ii) delete or destroy all copies of any such documents and materials not returned to the Company that remain in the Executive’s possession or control, including those stored on any non-Company devices, networks, storage locations, and media in the Executive’s possession or control.
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12. Publicity. The Executive hereby irrevocably consents to any and all uses and displays, by the Company and its agents, representatives and licensees, of the Executive’s name, voice, likeness, image, appearance, and biographical information in, on or in connection with any pictures, photographs, audio and video recordings, digital images, websites, television programs and advertising, other advertising and publicity, sales and marketing brochures, books, magazines, other publications, CDs, DVDs, tapes, and all other printed and electronic forms and media throughout the world, at any time during or after the Employment Term, for all legitimate commercial and business purposes of the Company (“Permitted Uses”) without further consent from or royalty, payment, or other compensation to the Executive. The Executive hereby forever waives and releases the Company and its directors, officers, employees, and agents from any and all claims, actions, damages, losses, costs, expenses, and liability of any kind, arising under any legal or equitable theory whatsoever at any time during or after the Employment Term, arising directly or indirectly from the Company and its agents’, representatives’, and licensees’ exercise of their rights in connection with any Permitted Uses.
13. Governing Law; Jurisdiction and Venue. This Agreement, for all purposes, shall be construed in accordance with the laws of Florida without regard to conflicts of law principles. Any action or proceeding by either of the parties to enforce this Agreement shall be brought only in a state or federal court located in the state of Broward, County. The parties hereby irrevocably submit to the exclusive jurisdiction of such courts and waive the defense of inconvenient forum to the maintenance of any such action or proceeding in such venue.
14. Entire Agreement. Unless specifically provided herein, this Agreement contains all of the understandings and representations between the Executive and the Company pertaining to the subject matter hereof and supersedes all prior and contemporaneous understandings, agreements, representations, and warranties, both written and oral, with respect to such subject matter. The parties mutually agree that the Agreement can be specifically enforced in court and can be cited as evidence in legal proceedings alleging breach of the Agreement. In the event of a conflict between the terms of this Agreement and the terms of any other agreement to which the Executive and the Company are a party, the terms of this Agreement shall control and supersede the conflicting terms of the other agreement.
15. Modification and Waiver. No provision of this Agreement may be amended or modified unless such amendment or modification is agreed to in writing and signed by the Executive and such officer or director of the Company as may be designated by the Board. No waiver by either of the parties of any breach by the other party hereto of any condition or provision of this Agreement to be performed by the other party hereto shall be deemed a waiver of any similar or dissimilar provision or condition at the same or any prior or subsequent time, nor shall the failure of or delay by either of the parties in exercising any right, power, or privilege hereunder operate as a waiver thereof to preclude any other or further exercise thereof or the exercise of any other such right, power, or privilege.
16. Severability. Should any provision of this Agreement be held by a court of competent jurisdiction to be enforceable only if modified, or if any portion of this Agreement shall be held as unenforceable and thus stricken, such holding shall not affect the validity of the remainder of this Agreement, the balance of which shall continue to be binding upon the parties with any such modification to become a part hereof and treated as though originally set forth in this Agreement.
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The parties further agree that any such court is expressly authorized to modify any such unenforceable provision of this Agreement in lieu of severing such unenforceable provision from this Agreement in its entirety, whether by rewriting the offending provision, deleting any or all of the offending provision, adding additional language to this Agreement, or by making such other modifications as it deems warranted to carry out the intent and agreement of the parties as embodied herein to the maximum extent permitted by law.
The parties expressly agree that this Agreement as so modified by the court shall be binding upon and enforceable against each of them. In any event, should one or more of the provisions of this Agreement be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provisions hereof, and if such provision or provisions are not modified as provided above, this Agreement shall be construed as if such invalid, illegal, or unenforceable provisions had not been set forth herein.
17. Captions. Captions and headings of the sections and paragraphs of this Agreement are intended solely for convenience and no provision of this Agreement is to be construed by reference to the caption or heading of any section or paragraph.
18. Counterparts. This Agreement may be executed in separate counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument.
19. Tolling. Should the Executive violate any of the terms of the restrictive covenant obligations articulated herein, the obligation at issue will run from the first date on which the Executive ceases to be in violation of such obligation.
20. Section 409A.
20.1 General Compliance. This Agreement is intended to comply with Section 409A or an exemption thereunder and shall be construed and administered in accordance with Section 409A. Notwithstanding any other provision of this Agreement, payments provided under this Agreement may only be made upon an event and in a manner that complies with Section 409A or an applicable exemption. Any payments under this Agreement that may be excluded from Section 409A either as separation pay due to an involuntary separation from service or as a short-term deferral shall be excluded from Section 409A to the maximum extent possible. For purposes of Section 409A, each installment payment provided under this Agreement shall be treated as a separate payment. Any payments to be made under this Agreement upon a termination of employment shall only be made upon a “separation from service” under Section 409A. In the event that the Executive is liable for all or any portion of any taxes, penalties, interest, or other expenses that may be incurred by the Executive on account of non-compliance with Section 409A, the Company shall reimburse the Executive for all such expenses within 10 days of receiving a request for such reimbursement from the Executive accompanied by supporting documentation evidencing the amount of such expenses.
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20.2 Specified Employees. Notwithstanding any other provision of this Agreement to the contrary, if any payment or benefit to be provided to the Executive in connection with the Executive’s termination of employment is determined to constitute “nonqualified deferred compensation” within the meaning of Section 409A and the Executive is determined to be a “specified employee” as defined in Section 409A(a)(2)(b)(i), then such payment or benefit shall not be paid until the first business day following the six-month anniversary of the Termination Date or, if earlier, on the Executive’s death (the “Specified Employee Payment Date”). The aggregate of any payments that would otherwise have been paid to the Executive before the Specified Employee Payment Date and interest on such amounts for the period commencing on the Termination Date and ending on the Specified Employee Payment Date calculated based on the applicable federal rate published by the Internal Revenue Service for the month in which the Executive’s separation from service occurs (the aggregate of all such payments and interest thereon, the “Deferred Payment”) shall be paid to the Executive in a lump sum on the Specified Employee Payment Date.
20.3 Rabbi Trust.
(a) Creation of Rabbi Trust. Immediately upon the earliest to occur of: (a) the date that the Executive’s employment hereunder is terminated by the Executive for Good Reason, by the Company on account of its election to not renew the Agreement in accordance with Section 1 hereof, or by the Company without Cause; (b) the date that the Company enters into an agreement or series of agreements that results in, or may in the future result in, a Change in Control; or (c) the date that a Change in Control occurs, the Company will establish a “rabbi trust” (the “Rabbi Trust”) for the sole benefit of the Executive to secure the payment of the Deferred Payments. The trustee of the Rabbi Trust (the “Trustee”) will be a bank or trust company chosen by the Executive in his sole and absolute discretion. Immediately upon the occurrence of any of the events described in Section 20.3(a) or (c) hereof, the Company will deposit in the Rabbi Trust the maximum amount of cash necessary to complete the Deferred Payment on the Specified Employee Payment Date. On the Specified Employee Payment Date, the Trustee will pay the Deferred Payment to the Executive from the cash held by Rabbi Trust. The Company will remain liable to pay all or any portion of the Deferred Payment that for any reason is not paid to the Executive from the Rabbi Trust. The Company will be solely responsible for all costs and expenses associated with creating, maintaining, and, after the Deferred Payment has been paid in full to the Executive, terminating the Rabbi Trust.
(b) IRS Compliance. Notwithstanding anything herein to the contrary, the Rabbi Trust shall be established, and the trust agreement governing the Rabbi Trust shall be drafted, substantially in the form of the model trust set forth in Internal Revenue Service Revenue Procedure 92-64, as the same may be amended, restated, or superseded from time to time. Notwithstanding any other provision of this Agreement or of the trust agreement establishing the Rabbi Trust, all assets held in the Rabbi Trust shall at all times remain subject to the claims of the Company’s general creditors in the event of the Company’s “insolvency” (as defined in the trust agreement establishing the Rabbi Trust), and neither the Executive nor his beneficiaries shall have any preferred claim on, or any beneficial ownership interest in, any assets of the Rabbi Trust prior to the time such assets are paid to the Executive in accordance with the terms of the Rabbi Trust. The parties shall ensure that the Rabbi Trust shall provide that, upon the Company becoming insolvent, the Company shall give the Trustee prompt written notice of that fact, and the Trustee shall thereafter suspend all payments to the Executive from the Rabbi Trust and shall hold the assets of the Rabbi Trust for the benefit of the Company’s general creditors until such time as a court of competent jurisdiction directs otherwise or the Trustee is satisfied that the Company is no longer insolvent.
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20.4 Reimbursements. To the extent required by Section 409A, each reimbursement or in-kind benefit provided under this Agreement shall be provided in accordance with the following:
(a) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during each calendar year cannot affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar year;
(b) any reimbursement of an eligible expense shall be paid to the Executive on or before the last day of the calendar year following the calendar year in which the expense was incurred; and
(c) any right to reimbursements or in-kind benefits under this Agreement shall not be subject to liquidation or exchange for another benefit.
20.5 Tax Gross-Ups. Unless otherwise provided in this Agreement, any tax gross-up payments provided under this Agreement shall be paid to the Executive on or before December 31 of the calendar year immediately following the calendar year in which the Executive remits the related taxes.
21. Section 4999.
21.1 Gross-Up Payment. In the event that the Company or the Executive determines that any payment, distribution or benefits that the Executive receives or will receive from, on behalf of or with respect to the Company (including, without limitation, accelerated vesting of equity awards and severance payments and benefits), whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (in the aggregate, such payments and benefits are referred to herein as the “Payment”), would subject Executive to the excise tax imposed by Section 4999 of the Code (together with any interest or penalties that would be imposed with respect to such excise tax, the “Excise Tax”), then the Executive shall be entitled to receive from the Company an additional payment (the “Gross-Up Payment”) in an amount such that the net amount of the Payment and the Gross-Up Payment retained by the Executive after the payment by the Executive of all Excise Taxes on the Payment and all federal, state and local income tax, employment tax and Excise Taxes on the Gross-Up Payment shall be equal to the Payment. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed: (x) to be subject to federal income taxes at the highest marginal rate of federal income taxation for the calendar year in which the Gross-Up Payment is to be made; (y) to be subject to applicable state and local income taxes at the highest marginal rate of taxation for the calendar year in which the Gross-Up Payment is to be made, net of the reduction in federal income taxes which could be obtained from the deduction of such state and local taxes; and (z) to have otherwise allowable deductions for federal income tax purposes at least equal to those that would be disallowed because of the inclusion of the Gross-Up Payment in the Executive’s adjusted gross income.
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21.2 Timing of Payment. The Gross-Up Payment will be paid to the Executive at the same time as the Payment to which it relates; provided, however, that if the amount of the Gross-Up Payment for a portion of the Payment cannot be calculated prior to the time that the Payment is made, the Gross-Up Payment for that portion of the Payment shall be paid to the Executive within ten (10) days after the Payment is made. Once a Gross-Up Payment has been received by the Executive, the Executive shall not be obligated to return to the Company any portion of the Gross-Up Payment so received in the event it is subsequently determined that the amount of the Gross-Up Payment received by the Executive was in excess of the amount the Company should have paid to the Executive.
21.3 Excise Tax Calculation. All determinations required to be made under this Section 21, including whether and when a Gross-Up Payment is required and the amount of the Gross-Up Payment and the assumptions to be utilized in arriving at the determination (collectively, “Tax Determinations”), will be made by a reputable certified public accounting firm selected by the Company with the consent of the Executive, which should not unreasonably be withheld (the “Accounting Firm”), which will provide detailed supporting calculations both to the Company and the Executive within twenty (20) days after the receipt by the Company of a request from the Executive for a Tax Determination with respect to a proposed or completed Payment or such earlier time as is requested by the Executive. All fees and expenses of the Accounting Firm for Tax Determinations will be borne solely by the Company.
21.4 Underpayments by the Company. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the Tax Determinations hereunder, it is possible that Gross-Up Payments that should have been made by the Company to the Executive were not made (such underpayments, the “Underpayment”). In the event that the Executive thereafter is required to make a payment of any Excise Tax, the Company shall pay Executive the amount of the Underpayment plus any applicable interest or penalties within ten (10) days of the date the Executive informs the Company of the obligation of the Executive to pay the Excise Tax. The Company shall reimburse the Executive for all costs and expenses incurred by the Executive in resolving any matters related to the determination and payment by Executive of any additional Exise Tax, including but not limited to the costs and expenses incurred by the Executive to resolve such matters with the Internal Revenue Service and other local, state and federal government agencies in connection therewith.
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22. Notification to Subsequent Employer. When the Executive’s employment with the Company terminates, the Executive agrees to notify any subsequent employer of the restrictive covenants sections contained in this Agreement. The Executive will also deliver a copy of such notice to the Company before the Executive commences employment with any subsequent employer. In addition, the Executive authorizes the Company to provide a copy of the restrictive covenants sections of this Agreement to third parties, including but not limited to, the Executive’s subsequent, anticipated, or possible future employer.
23. Successors and Assigns. This Agreement is personal to the Executive and shall not be assigned by the Executive. Any purported assignment by the Executive shall be null and void from the initial date of the purported assignment. The Company may assign this Agreement to any successor to or assignee of (whether direct or indirect, by purchase, merger, consolidation, or otherwise) all or substantially all of the business or assets of the Company. This Agreement shall inure to the benefit of the Company and its permitted successors and assigns.
24. Notice. Notices and all other communications provided for in this Agreement shall be in writing and shall be delivered personally or sent by registered or certified mail, return receipt requested, or by overnight carrier to the parties at the addresses set forth below (or such other addresses as specified by the parties by like notice):
| If to the Company | Algorhythm Holdings, Inc. |
| 6301 NW 5th Way, Ste. 2900 | |
| Fort Lauderdale, FL 33309 |
| If to the Executive | To that address set forth on the Company’s books and records as updated by the Executive from time to time |
25. Representations of the Executive. The Executive represents and warrants to the Company that:
(a) The Executive’s acceptance of employment with the Company and the performance of duties hereunder will not conflict with or result in a violation of, a breach of, or a default under any contract, agreement, or understanding to which the Executive is a party or is otherwise bound.
(b) The Executive’s acceptance of employment with the Company and the performance of duties hereunder will not violate any non-solicitation, non-competition, or other similar covenant or agreement of a prior employer.
26. Withholding. Unless otherwise provided in this Agreement, the Company shall have the right to withhold from any amount payable hereunder any Federal, state, and local taxes in order for the Company to satisfy any withholding tax obligation it may have under any applicable law or regulation.
27. Survival. Upon the expiration or other termination of this Agreement, the respective rights and obligations of the parties hereto shall survive such expiration or other termination to the extent necessary to carry out the intentions of the parties under this Agreement.
28. Acknowledgement of Full Understanding. THE EXECUTIVE ACKNOWLEDGES AND AGREES THAT THE EXECUTIVE HAS FULLY READ, UNDERSTANDS AND VOLUNTARILY ENTERS INTO THIS AGREEMENT. THE EXECUTIVE ACKNOWLEDGES AND AGREES THAT THE EXECUTIVE HAS HAD AN OPPORTUNITY TO ASK QUESTIONS AND CONSULT WITH AN ATTORNEY OF THE EXECUTIVE’S CHOICE BEFORE SIGNING THIS AGREEMENT.
[signature page follows]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
ALGORHYTHM HOLDINGS, INC. | ||
| By: | /s/ Harvey Judkowitz | |
| Harvey Judkowitz | ||
|
Chairman of the Compensation Committee of the Board of Directors | ||
EXECUTIVE | ||
| /s/ Gary Atkinson | ||
| Gary Atkinson | ||
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ALGORHYTHM
HOLDINGS, INC.
STOCK OPTION GRANT NOTICE
Algorhythm Holdings, Inc., a Delaware corporation (the “Company”), hereby grants to you an Option (the “Option”) to purchase shares of the Company’s common stock, par value $0.01 per share, under the Company’s 2022 Equity Incentive Plan (the “Plan”). The Option is subject to all the terms and conditions set forth in this Stock Option Grant Notice (this “Grant Notice”), in the Stock Option Agreement and in the Plan, which are attached to and incorporated into this Grant Notice in their entirety.
| Participant: | Gary Atkinson |
| Grant Date: | February 23, 2026 |
| Number of Shares Subject to Option: | [________________] |
| Exercise Price (per Share): | $[_______] |
| Option Expiration Date: | February 23, 2036 (subject to earlier termination in accordance with the terms of the Plan and the Stock Option Agreement) |
| Type of Option: | ☐ Incentive Stock Option*
☒ Nonqualified Stock Option |
| Vesting and Exercisability Schedule: | The shares subject to the Option will vest and become exercisable in equal quarterly installments commencing on February 23, 2026. |
Additional Terms/Acknowledgement: You acknowledge receipt of, and understand and agree to, this Grant Notice, the Stock Option Agreement and the Plan. You further acknowledge that, as of the Grant Date, this Grant Notice, the Stock Option Agreement, the Plan, and that certain Amended and Restated Employment Agreement, dated February 23, 2026, by and between you and the Company (the “Employment Agreement”) set forth the entire understanding between you and the Company regarding the Option. In the event of a conflict between the terms of the Employment Agreement and the Grant Notice, Stock Option Agreement or Plan, the terms of the Employment Agreement shall control and supersede the conflicting terms of the Grant Notice, Stock Option Agreement and Plan.
ALGORHYTHM
HOLDINGS, INC. |
PARTICIPANT | ||
| By: | |||
| Harvey Judkowitz | Gary Atkinson | ||
| Member of the Board of Directors | Date: _____________________________ | ||
Attachments:
1.
Stock Option Agreement
2. 2022 Equity Incentive Plan
* See Sections 3 and 4 of the Stock Option Agreement.
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ALGORHYTHM HOLDINGS, INC.
STOCK OPTION AGREEMENT
Pursuant to your Stock Option Grant Notice (the “Grant Notice”) and this Stock Option Agreement (this “Agreement”), Algorhythm Holdings, Inc., a Delaware corporation (the “Company”), has granted you an Option under the Company’s 2022 Equity Incentive Plan (the “Plan”) to purchase the number of shares of the Company’s Common Stock indicated in your Grant Notice (the “Shares”) at the exercise price indicated in your Grant Notice. Capitalized terms not defined in this Agreement but defined in the Plan have the same definitions as in the Plan.
The details of the Option are as follows:
1. Vesting and Exercisability. Subject to the limitations contained herein, the Option will vest and become exercisable as provided in your Grant Notice, provided that vesting will cease upon your Termination of Service and the unvested portion of the Option will terminate on such date.
2. Securities Law Compliance. Notwithstanding any other provision of this Agreement, you may not exercise the Option unless the Shares issuable upon exercise are registered under the Securities Act or, if such Shares are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Securities Act. The exercise of the Option must also comply with other applicable laws and regulations governing the Option, and you may not exercise the Option if the Company determines that such exercise would not be in material compliance with such laws and regulations.
3. Incentive Stock Option Qualification. If so designated in your Grant Notice, all or a portion of the Option is intended to qualify as an Incentive Stock Option under federal income tax law, but the Company does not represent or guarantee that the Option qualifies as such. If the Option has been designated as an Incentive Stock Option and the aggregate Fair Market Value (determined as of the grant date) of the shares of Common Stock subject to the portions of the Option and all other Incentive Stock Options you hold that first become exercisable during any calendar year exceeds $100,000, any excess portion will be treated as a Nonqualified Stock Option, unless the Internal Revenue Service changes the rules and regulations governing the $100,000 limit for Incentive Stock Options. A portion of the Option may be treated as a Nonqualified Stock Option if certain events cause exercisability of the Option to accelerate.
4. Notice of Disqualifying Disposition. To the extent the Option has been designated as an Incentive Stock Option, to obtain certain tax benefits afforded to Incentive Stock Options, you must hold the Shares issued upon the exercise of the Option for two years after the Grant Date and one year after the date of exercise. By accepting the Option, you agree to promptly notify the Company if you dispose of any of the Shares within one year from the date you exercise all or part of the Option or within two years from the Grant Date.
5. Alternative Minimum Tax. You may be subject to the alternative minimum tax at the time of exercise of an Incentive Stock Option.
6. Independent Tax Advice. You should obtain tax advice when exercising the Option and prior to the disposition of the Shares.
7. Method of Exercise. You may exercise the Option by giving written notice to the Company, in form and substance satisfactory to the Company, which will state your election to exercise the Option and the number of Shares for which you are exercising the Option. The written notice must be accompanied by full payment of the exercise price for the number of Shares you are purchasing. You may make this payment in any combination of the following: (a) by cash; (b) by check or wire transfer; (c) having the Company withhold shares of Common Stock that would otherwise be issued on exercise of a Nonqualified Stock Option that have an aggregate Fair Market Value equal to the aggregate exercise price of the shares being purchased under the Option; (d) tendering (either actually or, if and for as long as the Common Stock is registered under Section 12(b) or 12(g) of the Exchange Act, by attestation) shares of Common Stock owned by the Participant that have an aggregate Fair Market Value equal to the aggregate exercise price of the shares being purchased under the Option; (e) if and so long as the Common Stock is registered under Section 12(b) or 12(g) of the Exchange Act, and to the extent permitted by law, delivery of a properly executed exercise agreement or notice, together with irrevocable instructions to a brokerage firm designated or approved by the Company to deliver promptly to the Company the aggregate amount of proceeds to pay the Option exercise price and any tax withholding obligations that may arise in connection with the exercise, all in accordance with the regulations of the Federal Reserve Board; or (f) such other consideration as the Committee may permit.
8. Market Standoff. You agree that any Shares received upon exercise of the Option will be subject to the market standoff restrictions on transfer set forth in the Plan.
9. Treatment Upon Termination of Employment or Service Relationship. Except as otherwise provided in that certain Amended and Restated Employment Agreement, dated February 23, 2026, by and between you and the Company, the unvested portion of the Option will terminate automatically and without further notice immediately upon your Termination of Service. You may exercise the vested portion of the Option as follows:
(a) General Rule. You must exercise the vested portion of the Option on or before the earlier of (i) three months after your Termination of Service and (ii) the Option Expiration Date.
(b) Retirement or Disability. In the event of your Termination of Service due to Retirement or disability, you must exercise the vested portion of the Option on or before the earlier of (i) one year after your Termination of Service and (ii) the Option Expiration Date.
(c) Death. In the event of your Termination of Service due to your death, the vested portion of the Option must be exercised on or before the earlier of (i) one year after your Termination of Service and (ii) the Option Expiration Date. If you die after your Termination of Service but while the Option is still exercisable, the vested portion of the Option may be exercised until the earlier of (x) one year after the date of death and (y) the Option Expiration Date.
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(d) Cause. The vested portion of the Option will automatically expire at the time the Company first notifies you of your Termination of Service for Cause, unless the Committee otherwise. If your employment or service relationship is suspended pending an investigation of whether you will be terminated for Cause, all your rights under the Option likewise will be suspended during the period of investigation. If any facts that would constitute termination for Cause are discovered after your Termination of Service, any Option you then hold may be immediately terminated by the Committee.
The Option must be exercised within three months after termination of employment for reasons other than death or disability and one year after termination of employment due to disability to qualify for the beneficial tax treatment afforded Incentive Stock Options. For purposes of the preceding, “disability” has the meaning attributed to that term for purposes of Section 422 of the Code.
It is your responsibility to be aware of the date the Option terminates.
10. Limited Transferability. During your lifetime only you can exercise the Option. The Option is not transferable except by will or by the applicable laws of descent and distribution. The Plan provides for exercise of the Option by a beneficiary designated on a Company-approved form or the personal representative of your estate. Notwithstanding the foregoing and to the extent permitted by the Plan and Section 422 of the Code, the Committee, in its sole discretion, may permit you to assign or transfer the Option, subject to such terms and conditions as specified by the Committee.
11. Withholding Taxes. As a condition to the exercise of any portion of the Option, you must make such arrangements as the Company may require for the satisfaction of any federal, state, local or foreign tax withholding obligations that may arise in connection with such exercise.
12. Option Not an Employment or Service Contract. Nothing in the Plan or this Agreement will be deemed to constitute an employment contract or confer or be deemed to confer any right for you to continue in the employ of, or to continue any other relationship with, the Company or any Related Company or limit in any way the right of the Company or any Related Company to terminate your employment or other relationship at any time, with or without Cause.
13. No Right to Damages. You will have no right to bring a claim or to receive damages if you are required to exercise the vested portion of the Option within three months (one year in the case of Retirement, Disability or death) of your Termination of Service or if any portion of the Option is cancelled or expires unexercised. The loss of existing or potential profit in the Option will not constitute an element of damages in the event of your Termination of Service for any reason even if the termination is in violation of an obligation of the Company or a Related Company to you.
14. Binding Effect. This Agreement will inure to the benefit of the successors and assigns of the Company and be binding upon you and your heirs, executors, administrators, successors and assigns.
15. Section 409A Compliance. Notwithstanding any provision in the Plan or this Agreement to the contrary, the Committee may, at any time and without your consent, modify the terms of the Option as it determines appropriate to avoid the imposition of interest or penalties under Section 409A of the Code; provided, however, that the Committee makes no representations that the Option shall be exempt from or comply with Section 409A of the Code and makes no undertaking to preclude Section 409A of the Code from applying to the Option.
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Exhibit 10.2
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement (the “Agreement”) is made and entered into as of July 22, 2026, by and between Alex Andre (the “Executive”) and Algorhythm Holdings, Inc., a Delaware corporation (the “Company”), and sets forth the terms and conditions with respect to the Executive’s employment with the Company during the Term (as defined below).
WHEREAS, the Company and the Executive are parties to that certain Employment Agreement dated February 12, 2025 (the “Original Employment Agreement”); and
WHEREAS, the Company and the Executive wish to amend certain of the terms of the Original Employment Agreement as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants, promises, and obligations set forth herein, the parties agree as follows:
1. Term. The Executive’s term of employment under this Agreement (such term of employment, as it may be extended or terminated, is herein referred to as the “Employment Term”) shall be for a term commencing on February 13, 2025 (the “Effective Date”) and, unless terminated earlier as provided in Section 5 hereof, ending on the third anniversary of the Effective Date (the “Original Employment Term”); provided that, on such third anniversary of the Effective Date and each annual anniversary thereafter (such date and each annual anniversary thereof, a “Renewal Date”), the Agreement shall be deemed to be automatically extended, upon the same terms and conditions, for successive periods of one year, unless either party provides written notice of its intention not to extend the term of the Agreement at least ninety 90 days’ prior to the applicable Renewal Date. The period during which the Executive is employed by the Company hereunder is hereinafter referred to as the “Employment Term.”
2. Position and Duties.
2.1 Position. During the Employment Term, the Executive shall serve as the Chief Financial Officer & General Counsel of the Company, reporting to the Chief Executive Officer of the Company. In this capacity the Executive shall have such duties, authorities and responsibilities commensurate with the duties, authorities and responsibilities of persons in similar capacities in similarly sized companies and such other duties and responsibilities as the Chief Executive Officer shall designate that are consistent with the Executive’s position as Chief Financial Officer and General Counsel.
2.2 Duties. During the Employment Term, the Executive shall devote substantially all of the Executive’s business time (excluding periods of vacation and other approved leaves of absence) to the performance of the Executive’s duties hereunder and will not engage in any other business, profession, or occupation for compensation or otherwise which would conflict or interfere with the performance of such services either directly or indirectly without the prior written consent of the Board of Directors of the Company (the “Board”). Notwithstanding the foregoing, the Executive will be permitted to (a) with the prior written consent of the Board, act or serve as a director, trustee, committee member, or principal of any type of business, civic, or charitable organization as long as such activities are disclosed in writing to the Company’s Board of Directors, and (b) purchase or own less than five percent (5%) of the publicly traded securities of any corporation; provided that, such ownership represents a passive investment and that the Executive is not a controlling person of, or a member of a group that controls, such corporation; and provided further that, the activities described in clauses (a) and (b) do not interfere with the performance of the Executive’s duties and responsibilities to the Company as provided hereunder, including, but not limited to, the obligations set forth in Section 2 hereof.
3. Place of Performance. The principal place of Executive’s employment shall be the Company’s principal executive office currently located in Fort Lauderdale, Florida; provided that, the Executive may be required to travel from time to time on Company business during the Employment Term. The Executive may work remotely from Executive’s primary residence so long as doing so does not interfere with the Executive’s responsibilities under this Agreement; provided that, subject to any health or safety concerns related to the COVID-19 pandemic or other similar extraordinary circumstances, the Executive shall be required to spend on average two (2) days per week in the office or such other number of days as may be determined by the Chief Executive Officer.
4. Compensation.
4.1 Base Salary. The Company shall pay the Executive an annual base salary of $275,000, which shall automatically increase to $300,000 on the six-month anniversary of the Effective Date; provided the Executive remains in employment with the Company. The annual base salary shall be paid in periodic installments in accordance with the Company’s customary payroll practices and applicable wage payment laws, but no less frequently than monthly. The Executive’s base salary shall be reviewed at least annually by the Board (or a committee thereof) and the Board may, but shall not be required to, increase the base salary during the Employment Term. However, the Executive’s base salary may not be decreased during the Employment Term without the Executive’s written consent. The Executive’s annual base salary, as in effect from time to time, is hereinafter referred to as “Base Salary”.
4.2 Annual Bonus. For each fiscal year of the Employment Term, the Executive shall be eligible to receive an annual bonus (the “Annual Bonus”) of up to thirty percent (30%) of the Base Salary. The Compensation Committee of the Board, or if there is no such committee, the Board, will determine the terms of the Annual Bonus, including the performance objectives if any, to be achieved. Any earned Annual Bonus will be paid within the period necessary for compliance with Section 409A (“Section 409A”) of the Internal Revenue Code of 1986, as amended (the “Code”). Except as otherwise provided in Section 5 hereof, the Executive must be employed by the Company on the last day of the applicable fiscal year in order to be eligible to earn any part of the Annual Bonus.
4.3 Change in Control Bonus. If, and each time, a Change of Control (as defined below) occurs during the Employment Term, the Executive shall be entitled to receive a lump sum payment equal to the sum of the Executive’s Base Salary and Annual Bonus (assuming the maximum Annual Bonus would have been earned) for the year in which the Change in Control occurs, which shall be paid to the Executive immediately after the Change in Control occurs.
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4.4 Equity Awards. During the Employment Term, the Executive shall be eligible to participate in the Company’s 2022 Equity Incentive Plan (the “2022 Equity Incentive Plan”) or any successor plan, subject to the terms of the 2022 Equity Incentive Plan or successor plan, as determined by the Board (or a committee thereof) in its discretion. In addition, on the Effective Date, the Executive shall be granted the following equity awards under the 2022 Equity Incentive Plan:
(a) A restricted stock award, substantially in the form attached hereto as Exhibit A (the “Restricted Stock Award”), for a total of 23,818 shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”), representing approximately one percent (1%) of the total shares of Common Stock issued and outstanding and calculated on a fully diluted basis on the Effective Date, such shares to vest over a four (4)-year period in accordance with the following schedule: (i) twenty-five percent (25%) of the shares on the first anniversary of the Effective Date; and (ii) the remaining shares in equal quarterly installments over the remaining three (3) years of the vesting period; and
(b) A stock option, substantially in the form attached hereto as Exhibit B (the “Stock Option”), exercisable into 23,818 shares of Common Stock representing approximately one percent (1%) of the total shares of Common Stock issued and outstanding and calculated on a fully diluted basis on the Effective Date, such stock option to be exercisable at an exercise price equal to the closing price of the Common Stock on the Nasdaq Stock Market on the Effective Date and to vest over a four (4)-year period in accordance with the following schedule: (i) twenty-five percent (25%) of the shares on the first anniversary of the Effective Date; and (ii) the remaining shares in equal quarterly installments over the remaining three (3) years of the vesting period.
In the event that the shares of Common Stock underlying the Restricted Stock Award and Stock Option have not been registered for sale by the Executive under the Registration Statement on Form S-8, File Number 333-268106, filed by the Company with the Securities and Exchange Commission (the “SEC”) on November 1, 2022 (the “Registration Statement”), the Company agrees that, on or prior to the first anniversary of the Effective Date, it will amend the Registration Statement and take such other action as may be necessary to register such shares of Common Stock for sale by the Executive under the Registration Statement or file an additional registration statement on Form S-8 or other form of registration statement with the SEC and take such other action as may be necessary to register such shares of Common Stock for sale by the Executive.
In the event of a conflict between the terms of this Agreement and the Restricted Stock Award, Stock Option, 2022 Equity Incentive Plan, or stock option grant notice issued in connection with the grant of the Stock Option (the “Stock Option Grant Notice”), the terms of this Agreement shall control and supersede the conflicting terms of the Restricted Stock Award, Stock Option, 2022 Equity Incentive Plan, and Stock Option Grant Notice.
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4.5 Perquisites. During the Employment Term, the Company shall provide to the Executive all employee and executive perquisites which other senior executives of the Company are generally entitled to receive, in accordance with Company policy set by the Board from time to time.
4.6 Benefit Plans. During the Employment Term, the Executive shall be entitled to participate in all employee and executive benefit plans of the Company, as in effect from time to time (collectively, “Employee Benefit Plans”) including, but not limited to, equity, pension, thrift, profit sharing, 401(k), medical coverage, education, or other retirement or welfare benefits that the Company has adopted or may adopt, maintain or contribute to for the benefit of its executives at a level commensurate with the Executive’s position subject to satisfying the applicable eligibility requirements. Such benefits, in the aggregate, shall be no less favorable than is provided to other similarly situated executives of the Company. The Company reserves the right to amend or terminate any Employee Benefit Plans at any time in its sole discretion, subject to the terms of such Employee Benefit Plan and applicable law.
4.7 Vacation; Paid Time Off. During the Employment Term, the Executive shall be entitled to the prescribed number of weeks of paid vacation days per calendar year (prorated for partial years) in accordance with the Company’s vacation policies, as in effect from time to time. The Executive shall receive other paid time off in accordance with the Company’s policies for executive officers as such policies may exist from time to time.
4.8 Business Expenses. The Executive shall be entitled to reimbursement for all reasonable and necessary out-of-pocket business, entertainment, and travel expenses, including bar registration and renewal fees, incurred by the Executive in connection with the performance of the Executive’s duties hereunder in accordance with the Company’s expense reimbursement policies and procedures.
4.9 Relocation Expenses. On or about the Effective Date, the Company shall pay the Executive, on a fully tax grossed-up basis, an after-tax amount of $10,000 for relocation expenses.
4.10 Indemnification.
(a) The Company will enter into a standard form of officer and director indemnification agreement with the Executive, in the form of which is approved by the Board.
(b) The Company will use commercially reasonable efforts to maintain third party directors and officers indemnification insurance for the Executive on the same terms and conditions as apply to the members of the Board and similarly situated executive officers.
4.11 Clawback Provisions. Notwithstanding any other provisions in this Agreement to the contrary, any incentive-based or other compensation paid to the Executive under this Agreement or any other agreement or arrangement with the Company which is subject to recovery under any law, government regulation, or stock exchange listing requirement will be subject to such deductions and clawback as may be required to be made pursuant to such law, government regulation, or stock exchange listing requirement (or any policy adopted by the Company pursuant to any such law, government regulation or stock exchange listing requirement).
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5. Termination of Employment. The Employment Term and the Executive’s employment hereunder may be terminated by either the Company or the Executive at any time and for any reason; provided that, unless otherwise provided in this Agreement, either party shall be required to give the other party at least thirty (30) days advance written notice of any termination of the Executive’s employment. On termination of the Executive’s employment during the Employment Term, the Executive shall be entitled to the compensation and benefits described in this Section 5 and shall have no further rights to any compensation or any other benefits from the Company or any of its affiliates.
5.1 Non-Renewal by the Executive, For Cause, or Without Good Reason.
(a) The Executive’s employment hereunder may be terminated upon the Executive’s election not to renew the Agreement in accordance with Section 1 hereof, by the Company for Cause, or by the Executive without Good Reason. If the Executive’s employment is terminated upon the Executive’s election not to renew the Agreement, by the Company for Cause, or by the Executive without Good Reason, the Executive shall be entitled to receive:
(i) any accrued but unpaid Base Salary and accrued but unused vacation which shall be paid within one (1) week following the Termination Date (as defined below) in accordance with the Company’s customary payroll procedures;
(ii) any earned but unpaid Annual Bonus with respect to any completed fiscal year immediately preceding the Termination Date, which shall be paid on the otherwise applicable payment date except to the extent payment is otherwise deferred pursuant to any applicable deferred compensation arrangement;
(iii) any other accrued but unpaid compensation or consideration owed to the Executive;
(iv) reimbursement for unreimbursed business expenses properly incurred by the Executive, which shall be subject to and paid in accordance with the Company’s expense reimbursement policy; and
(v) such employee benefits (including equity compensation), if any, to which the Executive may be entitled under the Company’s employee benefit plans and equity incentive plans as of the Termination Date; provided that, in no event shall the Executive be entitled to any payments in the nature of severance or termination payments except as specifically provided herein.
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(b) Items 5.1(a)(i) through 5.1(a)(v) are referred to herein collectively as the “Accrued Amounts”. The treatment of any outstanding equity awards shall be determined in accordance with the terms of the 2022 Equity Incentive Plan and the applicable award agreements and notices.
(c) For purposes of this Agreement, “Cause” shall mean:
(i) the Executive’s willful failure, without substantial justification, to perform Executive’s duties (other than any such failure resulting from incapacity due to physical or mental illness);
(ii) the Executive’s willful failure to comply with any valid and legal directive of the Chief Executive Officer or such other officer or director as may be designated by the Board;
(iii) the Executive’s willful engagement in illegal conduct which is, in each case, materially injurious to the Company or its affiliates;
(iv) the Executive’s conviction of embezzlement, misappropriation, or fraud, whether or not related to the Executive’s employment with the Company;
(v) the Executive’s conviction of or plea of guilty to a crime that constitutes a felony (or state law equivalent) or a crime that constitutes a misdemeanor involving moral turpitude, if such felony or other crime is work-related, materially impairs the Executive’s ability to perform services for the Company, or results in material reputational or financial harm to the Company or its affiliates;
(vi) the Executive’s material violation of the Company’s written policies or codes of conduct, including written policies related to discrimination, harassment, performance of illegal or unethical activities, and unethical misconduct:
(vii) the Executive’s willful unauthorized disclosure of Confidential Information (as defined below); or
(viii) the Executive’s material breach of any material obligation under this Agreement or any other written agreement between the Executive and the Company.
For purposes of this provision, no act on the part of the Executive shall be considered “willful” unless it is done, or omitted to be done by the Executive in bad faith. Any act, however, based on authority given pursuant to a resolution duly adopted by the Board or on the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company.
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Termination of the Executive’s employment shall not be deemed to be for Cause unless and until the Company delivers to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than two-thirds (2/3) of the Board (after thirty (30) days prior written notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that the Executive has engaged in the conduct described in any of (i)-(viii) above, and that the Executive’s employment should accordingly be terminated for Cause.
(d) For purposes of this Agreement, the Executive may not be subject to any of the following events without Executive’s written consent. For the purposes of this Agreement, it shall be deemed a “Good Reason” for the Executive to terminate employment in the event that the Company subjects the Executive to any of the following occurrences:
(i) a material reduction in the Executive’s Base Salary;
(ii) to the extent that the Company has a corporate headquarters or corporate office, a relocation of the Executive’s principal place of employment at such corporate headquarters or corporate office by more than fifty (50) miles from the location of the Company’s current corporate headquarters located at 6301 NW 5th Way, Fort Lauderdale, FL 33309;
(iii) any material breach by the Company of any material provision of this Agreement or any material provision of any other agreement between the Executive and the Company;
(iv) the Company’s failure to obtain an agreement from any successor to the Company to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no succession had taken place, except where such assumption occurs by operation of law;
(v) a material, adverse change in the Executive’s title, authority, duties, or responsibilities (other than temporarily while the Executive is physically or mentally incapacitated or as required by applicable law) taking into account the Company’s size, status as a public company, and capitalization as of the date of this Agreement; or
(vi) a material adverse change in the reporting structure applicable to the Executive.
The Executive cannot terminate employment for Good Reason unless the Executive has provided written notice to the Company of the existence of the circumstances providing grounds for termination for Good Reason within fifteen (15) days of the initial existence of such grounds and the Company has had at least fifteen (15) days from the date on which such notice is provided to cure such circumstances. If the Executive does not terminate employment for Good Reason within thirty (30) days after the first occurrence of the applicable grounds, then the Executive will be deemed to have waived the right to terminate for Good Reason with respect to such grounds.
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5.2 Non-Renewal by the Company, Without Cause, or for Good Reason. The Employment Term and the Executive’s employment hereunder may be terminated (i) by the Executive for Good Reason, (ii) by the Company without Cause, or (iii) on account of the Company’s election to not renew this Agreement in accordance with Section 1 hereof (each, a “Qualifying Termination”). If a Qualifying Termination occurs and the Executive (A) has completed at least six (6) consecutive months of employment with the Company from the Effective Date of this Agreement (the “Vesting Period”), (B) remains in compliance with Sections 6, 7, 8, and 9 of this Agreement, and (C) executes a release of claims in favor of the Company, its affiliates, and their respective officers and directors in a form provided by the Company (the “Release”), which becomes effective within twenty-one (21) days following the Termination Date (such twenty-one (21)-day period, the “Release Execution Period”), the Executive shall be entitled to receive the Accrued Amounts and the following severance benefits:
(a) a lump sum payment equal to the sum of the Executive’s Base Salary and target Annual Bonus (assuming the maximum Annual Bonus would have been earned) for the year in which the Termination Date occurs, which, unless otherwise provided in this Agreement, shall be paid immediately after the expiration of the Release Execution Period;
(b) If the Executive timely and properly elects health continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), the Company shall maintain for Executive the same health insurance policies that it had in place on the Termination Date for the duration of the time that Executive utilizes COBRA and shall reimburse the Executive for the monthly COBRA premium paid by the Executive for the Executive and the Executive’s spouse and dependents. Such reimbursement shall be paid to the Executive on the fifth day of the month immediately following the month in which the Executive timely remits the premium payment. The Executive shall be eligible to receive such reimbursement until the earliest of: (i) the eighteen-month anniversary of the Termination Date; (ii) the date the Executive is no longer eligible to receive COBRA continuation coverage; and (iii) the date on which the Executive obtains substantially similar coverage from another employer or other source (which, for the sake of clarity, the Executive has no obligation whatsoever to obtain). Notwithstanding the foregoing, if the Company making payments under this Section 5.2(b) would violate the nondiscrimination rules applicable to non-grandfathered plans under the Affordable Care Act (the “ACA”), or result in the imposition of penalties under the ACA and the related regulations and guidance promulgated thereunder), the parties agree to reform this Section 5.2(b) in a manner as is necessary to comply with the ACA.
(c) The treatment of any outstanding equity awards shall be determined in accordance with the terms of the 2022 Equity Incentive Plan and the applicable award agreements and notices. Notwithstanding the foregoing, all outstanding equity-based compensation awards, including the Restricted Stock Award and Stock Option, shall remain outstanding and shall vest in full immediately on the Termination Date.
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Notwithstanding the foregoing, in the event that the Company elects not to renew this Agreement in accordance with Section 1 hereof upon the expiration of the Original Employment Term, the payment that the Company shall make to the Executive under Section 5.2(a) hereof shall be a lump sum payment equal to twenty-five percent (25%) of the sum of the Executive’s Base Salary and target Annual Bonus for the year in which the Termination Date occurs, which shall be paid within fifteen days following the expiration of Release Execution Period.
For the sake of clarity, if the Executive’s employment is not terminated: (i) by the Company without Cause, (ii) by the Executive for Good Reason, or (iii) on account of non-renewal of this Agreement by the Company in accordance with Section 1 hereof, the Executive shall be entitled to receive the Accrued Amounts in accordance with the terms of Section 5.1 hereof, but shall not be entitled to receive the additional severance benefits set forth in this Section 5.2 hereof.
5.3 Death or Disability.
(a) The Executive’s employment hereunder shall terminate automatically on the Executive’s death during the Employment Term, and the Company may terminate the Executive’s employment on account of the Executive’s Disability.
(b) If the Executive’s employment is terminated during the Employment Term on account of the Executive’s death or Disability, the Executive (or the Executive’s estate and/or beneficiaries, as the case may be) shall be entitled to receive the following:
(i) the Accrued Amounts; and
(ii) a lump sum payment equal to the pro-rata Annual Bonus, if any, that the Executive would have earned for the fiscal year in which the Termination Date occurs based on the achievement of applicable performance goals for such year, which shall be payable on the date that annual bonuses are paid to the Company’s similarly situated executives, but in no event later than two-and-a-half (2 1/2) months following the end of the fiscal year in which the Termination Date occurs.
Notwithstanding any other provision contained herein, all payments made in connection with the Executive’s Disability shall be provided in a manner which is consistent with federal and state law.
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(c) For purposes of this Agreement, “Disability” shall mean a condition that entitles the Executive to receive long-term disability benefits under the Company’s long-term disability plan, or if there is no such plan, the Executive’s inability, due to physical or mental incapacity, to perform the essential functions of the Executive’s job, with or without reasonable accommodation, for one hundred eighty (180) days out of any three hundred sixty-five (365) day period or one hundred twenty (120) consecutive days. Any question as to the existence of the Executive’s Disability as to which the Executive and the Company cannot agree shall be determined in writing by a qualified independent physician mutually acceptable to the Executive and the Company. If the Executive and the Company cannot agree as to a qualified independent physician, each shall appoint such a physician and those two physicians shall select a third who shall make such determination in writing. The determination of Disability made in writing to the Company and the Executive shall be final and conclusive for all purposes of this Agreement.
5.4 Change in Control Termination.
(a) Notwithstanding any other provision contained herein, if the Executive’s employment hereunder is terminated by the Executive for Good Reason, by the Company on account of the Company’s election to not renew the Agreement in accordance with Section 1 hereof or by the Company without Cause (other than on account of the Executive’s death or Disability), in each case within twelve (12) months following a Change in Control, the Executive shall be entitled to receive the Accrued Amounts and the compensation described in Section 5.2 hereof and, subject to the Executive’s compliance with Section 6, Section 7, Section 8 and Section 9 of this Agreement, the Executive shall be entitled to receive a lump sum payment equal to two (2) times the sum of the Executive’s Base Salary and target Annual Bonus (assuming the maximum Annual Bonus would have been earned) for the year in which the Termination Date occurs (or if greater, the year immediately preceding the year in which the Change in Control occurs), which shall be paid immediately following the termination of the Executive’s employment. For the sake of clarity, the compensation payable to the Executive under this Section 5.4 is in addition to, and not in substitution for or as an alternative to, the compensation payable to the Executive under Section 5.2 hereof. Accordingly, in the event that Executive’s employment hereunder is terminated by the Executive for Good Reason, by the Company on account of its election to not renew the Agreement in accordance with Section 1 hereof or by the Company without Cause, in each case within twelve (12) months following a Change in Control, the Executive will be entitled to receive the compensation described in Section 5.2 hereof and will also receive the compensation described in this Section 5.4.
(b) If the Executive timely and properly elects health plan continuation coverage under COBRA, the Company shall reimburse the Executive for the monthly COBRA premium paid by the Executive for the Executive and the Executive’s spouse and dependents. Such reimbursement shall be paid to the Executive on the fifth day of the month immediately following the month in which the Executive timely remits the premium payment. The Executive shall be eligible to receive such reimbursement until the earliest of: (i) the eighteen-month anniversary of the Termination Date; (ii) the date the Executive is no longer eligible to receive COBRA continuation coverage; and (iii) the date on which the Executive obtains substantially similar coverage from another employer or other source (which, for the sake of clarity, the Executive has no obligation whatsoever to obtain). Notwithstanding the foregoing, if the Company’s payments under this Section 5.4(b) would violate the nondiscrimination rules applicable to non-grandfathered, insured group plans under the ACA, or result in the imposition of penalties under the ACA, the parties agree to reform this Section 5.4(b) in a manner as is necessary to comply with the ACA.
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(c) Notwithstanding the terms of the 2022 Equity Incentive Plan or any applicable award agreements or notices, as applicable, all outstanding equity-based compensation awards, including the Restricted Stock Award and Stock Option, shall remain outstanding and shall vest in full immediately prior to the consummation of the Change in Control.
(d) For purposes of this Agreement, “Change in Control” shall mean the occurrence of any of the following after the Effective Date:
(i) any person or group of persons, excluding for this purpose, (A) the Company or any subsidiary of the Company, or (B) any employee benefit plan of the Company or any subsidiary of the Company, or any person or entity organized, appointed or established by the Company for or pursuant to the terms of any such plan which acquires beneficial ownership of voting securities of the Company, through a single transaction or a series of transactions, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than thirty percent (30%) or more of the of the combined voting power of the Company’s then outstanding securities; provided, however, that no Change in Control will be deemed to have occurred as a result of a change in ownership percentage resulting solely from an acquisition of securities by the Company;
(ii) a majority of the individuals who, as of the date hereof, constitute the Board are replaced during any twelve-month period for any reason; or
(iii) consummation of a reorganization, merger or consolidation of the Company or sale or other disposition of all or substantially all of the assets of the Company through a single transaction or a series of transactions (a “Business Combination”), in each case, unless, following such Business Combination, all or substantially all of the individuals and entities who were the beneficial owners of outstanding voting securities of the Company immediately prior to such Business Combination beneficially own, directly or indirectly, more than fifty percent (50%) of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the company after such Business Combination (including, without limitation, an entity which, as a result of such transaction, owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Business Combination; or
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(iv) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.
For the purposes of this Section 5.4, “group” includes, but is not limited to, persons that own an entity that enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with the Company.
5.5 Notice of Termination. Any termination of the Executive’s employment hereunder by the Company or by the Executive during the Employment Term (other than termination pursuant to Section 5.3(a) hereof on account of the Executive’s death) shall be communicated by written notice of termination (“Notice of Termination”) to the other party hereto in accordance with Section 24 hereof. The Notice of Termination shall specify:
(a) The termination provision of this Agreement relied upon;
(b) To the extent applicable, the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated; and
(c) The applicable Termination Date.
5.6 Termination Date. The Executive’s “Termination Date” shall be:
(a) If the Executive’s employment hereunder terminates on account of the Executive’s death, the date of the Executive’s death;
(b) If the Executive’s employment hereunder is terminated on account of the Executive’s Disability, the date that it is determined that the Executive has a Disability;
(c) If the Company terminates the Executive’s employment hereunder for Cause, the date the Notice of Termination is delivered to the Executive;
(d) If the Company terminates the Executive’s employment hereunder without Cause, the date specified in the Notice of Termination, which shall be no less than thirty (30) days following the date on which the Notice of Termination is delivered to the Executive; provided that, the Company shall have the option to provide the Executive with a lump sum payment equal to thirty (30) days’ Base Salary in lieu of such notice, which shall be paid in a lump sum on the Executive’s Termination Date and for all purposes of this Agreement, the Executive’s Termination Date shall be the date on which such Notice of Termination is delivered to the Executive;
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(e) If the Executive terminates the Executive’s employment hereunder with or without Good Reason, the date specified in the Executive’s Notice of Termination, which shall be no less than five (5) days following the date on which the Notice of Termination is delivered to the Company; provided that, the Company may waive all or any part of the five (5) day notice period for no consideration by giving written notice to the Executive and for all purposes of this Agreement, the Executive’s Termination Date shall be the date determined by the Company; and
(f) If the Executive’s employment hereunder terminates because either party provides notice of non-renewal pursuant to Section 1 hereof, the Renewal Date immediately following the date on which the applicable party delivers notice of non-renewal.
Notwithstanding anything contained herein, the Termination Date shall not occur until the date on which the Executive incurs a “separation from service” within the meaning of Section 409A.
5.7 Resignation of All Other Positions. On termination of the Executive’s employment hereunder for any reason, the Executive agrees to resign, effective on the Termination Date, or shall be deemed to have resigned, from all positions that the Executive holds as an officer or member of the Board (or a committee thereof) of the Company or any of its affiliates.
6. Cooperation. The parties agree that certain matters in which the Executive will be involved during the Employment Term may necessitate the Executive’s cooperation in the future. Accordingly, following the termination of the Executive’s employment for any reason, to the extent reasonably requested by the Board, the Executive shall cooperate with the Company in connection with matters arising out of the Executive’s service to the Company; provided that, the Company shall make reasonable efforts to minimize disruption of the Executive’s other activities. The Company shall reimburse the Executive for reasonable expenses incurred in connection with such cooperation and, to the extent that the Executive is required to spend substantial time on such matters, the Company shall compensate the Executive at an hourly rate based on the Executive’s Base Salary on the Termination Date.
7. Confidential Information. The Executive understands and acknowledges that during the Employment Term, the Executive will have access to and learn about Confidential Information, as defined below.
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7.1 Confidential Information Defined.
(a) Definition.
For purposes of this Agreement, “Confidential Information” includes, but is not limited to, all information not generally known to the public, in spoken, printed, electronic or any other form or medium, relating directly or indirectly to: business processes, practices, methods, policies, plans, publications, documents, research, operations, services, strategies, techniques, agreements, contracts, terms of agreements, transactions, potential transactions, negotiations, pending negotiations, know-how, trade secrets, computer programs, computer software, applications, operating systems, software design, web design, work-in-process, databases, device configurations, embedded data, compilations, metadata, technologies, manuals, records, articles, systems, material, sources of material, supplier information, vendor information, financial information, results, accounting information, accounting records, legal information, marketing information, advertising information, pricing information, credit information, design information, payroll information, staffing information, personnel information, employee lists, supplier lists, vendor lists, developments, reports, internal controls, security procedures, graphics, drawings, sketches, market studies, sales information, revenue, costs, formulae, notes, communications, algorithms, product plans, designs, styles, models, ideas, audiovisual programs, inventions, unpublished patent applications, original works of authorship, discoveries, experimental processes, experimental results, specifications, customer information, customer lists, client information, client lists, manufacturing information, factory lists, distributor lists, and buyer lists of the Company or any existing or prospective customer, supplier, investor or other associated third party, or of any other person or entity that has entrusted information to the Company in confidence.
The Executive understands that the above list is not exhaustive, and that Confidential Information also includes other information that is marked or otherwise identified as confidential or proprietary, or that would otherwise appear to a reasonable person to be confidential or proprietary in the context and circumstances in which the information is known or used.
The Executive understands and agrees that Confidential Information includes information developed by Executive in the course of employment by the Company as if the Company furnished the same Confidential Information to the Executive in the first instance. Confidential Information shall not include information that is generally available to and known by the public at the time of disclosure to the Executive; provided that, such disclosure is through no direct or indirect fault of the Executive or person(s) acting on the Executive’s behalf.
(b) Company Creation and Use of Confidential Information. The Executive understands and acknowledges that the Company has invested, and continues to invest, substantial time, money, and specialized knowledge into developing its resources, creating a customer base, generating customer and potential customer lists, training its employees, and improving its offerings relating to its artificial intelligence business and such other businesses as the Company may engage in during the Employment Term. The Executive understands and acknowledges that as a result of these efforts, the Company has created, and continues to use and create Confidential Information. This Confidential Information provides the Company with a competitive advantage over others in the marketplace.
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(c) Disclosure and Use Restrictions. The Executive agrees and covenants: (i) to treat all Confidential Information as strictly confidential; (ii) not to directly or indirectly disclose, publish, communicate, or make available Confidential Information, or allow it to be disclosed, published, communicated, or made available, in whole or part, to any entity or person whatsoever (including other employees of the Company) not having a need to know and authority to know and use the Confidential Information in connection with the business of the Company and, in any event, not to anyone outside of the direct employ of the Company except as required in the performance of the Executive’s authorized employment duties to the Company or with the prior consent of the Chief Executive Officer or such other officer or director as may be designated by the Board acting on behalf of the Company in each instance (and then, such disclosure shall be made only within the limits and to the extent of such duties or consent); and (iii) not to access or use any Confidential Information, and not to copy any documents, records, files, media, or other resources containing any Confidential Information, or remove any such documents, records, files, media, or other resources from the premises or control of the Company, except as required in the performance of the Executive’s authorized employment duties to the Company or with the prior consent of the Chief Executive Officer or such other officer or director as may be designated by the Board acting on behalf of the Company in each instance (and then, such disclosure shall be made only within the limits and to the extent of such duties or consent).
(d) Permitted disclosures. Nothing herein shall be construed to prevent disclosure of Confidential Information as may be required by applicable law or regulation, or pursuant to the valid order of a court of competent jurisdiction or an authorized government agency, provided that the disclosure does not exceed the extent of disclosure required by such law, regulation, or order. The Executive shall promptly provide written notice of any such order to such officer or director of the Company as may be designated by the Board.
(e) Permitted Communications. Nothing herein prohibits or restricts the Executive (or the Executive’s attorney) from initiating communications directly with, responding to an inquiry from, or providing testimony before the Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), any other self-regulatory organization, or any other federal or state regulatory authority regarding a possible securities law violation.
(f) Notice of Immunity Under the Economic Espionage Act of 1996, as amended by the Defend Trade Secrets Act of 2016 (“DTSA”). Notwithstanding any other provision of this Agreement:
(i) The Executive will not be held criminally or civilly liable under any federal or state trade secret law for any disclosure of a trade secret that:
(A) is made (1) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (2) solely for the purpose of reporting or investigating a suspected violation of law; or
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(B) is made in a complaint or other document filed under seal in a lawsuit or other proceeding.
(ii) If the Executive files a lawsuit for retaliation by the Company for reporting a suspected violation of law, the Executive may disclose the Company’s trade secrets to the Executive’s attorney and use the trade secret information in the court proceeding if the Executive:
(A) files any document containing trade secrets under seal; and
(B) does not disclose trade secrets, except pursuant to court order.
The Executive understands and acknowledges that the Executive’s obligations under this Agreement with regard to any particular Confidential Information shall commence immediately upon the Executive first having access to such Confidential Information (whether before or after the Executive begins employment by the Company) and shall continue during and after the Executive’s employment by the Company until such time as such Confidential Information has become public knowledge other than as a result of the Executive’s breach of this Agreement or breach by those acting in concert with the Executive or on the Executive’s behalf.
8. Restrictive Covenants.
8.1 Acknowledgement. The Executive acknowledges and agrees that, as a result of the nature of the Company’s business and the nature of the Executive’s position with the Company, the Executive has been or will come into contact with, and will have access to, Confidential Information belonging to the Company. The Executive acknowledges that the aforementioned Confidential Information is unique and not generally known to the public with respect to the Company and has been developed, acquired, and compiled by the Company at its great effort and expense.
The Executive further acknowledges and agrees that any disclosure or use of the Company’s Confidential Information by the Executive, other than in connection with the Company’s business or as specifically authorized by the Company, will be or may become highly detrimental to the business of the Company, and serious loss of business and damage to the Company will or may result.
Accordingly, the Executive agrees to hold all Confidential Information in the strictest confidence and agrees to safeguard and not use, disclose, divulge or reveal the Company’s Confidential Information to any person, either during the Executive’s employment or at any time after the termination of the Executive’s employment with the Company, without specific prior written authorization from an officer or director of the Company as may be designated by the Board.
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8.2 Non-Competition. Because of the Company’s legitimate business interest as described herein and the good and valuable consideration offered to the Executive, during the Employment Term and for the one (1) year, beginning on the last day of the Executive’s employment with the Company, except in the instance where Executive is terminated by the Company without Cause or the Executive terminates for a Good Reason, the Executive agrees and covenants not to engage in Prohibited Activity.
For purposes of this Section 8, “Prohibited Activity” is activity in which the Executive contributes the Executive’s knowledge, directly or indirectly, in whole or in part, as an employee, employer, owner, operator, manager, advisor, consultant, agent, employee, partner, director, stockholder, officer, volunteer, intern, or any other similar capacity to an entity engaged in its artificial intelligence business or such other businesses as the Company may be engaged in during the Employment Term, within 20 miles of the Company’s main office. Prohibited Activity also includes activity that may require or inevitably requires disclosure of trade secrets, proprietary information, or Confidential Information.
Nothing herein shall prohibit the Executive from purchasing or owning less than five percent (5%) of the publicly traded securities of any corporation, provided that such ownership represents a passive investment and that the Executive is not a controlling person of, or a member of a group that controls, such corporation.
This Section 8 does not, in any way, restrict or impede the Executive from exercising protected rights to the extent that such rights cannot be waived by agreement or from complying with any applicable law or regulation or a valid order of a court of competent jurisdiction or an authorized government agency, provided that such compliance does not exceed that required by the law, regulation, or order.
8.3 Non-Solicitation of Employees. The Executive agrees and covenants not to directly or indirectly solicit, hire, recruit, attempt to hire or recruit, or induce the termination of employment of any employee of the Company, or attempt to do so during one (1) year, beginning on the last day of the Executive’s employment with the Company.
8.4 Non-Solicitation of Customers. The Executive understands and acknowledges that because of the Executive’s experience with and relationship to the Company, the Executive will have access to and learn about much or all of the Company’s customer information. “Customer Information” includes, but is not limited to, names, phone numbers, addresses, email addresses, order history, order preferences, chain of command, decision makers, pricing information, and other information identifying facts and circumstances specific to the customer and relevant to sales or services.
The Executive understands and acknowledges that loss of this customer relationship and/or goodwill will cause significant and irreparable harm to the Company.
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The Executive agrees and covenants that for a period of one (1) year beginning on the last day of the Executive’s employment with the Company, not to use the Company’s Confidential Information for purposes of offering or goods or services similar to or competitive with those offered by the Company.
This restriction shall only apply to:
(a) Customers or prospective customers the Executive contacted in any way during the twelve (12) months prior to termination;
(b) Customers about whom the Executive has trade secret or confidential information; and
(c) Customers about whom the Executive has information that is not available publicly.
9. Remedies. In the event of a breach or threatened breach by the Executive of Section 7, Section 8 or Section 9 of this Agreement, the Executive hereby consents and agrees that the Company shall be entitled to seek, in addition to other available remedies, a temporary or permanent injunction or other equitable relief against such breach or threatened breach from any court of competent jurisdiction, and that money damages would not afford an adequate remedy, without the necessity of showing any actual damages, and without the necessity of posting any bond or other security. The aforementioned equitable relief shall be in addition to, not in lieu of, legal remedies, monetary damages, or other available forms of relief.
10. Proprietary Rights.
10.1 Work Product. At all times while Executive is employed by the Company, the Executive is free to use Work Product and Intellectual Property which is not gained as result of a breach of this Agreement. “Work Product” and “Intellectual Property” that is developed by Executive through Executive’s own skill, knowledge, know-how and experience without the assistance or use of Company assets, that does not relate to the Executive’s work for the Company may, however, be owned and used by the Executive to whatever extent and in whichever way Executive chooses both during and after the Employment Term. Except as set forth in this paragraph “Work Product” and “Intellectual Property” shall belong to the Company. The term “Work Product” shall mean all writings, works of authorship, technology, inventions, discoveries, processes, techniques, methods, ideas, concepts, research, proposals, materials, and all other work product of any nature whatsoever, that are created, prepared, produced, authored, edited, amended, conceived, or reduced to practice by the Executive individually or jointly with others during the Employment Term that relate to the business or contemplated business, products, activities, research, or development of the Company. “Work Product” does not include any of the foregoing that are (a) trade secrets, inventions, products, ideas, processes, formulas, know-how, improvements, discoveries, developments, designs and techniques; and (b) information regarding plans for research, development, new products, marketing and selling, business plans, budgets and unpublished financial statements, licenses, prices and costs, suppliers, distributors and customers; and (c) information regarding the skills and compensation of other employees of the Company. The term Intellectual Property Rights shall mean any and all rights in and to the Company’s US and foreign (a) patents, patent disclosures and inventions (whether patentable or not), (b) trademarks, service marks, trade dress, trade names, logos, corporate names, and domain names, and other similar designations of source or origin, together with the goodwill symbolized by any of the foregoing, (c) copyrights and copyrightable works (including computer programs), and rights in data and databases, (d) trade secrets, know-how, and other confidential information, and (e) all other intellectual property rights, in each case whether registered or unregistered and including all registrations and applications for, and renewals and extensions of, such rights, all improvements thereto and all similar or equivalent rights or forms of protection in any part of the world.
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10.2 Work Made for Hire. Except as otherwise excluded by this paragraph, the Executive acknowledges that, by reason of being employed by the Company at the relevant times, to the extent permitted by law, all of the Work Product consisting of copyrightable subject matter is “work made for hire” as defined in 17 U.S.C. § 101 and such copyrights are therefore owned by the Company. To the extent that the foregoing does not apply, the Executive hereby irrevocably assigns to the Company, for no additional consideration, the Executive’s entire right, title, and interest in and to all Work Product and Intellectual Property Rights therein, including the right to sue, counterclaim, and recover for all past, present, and future infringement, misappropriation, or dilution thereof, and all rights corresponding thereto throughout the world. Nothing contained in this Agreement shall be construed to reduce or limit the Company’s rights, title, or interest in any Work Product or Intellectual Property Rights so as to be less in any respect than that the Company would have had in the absence of this Agreement.
10.3 Further Assurances; Power of Attorney. During and after the Employment Term, the Executive agrees to reasonably cooperate with the Company to (a) apply for, obtain, perfect, and transfer to the Company the Work Product as well as any and all Intellectual Property Rights in the Work Product in any jurisdiction in the world; and (b) maintain, protect and enforce the same, including, without limitation, giving testimony and executing and delivering to the Company any and all applications, oaths, declarations, affidavits, waivers, assignments, and other documents and instruments as shall be requested by the Company. The Executive hereby irrevocably grants the Company power of attorney to execute and deliver any such documents on the Executive’s behalf in the Executive’s name and to do all other lawfully permitted acts to transfer the Work Product to the Company and further the transfer, prosecution, issuance, and maintenance of all Intellectual Property Rights therein, to the full extent permitted by law, if the Executive does not promptly cooperate with the Company’s request (without limiting the rights the Company shall have in such circumstances by operation of law). The power of attorney is coupled with an interest and shall not be affected by the Executive’s subsequent incapacity.
10.4 No License. The Executive understands that this Agreement does not, and shall not be construed to grant the Executive any license or right of any nature with respect to any Work Product or Intellectual Property Rights or any Confidential Information, materials, software, or other tools made available to the Executive by the Company.
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11. Security.
11.1 Security and Access. The Executive agrees and covenants (a) to comply with all Company security policies and procedures as in force from time to time, including without limitation those regarding computer equipment, telephone systems, voicemail systems, facilities access, monitoring, key cards, access codes, Company intranet, internet, social media and instant messaging systems, computer systems, email systems, computer networks, document storage systems, software, data security, encryption, firewalls, passwords and any and all other Company facilities, IT resources and communication technologies (“Facilities and Information Technology Resources”); (b) not to access or use any Facilities and Information Technology Resources except as authorized by the Company; and (iii) not to access or use any Facilities and Information Technology Resources in any manner after the termination of the Executive’s employment by the Company, whether termination is voluntary or involuntary. The Executive agrees to notify the Company promptly in the event the Executive learns of any violation of the foregoing by others, or of any other misappropriation or unauthorized access, use, reproduction, or reverse engineering of, or tampering with any Facilities and Information Technology Resources or other Company property or materials by others.
11.2 Exit Obligations. Upon (a) voluntary or involuntary termination of the Executive’s employment or (b) the Company’s request at any time during the Executive’s employment, the Executive shall (i) provide or return to the Company any and all Company property, including keys, key cards, access cards, identification cards, security devices, employer credit cards, network access devices, computers, cell phones, smartphones, PDAs, pagers, fax machines, equipment, speakers, webcams, manuals, reports, files, books, compilations, work product, email messages, recordings, tapes, disks, thumb drives or other removable information storage devices, hard drives, negatives, and data and all Company documents and materials belonging to the Company and stored in any fashion, including but not limited to those that constitute or contain any Confidential Information or Work Product, that are in the possession or control of the Executive, whether they were provided to the Executive by the Company or any of its business associates or created by the Executive in connection with the Executive’s employment by the Company; and (ii) delete or destroy all copies of any such documents and materials not returned to the Company that remain in the Executive’s possession or control, including those stored on any non-Company devices, networks, storage locations, and media in the Executive’s possession or control.
12. Publicity. The Executive hereby irrevocably consents to any and all uses and displays, by the Company and its agents, representatives and licensees, of the Executive’s name, voice, likeness, image, appearance, and biographical information in, on or in connection with any pictures, photographs, audio and video recordings, digital images, websites, television programs and advertising, other advertising and publicity, sales and marketing brochures, books, magazines, other publications, CDs, DVDs, tapes, and all other printed and electronic forms and media throughout the world, at any time during or after the Employment Term, for all legitimate commercial and business purposes of the Company (“Permitted Uses”) without further consent from or royalty, payment, or other compensation to the Executive. The Executive hereby forever waives and releases the Company and its directors, officers, employees, and agents from any and all claims, actions, damages, losses, costs, expenses, and liability of any kind, arising under any legal or equitable theory whatsoever at any time during or after the Employment Term, arising directly or indirectly from the Company and its agents’, representatives’, and licensees’ exercise of their rights in connection with any Permitted Uses.
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13. Governing Law; Jurisdiction and Venue. This Agreement, for all purposes, shall be construed in accordance with the laws of Florida without regard to conflicts of law principles. Any action or proceeding by either of the parties to enforce this Agreement shall be brought only in a state or federal court located in the state of Broward, County. The parties hereby irrevocably submit to the exclusive jurisdiction of such courts and waive the defense of inconvenient forum to the maintenance of any such action or proceeding in such venue.
14. Entire Agreement. Unless specifically provided herein, this Agreement contains all of the understandings and representations between the Executive and the Company pertaining to the subject matter hereof and supersedes all prior and contemporaneous understandings, agreements, representations, and warranties, both written and oral, with respect to such subject matter. The parties mutually agree that the Agreement can be specifically enforced in court and can be cited as evidence in legal proceedings alleging breach of the Agreement. In the event of a conflict between the terms of this Agreement and the terms of any other agreement to which the Executive and the Company are a party, the terms of this Agreement shall control and supersede the conflicting terms of the other agreement.
15. Modification and Waiver. No provision of this Agreement may be amended or modified unless such amendment or modification is agreed to in writing and signed by the Executive and such officer or director of the Company as may be designated by the Board. No waiver by either of the parties of any breach by the other party hereto of any condition or provision of this Agreement to be performed by the other party hereto shall be deemed a waiver of any similar or dissimilar provision or condition at the same or any prior or subsequent time, nor shall the failure of or delay by either of the parties in exercising any right, power, or privilege hereunder operate as a waiver thereof to preclude any other or further exercise thereof or the exercise of any other such right, power, or privilege.
16. Severability. Should any provision of this Agreement be held by a court of competent jurisdiction to be enforceable only if modified, or if any portion of this Agreement shall be held as unenforceable and thus stricken, such holding shall not affect the validity of the remainder of this Agreement, the balance of which shall continue to be binding upon the parties with any such modification to become a part hereof and treated as though originally set forth in this Agreement.
The parties further agree that any such court is expressly authorized to modify any such unenforceable provision of this Agreement in lieu of severing such unenforceable provision from this Agreement in its entirety, whether by rewriting the offending provision, deleting any or all of the offending provision, adding additional language to this Agreement, or by making such other modifications as it deems warranted to carry out the intent and agreement of the parties as embodied herein to the maximum extent permitted by law.
The parties expressly agree that this Agreement as so modified by the court shall be binding upon and enforceable against each of them. In any event, should one or more of the provisions of this Agreement be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provisions hereof, and if such provision or provisions are not modified as provided above, this Agreement shall be construed as if such invalid, illegal, or unenforceable provisions had not been set forth herein.
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17. Captions. Captions and headings of the sections and paragraphs of this Agreement are intended solely for convenience and no provision of this Agreement is to be construed by reference to the caption or heading of any section or paragraph.
18. Counterparts. This Agreement may be executed in separate counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument.
19. Tolling. Should the Executive violate any of the terms of the restrictive covenant obligations articulated herein, the obligation at issue will run from the first date on which the Executive ceases to be in violation of such obligation.
20. Section 409A.
20.1 General Compliance. This Agreement is intended to comply with Section 409A or an exemption thereunder and shall be construed and administered in accordance with Section 409A. Notwithstanding any other provision of this Agreement, payments provided under this Agreement may only be made upon an event and in a manner that complies with Section 409A or an applicable exemption. Any payments under this Agreement that may be excluded from Section 409A either as separation pay due to an involuntary separation from service or as a short-term deferral shall be excluded from Section 409A to the maximum extent possible. For purposes of Section 409A, each installment payment provided under this Agreement shall be treated as a separate payment. Any payments to be made under this Agreement upon a termination of employment shall only be made upon a “separation from service” under Section 409A. In the event that the Executive is liable for all or any portion of any taxes, penalties, interest, or other expenses that may be incurred by the Executive on account of non-compliance with Section 409A, the Company shall reimburse the Executive for all such expenses within 10 days of receiving a request for such reimbursement from the Executive accompanied by supporting documentation evidencing the amount of such expenses.
20.2 Specified Employees. Notwithstanding any other provision of this Agreement to the contrary, if any payment or benefit to be provided to the Executive in connection with the Executive’s termination of employment is determined to constitute “nonqualified deferred compensation” within the meaning of Section 409A and the Executive is determined to be a “specified employee” as defined in Section 409A(a)(2)(b)(i), then such payment or benefit shall not be paid until the first business day following the six-month anniversary of the Termination Date or, if earlier, on the Executive’s death (the “Specified Employee Payment Date”). The aggregate of any payments that would otherwise have been paid to the Executive before the Specified Employee Payment Date and interest on such amounts for the period commencing on the Termination Date and ending on the Specified Employee Payment Date calculated based on the applicable federal rate published by the Internal Revenue Service for the month in which the Executive’s separation from service occurs (the aggregate of all such payments and interest thereon, the “Deferred Payment”) shall be paid to the Executive in a lump sum on the Specified Employee Payment Date.
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20.3 Rabbi Trust.
(a) Creation of Rabbi Trust. Immediately upon the earliest to occur of: (a) the date that the Executive’s employment hereunder is terminated by the Executive for Good Reason, by the Company on account of its election to not renew the Agreement in accordance with Section 1 hereof, or by the Company without Cause; (b) the date that the Company enters into an agreement or series of agreements that results in, or may in the future result in, a Change in Control; or (c) the date that a Change in Control occurs, the Company will establish a “rabbi trust” (the “Rabbi Trust”) for the sole benefit of the Executive to secure the payment of the Deferred Payments. The trustee of the Rabbi Trust (the “Trustee”) will be a bank or trust company chosen by the Executive in his sole and absolute discretion. Immediately upon the occurrence of any of the events described in Section 20.3(a) or (c) hereof, the Company will deposit in the Rabbi Trust the maximum amount of cash necessary to complete the Deferred Payment on the Specified Employee Payment Date. On the Specified Employee Payment Date, the Trustee will pay the Deferred Payment to the Executive from the cash held by Rabbi Trust. The Company will remain liable to pay all or any portion of the Deferred Payment that for any reason is not paid to the Executive from the Rabbi Trust. The Company will be solely responsible for all costs and expenses associated with creating, maintaining, and, after the Deferred Payment has been paid in full to the Executive, terminating the Rabbi Trust.
(b) IRS Compliance. Notwithstanding anything herein to the contrary, the Rabbi Trust shall be established, and the trust agreement governing the Rabbi Trust shall be drafted, substantially in the form of the model trust set forth in Internal Revenue Service Revenue Procedure 92-64, as the same may be amended, restated, or superseded from time to time. Notwithstanding any other provision of this Agreement or of the trust agreement establishing the Rabbi Trust, all assets held in the Rabbi Trust shall at all times remain subject to the claims of the Company’s general creditors in the event of the Company’s “insolvency” (as defined in the trust agreement establishing the Rabbi Trust), and neither the Executive nor his beneficiaries shall have any preferred claim on, or any beneficial ownership interest in, any assets of the Rabbi Trust prior to the time such assets are paid to the Executive in accordance with the terms of the Rabbi Trust. The parties shall ensure that the Rabbi Trust shall provide that, upon the Company becoming insolvent, the Company shall give the Trustee prompt written notice of that fact, and the Trustee shall thereafter suspend all payments to the Executive from the Rabbi Trust and shall hold the assets of the Rabbi Trust for the benefit of the Company’s general creditors until such time as a court of competent jurisdiction directs otherwise or the Trustee is satisfied that the Company is no longer insolvent.
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20.4 Reimbursements. To the extent required by Section 409A, each reimbursement or in-kind benefit provided under this Agreement shall be provided in accordance with the following:
(a) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during each calendar year cannot affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar year;
(b) any reimbursement of an eligible expense shall be paid to the Executive on or before the last day of the calendar year following the calendar year in which the expense was incurred; and
(c) any right to reimbursements or in-kind benefits under this Agreement shall not be subject to liquidation or exchange for another benefit.
20.5 Tax Gross-Ups. Unless otherwise provided in this Agreement, any tax gross-up payments provided under this Agreement shall be paid to the Executive on or before December 31 of the calendar year immediately following the calendar year in which the Executive remits the related taxes.
21. Section 4999.
21.1 Gross-Up Payment. In the event that the Company or the Executive determines that any payment, distribution or benefits that the Executive receives or will receive from, on behalf of or with respect to the Company (including, without limitation, accelerated vesting of equity awards and severance payments and benefits), whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (in the aggregate, such payments and benefits are referred to herein as the “Payment”), would subject Executive to the excise tax imposed by Section 4999 of the Code (together with any interest or penalties that would be imposed with respect to such excise tax, the “Excise Tax”), then the Executive shall be entitled to receive from the Company an additional payment (the “Gross-Up Payment”) in an amount such that the net amount of the Payment and the Gross-Up Payment retained by the Executive after the payment by the Executive of all Excise Taxes on the Payment and all federal, state and local income tax, employment tax and Excise Taxes on the Gross-Up Payment shall be equal to the Payment. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed: (x) to be subject to federal income taxes at the highest marginal rate of federal income taxation for the calendar year in which the Gross-Up Payment is to be made; (y) to be subject to applicable state and local income taxes at the highest marginal rate of taxation for the calendar year in which the Gross-Up Payment is to be made, net of the reduction in federal income taxes which could be obtained from the deduction of such state and local taxes; and (z) to have otherwise allowable deductions for federal income tax purposes at least equal to those that would be disallowed because of the inclusion of the Gross-Up Payment in the Executive’s adjusted gross income.
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21.2 Timing of Payment. The Gross-Up Payment will be paid to the Executive at the same time as the Payment to which it relates; provided, however, that if the amount of the Gross-Up Payment for a portion of the Payment cannot be calculated prior to the time that the Payment is made, the Gross-Up Payment for that portion of the Payment shall be paid to the Executive within ten (10) days after the Payment is made. Once a Gross-Up Payment has been received by the Executive, the Executive shall not be obligated to return to the Company any portion of the Gross-Up Payment so received in the event it is subsequently determined that the amount of the Gross-Up Payment received by the Executive was in excess of the amount the Company should have paid to the Executive.
21.3 Excise Tax Calculation. All determinations required to be made under this Section 21, including whether and when a Gross-Up Payment is required and the amount of the Gross-Up Payment and the assumptions to be utilized in arriving at the determination (collectively, “Tax Determinations”), will be made by a reputable certified public accounting firm selected by the Company with the consent of the Executive, which should not unreasonably be withheld (the “Accounting Firm”), which will provide detailed supporting calculations both to the Company and the Executive within twenty (20) days after the receipt by the Company of a request from the Executive for a Tax Determination with respect to a proposed or completed Payment or such earlier time as is requested by the Executive. All fees and expenses of the Accounting Firm for Tax Determinations will be borne solely by the Company.
21.4 Underpayments by the Company. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the Tax Determinations hereunder, it is possible that Gross-Up Payments that should have been made by the Company to the Executive were not made (such underpayments, the “Underpayment”). In the event that the Executive thereafter is required to make a payment of any Excise Tax, the Company shall pay Executive the amount of the Underpayment plus any applicable interest or penalties within ten (10) days of the date the Executive informs the Company of the obligation of the Executive to pay the Excise Tax. The Company shall reimburse the Executive for all costs and expenses incurred by the Executive in resolving any matters related to the determination and payment by Executive of any additional Exise Tax, including but not limited to the costs and expenses incurred by the Executive to resolve such matters with the Internal Revenue Service and other local, state and federal government agencies in connection therewith.
22. Notification to Subsequent Employer. When the Executive’s employment with the Company terminates, the Executive agrees to notify any subsequent employer of the restrictive covenants sections contained in this Agreement. The Executive will also deliver a copy of such notice to the Company before the Executive commences employment with any subsequent employer. In addition, the Executive authorizes the Company to provide a copy of the restrictive covenants sections of this Agreement to third parties, including but not limited to, the Executive’s subsequent, anticipated, or possible future employer.
23. Successors and Assigns. This Agreement is personal to the Executive and shall not be assigned by the Executive. Any purported assignment by the Executive shall be null and void from the initial date of the purported assignment. The Company may assign this Agreement to any successor to or assignee of (whether direct or indirect, by purchase, merger, consolidation, or otherwise) all or substantially all of the business or assets of the Company. This Agreement shall inure to the benefit of the Company and its permitted successors and assigns.
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24. Notice. Notices and all other communications provided for in this Agreement shall be in writing and shall be delivered personally or sent by registered or certified mail, return receipt requested, or by overnight carrier to the parties at the addresses set forth below (or such other addresses as specified by the parties by like notice):
| If to the Company | Algorhythm Holdings, Inc. | |
| 6301 NW 5th Way, Ste. 2900 | ||
| Fort Lauderdale, FL 33309 | ||
| Attention: Chief Executive Officer | ||
| If to the Executive | To that address set forth on the Company’s books and records as updated by the Executive from time to time |
25. Representations of the Executive. The Executive represents and warrants to the Company that:
(a) The Executive’s acceptance of employment with the Company and the performance of duties hereunder will not conflict with or result in a violation of, a breach of, or a default under any contract, agreement, or understanding to which the Executive is a party or is otherwise bound.
(b) The Executive’s acceptance of employment with the Company and the performance of duties hereunder will not violate any non-solicitation, non-competition, or other similar covenant or agreement of a prior employer.
26. Withholding. Unless otherwise provided in this Agreement, the Company shall have the right to withhold from any amount payable hereunder any Federal, state, and local taxes in order for the Company to satisfy any withholding tax obligation it may have under any applicable law or regulation.
27. Survival. Upon the expiration or other termination of this Agreement, the respective rights and obligations of the parties hereto shall survive such expiration or other termination to the extent necessary to carry out the intentions of the parties under this Agreement.
28. Acknowledgement of Full Understanding. THE EXECUTIVE ACKNOWLEDGES AND AGREES THAT THE EXECUTIVE HAS FULLY READ, UNDERSTANDS AND VOLUNTARILY ENTERS INTO THIS AGREEMENT. THE EXECUTIVE ACKNOWLEDGES AND AGREES THAT THE EXECUTIVE HAS HAD AN OPPORTUNITY TO ASK QUESTIONS AND CONSULT WITH AN ATTORNEY OF THE EXECUTIVE’S CHOICE BEFORE SIGNING THIS AGREEMENT.
[signature page follows]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
| ALGORHYTHM HOLDINGS, INC. | ||
| By: | /s/ Gary Atkinson | |
| Name: | Gary Atkinson | |
| Title: | Chief Executive Officer | |
| EXECUTIVE | ||
| Signature: | ||
| /s/ Alex Andre | ||
| Print Name: Alex Andre | ||
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Exhibit A
Form of Restricted Stock Award
Exhibit A
Restricted Stock Award Agreement
This Restricted Stock Award Agreement (this “Agreement”) is made and entered into as of [___________] (the “Grant Date”) by and between Algorhythm Holdings, Inc., a Delaware corporation (the “Company”) and Alex Andre (the “Grantee”).
WHEREAS, the Company has adopted the 2022 Equity Incentive Plan (the “Plan”) pursuant to which awards of Restricted Stock may be granted; and
WHEREAS, the Committee has determined that it is in the best interests of the Company and its shareholders to grant the award of Restricted Stock provided for herein.
NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as follows:
1. Grant of Restricted Stock. Pursuant to the terms of the Plan, the Company hereby issues to the Grantee on the Grant Date a Restricted Stock Award consisting of, in the aggregate, 23,818 shares (the “Restricted Stock”) of common stock of the Company, par value $0.01 per share (the “Common Stock”), on the terms and conditions and subject to the restrictions set forth in this Agreement and the Plan. Capitalized terms that are used but not defined herein have the meanings ascribed to them in the Plan.
2. Consideration. The grant of the Restricted Stock is made pursuant to the terms of that certain Employment Agreement, dated February 12, 2025, by and between the Company and Grantee (the “Employment Agreement”).
3. Restricted Period; Vesting. Except as otherwise provided herein, provided that the Grantee remains in Continuous Service through the applicable vesting date, the shares of Restricted Stock will vest in accordance with the following schedule: (a) twenty-five percent (25%) of the shares of Restricted Stock shall vest on the first anniversary of the Effective Date; and (b) six and one-quarter percent (6.25%) of the shares of Restricted Stock shall vest each quarter thereafter. The period over which the Restricted Stock vests is referred to as the “Restricted Period”.
4. Restrictions. Subject to any exceptions set forth in this Agreement or the Plan, during the Restricted Period, the unvested shares of Restricted Stock (the “Unvested Shares”) or the rights relating thereto may not be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by the Grantee. Any attempt to assign, alienate, pledge, attach, sell or otherwise transfer or encumber the Unvested Shares or the rights relating thereto during the Restricted Period shall be wholly ineffective and void.
5. Rights as Shareholder; Dividends.
5.1 The Grantee shall be the record owner of the Restricted Stock until the shares of Common Stock are sold or otherwise disposed of, and shall be entitled to all of the rights of a shareholder of the Company including, without limitation, the right to vote such shares and receive all dividends or other distributions paid with respect to such shares.
5.2 The Company may issue stock certificates or evidence the Grantee’s interest by using a restricted book entry account with the Company’s transfer agent. Physical possession or custody of any stock certificates that are issued shall be retained by the Company until such time as shares of Restricted Stock vest (“Vested Shares”). Upon any Unvested Shares becoming Vested Shares, all restrictions shall be removed from the certificates representing such Unvested Shares and the Company shall deliver to the Grantee certificates representing such Vested Shares free and clear of all restrictions (except for any applicable securities law restrictions) within 10 business days following the date such Unvested Shares became Vested Shares.
6. No Right to Continued Service. Neither the Plan nor this Agreement shall confer upon the Grantee any right to be retained in any position, as an Employee, Consultant or Director of the Company. Further, nothing in the Plan or this Agreement shall be construed to limit the discretion of the Company to terminate the Grantee’s Continuous Service at any time, with or without Cause.
7. Tax Liability. The ultimate liability for all income taxes and other taxes (“Tax-Related Items”) is and remains the Grantee’s responsibility and the Company (a) makes no representation or undertakings regarding the treatment of any Tax-Related Items in connection with the grant or vesting of the Restricted Stock or the subsequent sale of any shares; and (b) does not commit to structure the Restricted Stock to reduce or eliminate the Grantee’s liability for Tax-Related Items.
8. Section 83(b) Election. The Grantee may make an election under Code Section 83(b) (a “Section 83(b) Election”) with respect to the Restricted Stock. Any such election must be made within thirty (30) days after the Grant Date. If the Grantee elects to make a Section 83(b) Election, the Grantee shall provide the Company with a copy of an executed version and satisfactory evidence of the filing of the executed Section 83(b) Election with the US Internal Revenue Service. The Grantee agrees to assume full responsibility for ensuring that the Section 83(b) Election is actually and timely filed with the US Internal Revenue Service and for all tax consequences resulting from the Section 83(b) Election.
9. Compliance with Law. The issuance and transfer of shares of Restricted Stock shall be subject to compliance by the Company and the Grantee with all applicable requirements of federal and state securities laws and with all applicable requirements of any stock exchange on which the Company’s shares of Common Stock may be listed. No shares of Restricted Stock shall be issued or transferred unless and until any then applicable requirements of state and federal laws and regulatory agencies have been fully complied with to the satisfaction of the Company and its counsel. The Grantee understands that, except as otherwise provided in the Employment Agreement, the Company is under no obligation to register the shares of Restricted Stock with the Securities and Exchange Commission, any state securities commission or any stock exchange to effect such compliance.
10. Legends. A legend may be placed on any certificate(s) or other document(s) delivered to the Grantee indicating restrictions on transferability of the shares of Restricted Stock pursuant to this Agreement or any other restrictions that the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any applicable federal or state securities laws or any stock exchange on which the shares of Common Stock are then listed or quoted.
11. Notices. Any notice required to be delivered to the Company under this Agreement shall be in writing and addressed to the Secretary of the Company at the Company’s principal corporate offices. Any notice required to be delivered to the Grantee under this Agreement shall be in writing and addressed to the Grantee at the Grantee’s address as shown in the records of the Company. Either party may designate another address in writing (or by such other method approved by the Company) from time to time.
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12. Governing Law. This Agreement will be construed and interpreted in accordance with the laws of the State of Florida without regard to conflict of law principles.
13. Interpretation. Any dispute regarding the interpretation of this Agreement shall be submitted by the Grantee or the Company to the Committee for review and resolution in its reasonable discretion. The resolution of such dispute by the Committee shall be final and binding on the Grantee and the Company.
14. Restricted Stock Subject to Plan. This Agreement is subject to the Plan as approved by the Company’s shareholders. The terms and provisions of the Plan as it may be amended from time to time are hereby incorporated herein by reference. In the event of a conflict between any term or provision contained herein and a term or provision of the Plan, the applicable terms and provisions of the Plan will govern and prevail. Notwithstanding the foregoing, in the event of a conflict between the terms of the Employment Agreement and the Restricted Stock Award or Plan, the terms of the Employment Agreement shall control and supersede the conflicting terms of the Restricted Stock Award and Plan.
15. Successors and Assigns. The Company may assign any of its rights under this Agreement. This Agreement will be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth herein, this Agreement will be binding upon the Grantee and the Grantee’s beneficiaries, executors, administrators and the person(s) to whom the Restricted Stock may be transferred by will or the laws of descent or distribution.
16. Severability. The invalidity or unenforceability of any provision of the Plan or this Agreement shall not affect the validity or enforceability of any other provision of the Plan or this Agreement, and each provision of the Plan and this Agreement shall be severable and enforceable to the extent permitted by law.
17. Discretionary Nature of Plan. The Plan is discretionary and may be amended, cancelled or terminated by the Company at any time, in its discretion. The grant of the Restricted Stock in this Agreement does not create any contractual right or other right to receive any Restricted Stock or other Awards in the future. Future awards, if any, will be at the sole discretion of the Company. Any amendment, modification, or termination of the Plan shall not constitute a change or impairment of the terms and conditions of the Grantee’s employment with the Company.
18. No Impact on Other Benefits. The value of the Grantee’s Restricted Stock is not part of their normal or expected compensation for purposes of calculating any severance, retirement, welfare, insurance or similar employee benefit.
19. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. Counterpart signature pages to this Agreement transmitted by facsimile transmission, by electronic mail in portable document format (.pdf), or by any other electronic means intended to preserve the original graphic and pictorial appearance of a document, will have the same effect as physical delivery of the paper document bearing an original signature.
20. Acceptance. The Grantee hereby acknowledges receipt of a copy of the Plan and this Agreement. The Grantee has read and understands the terms and provisions thereof, and accepts the Restricted Stock subject to all of the terms and conditions of the Plan and this Agreement. The Grantee acknowledges that there may be adverse tax consequences upon the grant or vesting of the Restricted Stock or disposition of the underlying shares and that the Grantee has been advised to consult a tax advisor prior to such grant, vesting or disposition.
[signature page follows]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
| ALGORHYTHM HOLDINGS, INC. | ||
| By: | ||
| Name: | Gary Atkinson | |
| Title: | Chief Executive Officer | |
| ALEX ANDRE | ||
| Alex Andre | ||
| 4 |
Exhibit B
Form of Stock Option
Exhibit B
ALGORHYTHM
HOLDINGS, INC.
STOCK OPTION GRANT NOTICE
Algorhythm Holdings, Inc., a Delaware corporation (the “Company”), hereby grants to you an Option (the “Option”) to purchase shares of the Company’s common stock, par value $0.01 per share, under the Company’s 2022 Equity Incentive Plan (the “Plan”). The Option is subject to all the terms and conditions set forth in this Stock Option Grant Notice (this “Grant Notice”), in the Stock Option Agreement and in the Plan, which are attached to and incorporated into this Grant Notice in their entirety.
| Participant: | Alex Andre | ||
| Grant Date: | [___________] | ||
| Number of Shares Subject to Option: | 23,818 | ||
| Exercise Price (per Share): | $[____] | ||
| Option Expiration Date: | [___________] (subject to earlier termination in accordance with the terms of the Plan and the Stock Option Agreement) | ||
| Type of Option: | ☐ Incentive Stock Option* ☒ Nonqualified Stock Option | ||
| Vesting and Exercisability Schedule: | The shares subject to the Option will vest and become exercisable in accordance with the following schedule: | ||
| (i) | 25% of the shares shall vest on the first anniversary of the grant date; and | ||
| (ii) | 6.25% of the shares shall vest each quarter thereafter. | ||
Additional Terms/Acknowledgement: You acknowledge receipt of, and understand and agree to, this Grant Notice, the Stock Option Agreement and the Plan. You further acknowledge that, as of the Grant Date, this Grant Notice, the Stock Option Agreement, the Plan, and that certain Employment Agreement, dated February 12, 2025, by and between you and the Company (the “Employment Agreement”) set forth the entire understanding between you and the Company regarding the Option. In the event of a conflict between the terms of the Employment Agreement and the Grant Notice, Stock Option Agreement or Plan, the terms of the Employment Agreement shall control and supersede the conflicting terms of the Grant Notice, Stock Option Agreement and Plan.
| ALGORHYTHM HOLDINGS, INC. | PARTICIPANT | |||
| By: | ||||
| Alex Andre | ||||
| Its: | Date: | |||
Attachments:
1. Stock Option Agreement
2. 2022 Equity Incentive Plan
* See Sections 3 and 4 of the Stock Option Agreement.
ALGORHYTHM HOLDINGS, INC.
STOCK OPTION AGREEMENT
Pursuant to your Stock Option Grant Notice (the “Grant Notice”) and this Stock Option Agreement (this “Agreement”), Algorhythm Holdings, Inc., a Delaware corporation (the “Company”), has granted you an Option under the Company’s 2022 Equity Incentive Plan (the “Plan”) to purchase the number of shares of the Company’s Common Stock indicated in your Grant Notice (the “Shares”) at the exercise price indicated in your Grant Notice. Capitalized terms not defined in this Agreement but defined in the Plan have the same definitions as in the Plan.
The details of the Option are as follows:
1. Vesting and Exercisability. Subject to the limitations contained herein, the Option will vest and become exercisable as provided in your Grant Notice, provided that vesting will cease upon your Termination of Service and the unvested portion of the Option will terminate on such date.
2. Securities Law Compliance. Notwithstanding any other provision of this Agreement, you may not exercise the Option unless the Shares issuable upon exercise are registered under the Securities Act or, if such Shares are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Securities Act. The exercise of the Option must also comply with other applicable laws and regulations governing the Option, and you may not exercise the Option if the Company determines that such exercise would not be in material compliance with such laws and regulations.
3. Incentive Stock Option Qualification. If so designated in your Grant Notice, all or a portion of the Option is intended to qualify as an Incentive Stock Option under federal income tax law, but the Company does not represent or guarantee that the Option qualifies as such. If the Option has been designated as an Incentive Stock Option and the aggregate Fair Market Value (determined as of the grant date) of the shares of Common Stock subject to the portions of the Option and all other Incentive Stock Options you hold that first become exercisable during any calendar year exceeds $100,000, any excess portion will be treated as a Nonqualified Stock Option, unless the Internal Revenue Service changes the rules and regulations governing the $100,000 limit for Incentive Stock Options. A portion of the Option may be treated as a Nonqualified Stock Option if certain events cause exercisability of the Option to accelerate.
4. Notice of Disqualifying Disposition. To the extent the Option has been designated as an Incentive Stock Option, to obtain certain tax benefits afforded to Incentive Stock Options, you must hold the Shares issued upon the exercise of the Option for two years after the Grant Date and one year after the date of exercise. By accepting the Option, you agree to promptly notify the Company if you dispose of any of the Shares within one year from the date you exercise all or part of the Option or within two years from the Grant Date.
5. Alternative Minimum Tax. You may be subject to the alternative minimum tax at the time of exercise of an Incentive Stock Option.
6. Independent Tax Advice. You should obtain tax advice when exercising the Option and prior to the disposition of the Shares.
7. Method of Exercise. You may exercise the Option by giving written notice to the Company, in form and substance satisfactory to the Company, which will state your election to exercise the Option and the number of Shares for which you are exercising the Option. The written notice must be accompanied by full payment of the exercise price for the number of Shares you are purchasing. You may make this payment in any combination of the following: (a) by cash; (b) by check or wire transfer; (c) having the Company withhold shares of Common Stock that would otherwise be issued on exercise of a Nonqualified Stock Option that have an aggregate Fair Market Value equal to the aggregate exercise price of the shares being purchased under the Option; (d) tendering (either actually or, if and for as long as the Common Stock is registered under Section 12(b) or 12(g) of the Exchange Act, by attestation) shares of Common Stock owned by the Participant that have an aggregate Fair Market Value equal to the aggregate exercise price of the shares being purchased under the Option; (e) if and so long as the Common Stock is registered under Section 12(b) or 12(g) of the Exchange Act, and to the extent permitted by law, delivery of a properly executed exercise agreement or notice, together with irrevocable instructions to a brokerage firm designated or approved by the Company to deliver promptly to the Company the aggregate amount of proceeds to pay the Option exercise price and any tax withholding obligations that may arise in connection with the exercise, all in accordance with the regulations of the Federal Reserve Board; or (f) such other consideration as the Committee may permit.
8. Market Standoff. You agree that any Shares received upon exercise of the Option will be subject to the market standoff restrictions on transfer set forth in the Plan.
9. Treatment Upon Termination of Employment or Service Relationship. Except as otherwise provided in that certain Employment Agreement, dated February 12, 2025, by and between you and the Company, the unvested portion of the Option will terminate automatically and without further notice immediately upon your Termination of Service. You may exercise the vested portion of the Option as follows:
(a) General Rule. You must exercise the vested portion of the Option on or before the earlier of (i) three months after your Termination of Service and (ii) the Option Expiration Date.
(b) Retirement or Disability. In the event of your Termination of Service due to Retirement or disability, you must exercise the vested portion of the Option on or before the earlier of (i) one year after your Termination of Service and (ii) the Option Expiration Date.
(c) Death. In the event of your Termination of Service due to your death, the vested portion of the Option must be exercised on or before the earlier of (i) one year after your Termination of Service and (ii) the Option Expiration Date. If you die after your Termination of Service but while the Option is still exercisable, the vested portion of the Option may be exercised until the earlier of (x) one year after the date of death and (y) the Option Expiration Date.
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(d) Cause. The vested portion of the Option will automatically expire at the time the Company first notifies you of your Termination of Service for Cause, unless the Committee otherwise. If your employment or service relationship is suspended pending an investigation of whether you will be terminated for Cause, all your rights under the Option likewise will be suspended during the period of investigation. If any facts that would constitute termination for Cause are discovered after your Termination of Service, any Option you then hold may be immediately terminated by the Committee.
The Option must be exercised within three months after termination of employment for reasons other than death or disability and one year after termination of employment due to disability to qualify for the beneficial tax treatment afforded Incentive Stock Options. For purposes of the preceding, “disability” has the meaning attributed to that term for purposes of Section 422 of the Code.
It is your responsibility to be aware of the date the Option terminates.
10. Limited Transferability. During your lifetime only you can exercise the Option. The Option is not transferable except by will or by the applicable laws of descent and distribution. The Plan provides for exercise of the Option by a beneficiary designated on a Company-approved form or the personal representative of your estate. Notwithstanding the foregoing and to the extent permitted by the Plan and Section 422 of the Code, the Committee, in its sole discretion, may permit you to assign or transfer the Option, subject to such terms and conditions as specified by the Committee.
11. Withholding Taxes. As a condition to the exercise of any portion of the Option, you must make such arrangements as the Company may require for the satisfaction of any federal, state, local or foreign tax withholding obligations that may arise in connection with such exercise.
12. Option Not an Employment or Service Contract. Nothing in the Plan or this Agreement will be deemed to constitute an employment contract or confer or be deemed to confer any right for you to continue in the employ of, or to continue any other relationship with, the Company or any Related Company or limit in any way the right of the Company or any Related Company to terminate your employment or other relationship at any time, with or without Cause.
13. No Right to Damages. You will have no right to bring a claim or to receive damages if you are required to exercise the vested portion of the Option within three months (one year in the case of Retirement, Disability or death) of your Termination of Service or if any portion of the Option is cancelled or expires unexercised. The loss of existing or potential profit in the Option will not constitute an element of damages in the event of your Termination of Service for any reason even if the termination is in violation of an obligation of the Company or a Related Company to you.
14. Binding Effect. This Agreement will inure to the benefit of the successors and assigns of the Company and be binding upon you and your heirs, executors, administrators, successors and assigns.
15. Section 409A Compliance. Notwithstanding any provision in the Plan or this Agreement to the contrary, the Committee may, at any time and without your consent, modify the terms of the Option as it determines appropriate to avoid the imposition of interest or penalties under Section 409A of the Code; provided, however, that the Committee makes no representations that the Option shall be exempt from or comply with Section 409A of the Code and makes no undertaking to preclude Section 409A of the Code from applying to the Option.
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Exhibit 10.3
SETTLEMENT AGREEMENT AND STIPULATION
THIS SETTLEMENT AGREEMENT and STIPULATION (this “Agreement”) is dated as of July 21, 2026 (the “Settlement Date”) by and between Algorhythm Holdings, Inc. (the “Company”), a Delaware corporation, and Continuation Capital, Inc. (“CCI”), a Delaware corporation.
BACKGROUND:
WHEREAS, the Company has bona fide outstanding liabilities in the principal amount of not less than $1,928,014; and
WHEREAS, CCI acquired such liabilities on the terms and conditions set forth in the annexed Claim Purchase Agreement(s), (subject however to the agreement of the Company and compliance with the provisions hereof); and
WHEREAS, CCI and the Company desire to resolve, settle, and compromise among other things the liabilities as more particularly set forth on Schedule A and the Claim Purchase Agreement(s) and debt instruments attached and annexed thereto and incorporated herein (hereinafter collectively referred to as the “Claims”).
NOW, THEREFORE, the Parties hereto agree as follows:
1. Defined Terms. As used in this Agreement, the following terms shall have the following meanings specified or indicated (such meanings to be equally applicable to both the singular and plural forms of the terms defined):
“AGREEMENT” shall have the meaning specified in the preamble hereof.
“CLAIM AMOUNT” shall mean $1,928,014 (subject to any applicable discounts pursuant to the annexed Claim Purchase Agreement(s)).
“COMMON STOCK” shall mean the Company’s common stock, $0.01 par value per share.
“COURT” shall mean the Twelfth Judicial Circuit Court of Florida.
“DRS” shall have the meaning specified in Section 3b.
“DTC” shall have the meaning specified in Section 3b.
“DWAC” shall have the meaning specified in Section 3b.
“FAST” shall have the meaning specified in Section 3b.
“PARTY or PARTIES” shall mean CCI and/or the Company.
“PRINCIPAL MARKET” shall mean the Nasdaq National Market, the Nasdaq SmallCap Market, OTC Markets, the NYSE American or the New York Stock Exchange, whichever is at the time the principal trading exchange or market for the Common Stock.
“SALE PRICE” shall mean the selling price of the Common Stock on the Principal Market on the applicable date.
“SHARE PRICE” shall mean the price determined by (i) selecting the five lowest Sale Prices of the Company’s Common Stock on the Principal Market, excluding the highest and lowest traded prices of those five lowest Sale Prices, and calculating the arithmetic mean of the remaining three (3) Sale Prices during the applicable Valuation Period, and (ii) multiplying the arithmetic mean by 80%; provided, however, that in no event shall the “Share Price” be less than $0.10.
“SHAREHOLDER APPROVAL” shall mean such approval as may be required by the applicable rules and regulations of the Nasdaq Capital Market/Nasdaq National Market (or any successor entity) from the shareholders of the Company with respect to the transactions contemplated by this Agreement, including the issuance of that portion of the shares of Common Stock which would, if issued to CCI by the Company, be in excess of 19.99% of the issued and outstanding Common Stock on the Settlement Date. If Shareholder Approval is not obtained, any remaining unpaid portion of the Claim Amount at the time of such Share Issuance pursuant to this Agreement which could require a Share Issuance in excess of 19.99% of the issued and outstanding shares of the Company’s Common Stock as of the Settlement Date may, at the option of either Party, be terminated, and any unpaid portion of the Claim Amount shall be reinstated and revert to the Company (net of any amounts already satisfied).
“TARGET GROSS PROCEEDS” shall mean that amount equal to the Claim Amount divided by 0.80.
“TERMINATION DATE” shall mean the date that the last of the shares of Common Stock required to be issued by the Company to CCI hereunder have been issued to CCI.
“TRADING DAY” shall mean any day during which the Principal Market shall be open for business.
“TRANSFER AGENT” shall mean the then current transfer agent for the Common Stock.
“VALUATION PERIOD” shall mean the five (5) day trading period preceding the date of any Share Request made by CCI pursuant to this agreement.
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2. Fairness Hearing. Upon the execution hereof, the Company and CCI agree, pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended (the “Securities Act”), to expeditiously submit this Agreement to the Court for a hearing on: (i) the fairness of terms and conditions of this Agreement to CCI within the meaning of Section 3(a)(10) of the Securities Act .
3. Settlement Shares. Upon entry of an order by the Court substantially in the form annexed hereto as Exhibit A (the “Order”), and subject to Shareholder Approval for that portion of Shares of Common Stock which are in excess of 19.99% of the issued and outstanding shares of the Company’s Common Stock on Settlement Date, the Company shall issue and deliver to CCI shares of its Common Stock as follows:
a. In settlement of the Claims, the Company shall issue and deliver to CCI shares of Common Stock equal to the Claim Amount divided by the Share Price (the “Initial Issuance”), subject to adjustment and ownership limitations as set forth below. Such shares of Common Stock shall be freely trading securities issued pursuant to Section 3(a)(10) of the Securities Act (the “Settlement Shares”). The Initial Issuance may be completed in one or more tranches as determined by CCI in its discretion (each, a “Tranche”). The number of shares of Common Stock issuable in each Tranche shall be equal to that portion of the Claim Amount specified on the Share Request divided by the Share Price specified on the Share Request. For the purposes of this Agreement, “Share Request” means a share request substantially in the form attached hereto as Exhibit B. The Share Price and number of shares issued pursuant to this Section 3(a) shall be proportionately adjusted in the event the Company effectuates a forward or reverse stock split of its shares of Common Stock.
b. No later than the first business day following the date that the Company learns from CCI that the Court has entered the Order, time being of the essence, the Company shall transmit via email, facsimile and overnight delivery an irrevocable and unconditional instruction to the Company’s stock transfer agent to reserve 5,000,000 shares of the Company’ Common Stock for issuance to CCI pursuant to the terms of this Agreement, such instruction to be substantially in the form annexed hereto as Exhibit C (the “Share Reservation Letter”). In the event the Company effectuates a forward or reverse stock split of the Company’s Common Stock while any obligations are owed to CCI pursuant to this Agreement by Company, then the reserve shares shall be proportionately adjusted. Thereafter, within one business day following receipt of a Share Request from CCI, the Company shall issue and deliver to CCI the applicable number of Settlement Shares as Direct Registration Systems (DRS) shares to CCI’s account with the Depository Trust Company (DTC) or through the Fast Automated Securities Transfer (FAST) Program of DTC’s Deposit/Withdrawal at Custodian (DWAC) system, without any legends or restrictions on transfer, sufficient to satisfy the applicable Share Request. The Company shall be fully responsible for all of the Transfer Agent’s costs for each and every issuance of Settlement Shares to CCI. The Company shall provide CCI, upon the request by CCI at any time prior to the Termination Date, with a shareholder report containing the number of issued and outstanding shares of the Company’s Common Stock.
c. Within 10 days of the date that CCI has sold the last of the Settlement Shares, CCI shall provide the Company with: (i) brokerage statements showing the date of sale of each Settlement Share and the gross proceeds received by CCI from the sale of such Settlement Shares; and (ii) a statement that specifies (A) the aggregate gross proceeds received by CCI from the sale of the Settlement Shares (the “Aggregate Gross Proceeds”), and (B) the amount, if any, by which the Target Gross Proceeds exceed the Aggregate Gross Proceeds. In the event the Target Gross Proceeds exceed the Aggregate Gross Proceeds (such amount, the “Shortfall Amount”), then CCI shall provide the Company with a final Share Request for additional shares of Common Stock (the “Additional Settlement Shares”). The number of Additional Settlement Shares shall be equal to the Shortfall Amount specified on the Share Request divided by the Share Price specified on the Share Request. Thereafter, CCI shall not provide the Company with any additional Share Requests and the Company will have no obligation to issuance any additional shares of Common Stock to CCI. In the event the Aggregate Gross Proceeds equal or exceed the Target Gross Proceeds, then CCI will not provide the Company with any additional Share Requests and the Company will have no obligation to issue any additional shares of Common Stock to CCI.
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d. The Parties acknowledge that the number of Settlement Shares along with any Additional Settlement Shares to be issued pursuant to this Agreement is indeterminable as of the date of its execution, and could well exceed the current existing number of shares outstanding as of the date of its execution which shall be obtained by the Company.
e. Notwithstanding anything to the contrary contained herein, it is the intention of the Parties that the Settlement Shares and any Additional Settlement Shares beneficially owned by CCI at any given time, when aggregated with all other shares of the Company then beneficially owned by CCI, or deemed beneficially owned by CCI, shall not exceed 4.99% of the number of shares of Common Stock issued and outstanding shares on such date as determined in accordance with Section 13(d) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”) and the regulations promulgated thereunder. The Company shall not under any circumstances issue that portion of the shares of Common Stock in settlement of the claim which are in excess of 19.99% of the issued and outstanding shares of Common Stock of Company on the Settlement Date or any other date unless and until Shareholder Approval has been obtained.
f. In the event that the number of shares of Common Stock to be issued to CCI pursuant to any Share Request is not a whole number, then the number of shares of Common Stock to be issued to CCI will be round up to the nearest whole number.
4. Necessary Action. At all times after the execution of this Agreement and entry of the Order by the Court, each party hereto agrees to take or cause to be taken all such necessary action including, without limitation, the execution and delivery of such further instruments and documents, as may be reasonably requested by any party for such purposes or otherwise necessary to effect and complete the transactions contemplated hereby.
5. Releases. Effective on the date CCI receives all of the Settlement Shares and/or Additional Settlement Shares it is entitled to under the terms and conditions of this Agreement, and except for the obligations, representations, indemnifications pursuant to Paragraph 15 herein and covenants arising or made hereunder or a breach hereof, each Party hereby releases, acquits and forever discharges the other Party and each, every and all of their respective current and past officers, directors, shareholders, affiliated corporations, subsidiaries, agents, employees, representatives, attorneys, predecessors, successors and assigns, of and from any and all claims, damages, cause of action, suits and costs, of whatever nature, character or description, whether known or unknown, anticipated or unanticipated, which the Parties may now have or may hereafter have or claim to have against each other with respect to the Claims. The obligations of the Parties under this Agreement shall be deemed concluded upon receipt by CCI of all of the Settlement Shares and Additional Settlement Shares pursuant to the terms and conditions of this Agreement. Nothing contained herein shall be deemed to negate or affect CCI’s right and title to any securities heretofore issued to it by the Company or any subsidiary of the Company.
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6. Representations. The Company hereby represents, warrants and covenants to CCI as follows:
a. On the date immediately preceding the Settlement Date, there were 800,000,000 shares of Common Stock of the Company authorized for issuance, of which 15,425,958 shares of Common Stock were issued and outstanding and 784,574,042 shares of Common Stock were available for issuance.
b. The shares of Common Stock to be issued pursuant to the Order are duly authorized, and when issued will be duly and validly issued, fully paid and non-assessable, free and clear of all liens, encumbrances and preemptive and similar rights to subscribe for or purchase securities;
c. The shares will be exempt from registration under the Securities Act and issuable without any restrictive legend.
d. If at any time it appears reasonably likely that there may be insufficient shares of Common Stock authorized for issuance by the Company or reserved for issuance by the Transfer Agent to fully comply with the Order, the Company shall promptly take such actions as are necessary to increase its authorized shares and/or reserve shares as applicable to ensure its ability to timely comply with the Order, including, in the case of an increase in the number of shares of Common Stock authorized for issuance, seeking the approval of the Company’s board of directors and shareholders.
e. The execution of this Agreement and performance of the Order by the Company and CCI will not (1) conflict with, violate or cause a breach or default under any agreements between the Company and any creditor (or any affiliate thereof) related to the Claims, or (2) require any waiver, consent, or other action of the Company or any creditor, or their respective affiliates, that has not already been obtained (other than the holders of the Claims).
f. Without limitation, the Company hereby waives any provision in any agreement related to the Claims requiring payments to be applied in a certain order, manner, or fashion, or providing for exclusive jurisdiction in any court other than this Court.
g. The Company has all necessary power and authority to execute, deliver and perform all of its obligations under this Agreement.
h. This Agreement shall be subject to all required corporate authorizations by the Company;
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i. The execution, delivery and performance of this Agreement by the Company has been duly authorized by all requisite action on the part of the Company and its Board of Directors (including a majority of its independent directors), and, when executed and delivered by the Company to CCI, this Agreement has been duly executed and delivered by the Company.
j. The Company did not enter into the transaction giving rise to the Claims in contemplation of any sale or distribution of the Company’s Common Stock or other securities;
k. Except for that certain forbearance agreement, dated May 9, 2026, by and between the Company and SemiCab, Inc., there has been no modification, compromise, forbearance, or waiver entered into or given with respect to the Claims. There is no action based on the Claims that is currently pending in any court or other legal venue, and no judgments based upon the Claims have been previously entered in any legal proceeding with the exceptions as contained in the Claim Purchase Agreements.
l. There are no taxes due, payable or withholdable by the Company as a result of settlement of the Claims.
m. SemiCab, Inc. may be deemed to be, and within the past ninety (90) days may be deemed to have been, directly or indirectly, through one or more intermediaries, in control, controlled by, or under common control with, the Company, and may be considered to be an “affiliate” of the Company as such term is defined in Rule 144 promulgated under the Securities Act. To the Company’s knowledge, no other creditor is or may be considered an “affiliate” pursuant to this provision.
n. The Company is operational and is a non-shell company within the meaning of Rule 405 of the Securities Act and applicable regulations pertaining thereto.
o. To the Company’s knowledge, all creditors including but not limited to SemiCab, Inc., will not and have no present intention to utilize any of the proceeds to be received from CCI to directly or indirectly provide any consideration to or invest in any manner in the Company or any affiliate of the Company, including without limitation Ajesh Kapoor, who serves Chief Executive Officer of SemiCab, Inc., and Vivek Sehgal, until, in the case of Messrs. Kapoor and Vivek, such time as Mr. Kapoor is no longer an affiliate of the Company.
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p. To the Company’s knowledge, no portion of the amounts received or to be received under the Claim Purchase Agreement will be paid to, transferred to, remitted to, provided to or used for the personal benefit of any affiliate of SemiCab, Inc., including but not limited to Ajesh Kapoor, who serves as Chief Executive Officer of SemiCab, Inc., or Vivek Sehgal, either directly or indirectly, through compensatory payments, shareholder distributions, share repurchases, or any other form of transaction, transfer or remittance, until, in the case of Messrs. Kapoor and Sehgal, such time as Mr. Kapoor is no longer an affiliate of the Company.
q. The Company has not received any notice (oral or written) from the Securities and Exchange Commission (“SEC”) or Principal Market regarding a halt, limitation or suspension of trading in the Common Stock.
r. To the Company’s knowledge, all creditors including but not limited to SemiCab, Inc., will not, directly or indirectly, receive any consideration from or be compensated in any manner by, the Company or any affiliate of the Company in exchange for or in consideration of selling the Claims.
s. Each Claim being purchased pursuant hereto is a bona-fide Claim against the Company and that the invoice(s) or written contract(s)/promissory note(s) underlying each Claim are accurate representations of the nature of the debt and the amounts owed by the Company to SemiCab, Inc. or any other creditor pursuant to the Claim Purchase Agreements
t. The Company acknowledges that CCI or its affiliates may from time to time, hold outstanding securities of the Company which may be convertible in shares of the Company’s common stock at a floating conversion rate tied to the current Share Price for the stock. The number of shares of Common Stock issuable pursuant to this Agreement may increase substantially in certain circumstances, including, but not necessarily limited to, the circumstance wherein the trading price of the Common Stock declines during the Valuation Period. The Company’s executive officers and directors have studied and fully understand the nature of the transaction contemplated by this Agreement and recognize that they have a potential dilutive effect. The board of directors of the Company has concluded in its good faith business judgment that such transaction is in the best interests of the Company. The Company specifically acknowledges that its obligation to issue the Settlement Shares along with Additional Settlement Shares is binding upon the Company and enforceable regardless of the dilution such issuance may have on the ownership interests of other shareholders of the Company.
u. None of the transactions, agreements or proceedings described above is part of a plan or scheme by the Company to evade the registration requirements of the Securities Act.
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7. Continuing Jurisdiction. In order to enable the Court to grant specific enforcement or other equitable relief in connection with this Agreement, (a) the Parties consent to the jurisdiction of the Court for purposes of enforcing this Agreement, and (b) each party to this Agreement expressly waives any contention that there is an adequate remedy at law or any like doctrine that might otherwise preclude injunctive relief to enforce this Agreement.
8. Conditions Precedent/ Default.
The following events shall constitute an event of default by the Company under this Agreement in the event any such events occur before the Termination Date:
a. The Company shall fail to deliver the Settlement Shares or Additional Settlement Shares to CCI in the form and mode of delivery as required under this Agreement or otherwise fail in any way to fully comply with the provisions thereof;
b. The Company shall fail to comply with the Covenants set forth in Section 14 hereof;
c. Bankruptcy, dissolution, receivership, reorganization, insolvency or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of debtors or other legal proceedings for any reason shall be instituted by or against the Company;
d. (i) Trading of the Common Stock shall have been halted, limited, or suspended by the SEC or on the Principal Market; (ii) trading in the Company’s securities generally on the Principal Market shall have been suspended or limited; (iii) minimum prices shall have been established for Company securities traded on the Principal Market, CCI’s selling broker, or for eligibility for delivery of the Common Stock via DTC or DWAC;
e. Any portion of the Common Stock is for any reason not eligible or unable to be deposited and/or cleared through CCI’s broker, brokerage account and/or clearing agent for trade without restriction on the Principal Market pursuant to the requirements of this Agreement;
f. The Common Stock is no longer eligible for book transfer delivery via DWAC;
g. The Company is delinquent or has not made its required Securities and Exchange Commission filings or disclosures in whole or in part when required under the Exchange Act; or
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h. The Sale Price for the Company’s Common Stock drops below $0.20 (which price shall be proportionately adjusted in the event of a forward or reverse stock split of the Company’s Common Stock) or the thirty (30) day average volume of the trading of the Company’s Common Stock drops below 150,000 shares per day (which number shall be proportionately adjusted in the event of a forward or reverse stock split of the Company’s Common Stock); or there shall have been any material adverse change (i) in the Company’s finances or operations, or (ii) in the financial markets such that, in the reasonable judgment of CCI, makes it impracticable or inadvisable to trade the Settlement Shares; and such suspension, limitation or other action is not cured within three (3) trading days.
i. In the event that the Company fails to fully comply with the conditions precedent as specified in Sections 8a. through 8i. herein, or the Conditions Precedent set forth in Sections 8a. through 8i. herein are not fully met or satisfied, then the Company shall be deemed in default of this Agreement and the Order and any remaining obligations of CCI, in whole or in part, under this Agreement shall be voidable in the sole discretion of CCI, unless otherwise agreed by written agreement of the Parties. In said event, CCI shall have no further obligation to comply with the terms of this Agreement and can thus opt out of making any remaining payments, in whole or in part, if applicable, not previously made to creditors as contemplated by the Claims Purchase Agreement(s). In the event the Company is declared to be in default in whole or in part, the Company shall remain fully obligated to (1) comply with the terms of this Agreement for issuance of shares of stock to CCI for any amount of debt previously purchased and paid for by CCI pursuant to the terms of this Agreement, and (2) issue any Settlement Shares and Additional Settlement Shares required to be issued hereby and any amount of debt subsequently purchased and paid for by CCI.
9. Information. The Company and CCI each represent that prior to the execution of this Agreement, they have fully informed themselves of its terms, contents, conditions and effects, and that no promise or representation of any kind has been made to them except as expressly stated in this Agreement.
10. Ownership and Authority. The Company and CCI represent and warrant that they have not sold, assigned, transferred, conveyed or otherwise disposed of any or all of any claim, demand, right, or cause of action, relating to any matter which is covered by this Agreement, that each is the sole owner of such claim, demand, right or cause of action, and each has the power and authority and has been duly authorized to enter into and perform this Agreement and that this Agreement is the binding obligation of each, enforceable in accordance with its terms.
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11. No Admission. This Agreement is contractual and it has been entered into in order to compromise disputed claims and to avoid the uncertainty and expense of any litigation. This Agreement and each of its provisions and any orders of the Court relating to it shall not be offered or received in evidence in any action, proceeding or otherwise used as an admission or concession as to the merits of the action or the liability of any nature on the part of any of the Parties hereto except to enforce its terms.
12. Binding Nature. This Agreement shall be binding on all Parties executing this Agreement and their respective successors, assigns and heirs.
13. Authority to Bind. Each party to this Agreement represents and warrants that the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated in this Agreement have been duly authorized by all necessary action of the respective entity and that the person executing this Agreement on its behalf has the full capacity to bind that entity. Each Party further represents and warrants that it has been represented by independent counsel of its choice in connection with the negotiation and execution of this Agreement, and that counsel has reviewed this Agreement. Each party further represents and warrants that it has had corporate legal counsel review and agree to the terms of this Agreement to represent it at any fairness hearing or hearings to approve this Agreement.
14. Covenants.
a. For so long as CCI or any of its affiliates holds any Settlement Shares, but no longer than one hundred eighty (180) days from the date the court enters the Order, neither the Company nor any of its affiliates shall vote any shares of Common Stock owned or controlled by it, or solicit any proxies or seek to advise or influence any person with respect to any voting securities of the Company, in favor of (1) a reorganization or liquidation under Chapter 11 or 7 of the Bankruptcy Code involving the Company or any of its subsidiaries, (2) a delisting of the Common Stock from the Principal Market, (3) the termination of registration of the Common Stock pursuant to Section 12(g)(4) of the Exchange Act, or (4) the termination of the Transfer Agent. The provisions of this paragraph may not be modified or waived without further order of the Court.
b. Within four business days of the date the Order is issued by the Court, the Company shall cause to be filed a Form 8-K with the SEC disclosing the settlement. The Company shall complete such additional filings as may be or are required by the SEC in respect of the transactions contemplated under this Agreement.
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c. CCI hereby covenants that it has not provided any funds or other consideration to the Company and has no intent to do so. In no event shall any of the funds received from the sale of Settlement Shares or Additional Settlement Shares in reliance upon the Court Order be used to provide any consideration to the Company or any affiliate or related party of the Company, including Ajesh Kapoor and Vivek Sehgal, except as provided within the Claim Purchase Agreements.
d. CCI hereby covenants that it will comply fully with the terms of the Claim Purchase Agreements and the Order. In the event CCI breach the terms of this Agreement, the Claim Purchase Agreement or the Order, the Company may declare CCI in default under this Agreement, in which event this Agreement and/or any remaining obligations of the Company under this Agreement shall be voidable in the sole discretion of the Company, unless otherwise agreed by written agreement of the Parties.
15. Indemnification. The Company covenants and agrees to indemnify, defend and hold CCI and its agents, employees, representatives, officers, directors, stockholders, controlling persons and affiliates (the “Indemnified Parties”) harmless from any charges, claims, suits, losses, expenses, damages, obligations, fines, judgments, liabilities, costs and expenses (including actual costs of investigation and reasonable attorney’s fees), whether brought by an individual or entity or imposed by a court of law or by administrative action of any federal, state or local governmental body or agency, administrative agency or regulatory authority related to arising in any manner out of, based upon or in connection with: (a) any untrue statement or alleged untrue statement of a material fact made by the Company or any omission or alleged omission of the Company to state a material fact required to be stated herein necessary to make the statements herein not misleading, or (b) the inaccuracy or breach of any covenant, representation or warranty made by the Company contained herein. The Company will promptly reimburse the Indemnified Parties for all expenses (including reasonable fees and expenses of legal counsel) as incurred in connection with the investigation of, preparation for or defense of any pending or threatened claim related to or arising in any manner out of any matter contemplated by this Agreement, or any action or proceeding arising therefrom, whether or not such Indemnified Party is a formal party to any such proceeding. The obligations of the Company under this Section 15 specifically include, but are not limited to, liability of CCI arising from: (i) payments made by CCI to SemiCab, Inc. or any other creditor, that were fraudulent based upon false instruments provided to CCI by the Company, and for (ii) a determination by a federal governmental body that the Claims were not bona fide claims of the Company within the meaning of Section 3(a)(10) of the Securities Act. Notwithstanding the foregoing, the Company shall not be liable in respect of any claims that a court of competent jurisdiction has judicially determined by final judgment (and the time to appeal has expired or the last right of appeal of has been denied) which resulted solely or in part from the willful misconduct or gross neglect of an Indemnified Party or the violation of any securities laws or regulations by the Indemnified Party. The Company further agrees that it will not, without the prior written consent of CCI, settle, compromise or consent to the entry of any judgment in any pending or threatened proceeding in respect of which indemnification may be sought hereunder (whether or not CCI or any Indemnified Party is an actual or potential party to such proceeding), unless such settlement, compromise or consent includes an unconditional release of CCI and each other Indemnified Party hereunder from all liability arising out of such proceeding. In order to provide for just and equitable contribution in any case in which (i) an Indemnified Party is entitled to indemnification pursuant to this Agreement but it is judicially determined by the entry of a final judgment decree by a court of competent jurisdiction and (the time to appeal has expired or the last right of appeal has been denied) that such indemnification may not be enforced in such case, or (ii) contribution may be required by the Company in circumstances for which an Indemnified Party is otherwise entitled to indemnification under this Agreement, then, and in each such case, the Company shall contribute to the aggregate losses, claims and damages and/or liabilities in an amount equal to the amount for which indemnification was held unavailable.
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The Company further agrees that no Indemnified Party shall have any liability (whether direct or indirect, in contract or tort or otherwise) to the Company for or in connection with CCI’s agreement hereunder except for Claims that a court of competent jurisdiction shall have determined by final judgment (and the time to appeal has expired or the last right of appeal has been denied) resulted solely or in part from the willful misconduct of such Indemnified Party or the willful violation of any securities laws or regulations by an Indemnified Party. The indemnity, reimbursement and contribution obligations of the Company set forth herein shall be in addition to any liability which the Company may otherwise have an shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of the Company or an Indemnified Party.
16. Legal Effect. The Parties to this Agreement represent that each of them has been advised by counsel as to the terms and legal effect of this Agreement and the Order provided for herein, and that the settlement and compromise stated herein is final and conclusive forthwith, and shall supersede all prior written or oral agreements between the Parties with respect to the subject matter hereof.
17. Mutual Drafting. Each Party has participated jointly in the drafting of this Agreement which each Party acknowledges is the result of negotiation between the Parties and the language used in this Agreement shall be deemed to be the language chosen by the Parties to express their mutual intent. If ambiguity or question of intent or interpretation arises, then this Agreement will accordingly be construed as drafted jointly by the Parties, and no presumption or burden of proof will arise favoring or disfavoring any Party to this Agreement by virtue of the authorship of any of the provisions of this Agreement.
18. Failure or Indulgence Not Waiver. No failure or delay on the part of either Party in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges of the Party hereunder. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.
19. Waiver of Defense. Each Party hereto waives a statement of decision, and the right to appeal from the Order after its entry. Each Party further waives any defense based on the rule against splitting causes of action. The prevailing Party in any motion to enforce the Order shall be awarded its reasonable attorney fees and expenses in connection with such motion. Except as expressly set forth herein, each Party shall bear its own attorneys’ fees, expenses and costs.
20. Signatures. This Agreement may be signed in counterparts and this Agreement, together with its counterpart signature pages, shall be deemed valid and binding on each Party when duly executed by all Parties. Facsimile and electronically scanned signatures shall be deemed valid and binding for all purposes. This Agreement may be amended only by an instrument in writing signed by the Party to be charged with enforcement thereof. This Agreement supersedes all prior agreements and understandings among the Parties hereto with respect to the subject matter hereof.
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21. Choice of Law, Etc. Notwithstanding the place where this Agreement may be executed by either of the Parties, or any other factor, all terms and provisions hereof shall be governed by and construed in accordance with the laws of the State of Florida, applicable to agreements made and to be fully performed in that State and without regard to the principles of conflicts of laws thereof. Any action brought to enforce, or otherwise arising out of this Agreement shall be brought only in the Court.
22. Exclusivity. Until the earlier to occur of the Termination Date or the date that is 180 days after the Settlement Date, the Company shall not enter into any exchange transaction under Section 3(a)(10) of the Securities Act without the express written consent of CCI.
23. Inconsistency. In the event of any inconsistency between the terms of this Agreement and any other document executed in connection herewith, the terms of this Agreement shall control to the extent necessary to resolve such inconsistency.
24. Arm’s-Length Transaction. The Company and CCI hereby each represent and warrant that they are acting and have acted in an arm’s length capacity in the negotiation of the transactions covered by this Agreement.
25. Notices. Any notice required or permitted hereunder shall be given in writing (unless otherwise specified herein) and shall be deemed effectively given on the earliest of:
(a) the date delivered, if delivered by personal delivery as against written receipt therefore or by confirmed facsimile transmission;
(b) the fifth business day after deposit, postage prepaid, in the United States Postal Service by registered or certified mail;
(c) the second business day after mailing by domestic or international express courier, with delivery costs and fees prepaid; or
(d) delivery by email upon delivery,
in each case, addressed to the other Party thereunto entitled at the following addresses (or at such other addresses as such Party may designate by ten (10) days’ advance written notice similarly given to the other Party hereto):
To the Company:
Algorhythm Holdings, Inc.
6301 NNW 5th Way, Suite 2900
Fort Lauderdale, Florida 33309
To CCI:
Continuation Capital, Inc.
4054 Sawyer Road
Sarasota, FL 34233
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IN WITNESS WHEREOF, the Parties have duly executed this Agreement as of the date first indicated above.
| Algorhythm Holdings, Inc. | ||
| By: | /s/ Gary Atkinson | |
| Name: | Gary Atkinson | |
| Title: | CEO | |
| Continuation Capital, Inc. | ||
| By: | /s/ Charles N. Cleland, Jr. | |
| Name: | Charles N. Cleland, Jr. | |
| Title: | President | |
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