EMPLOYMENT AGREEMENT
THIS AGREEMENT by and between Smart Online, Inc. a Delaware corporation
(the "COMPANY"), and Xxxxx Xxxxx (the "EMPLOYEE"), dated as of the 1st day of
April, 2004.
WITNESSETH THAT
WHEREAS, the Company and the Employee wish to contract for the
employment by the Company of the Employee, and the Employee wishes to serve the
Company, in the capacities and on the terms and conditions set forth in this
Agreement; and
WHEREAS, the Company is an enterprise whose success is attributable
largely to the creation and maintenance of certain Confidential Data (as defined
below) and during the period of employment the Employee will be situated to have
access to and be knowledgeable with respect to the Confidential Data as well as
the customers of the Company; and
WHEREAS, Company has a legitimate protectible business interest in the
creation and maintenance of its Confidential Data and the protection of the
identity of, and related information concerning, its customers and the Company's
customer lists; and
WHEREAS, the Company wishes to protect its Confidential Data from
disclosure by the Employee by means of the restrictive covenants contained in
this Agreement and the Employee agrees to such covenants in exchange for the
Company's grant of options hereunder, employment of the Employee under the terms
of this Agreement, and for other additional good and valuable consideration, the
receipt and sufficiency of which are hereby conclusively acknowledged;
NOW, THEREFORE, it is hereby agreed as follows:
1. EMPLOYMENT PERIOD. The Company shall employ the Employee, and
the Employee shall serve the Company, on the terms and conditions set forth in
this Agreement. Such employment pursuant to the terms of this Agreement shall
commence on June1, 2004, and shall terminate on the first to occur of (i) the
termination of this Agreement as provided herein, or (ii) December 31, 2005;
provided, however, that if neither party has given written notice to the other,
at least one hundred eighty (180) days prior to the expiration date then in
effect, of the intention not to renew the Agreement beyond such expiration date
or the expiration date for any renewal period, then the term of this Agreement
shall automatically extend for an additional two (2) years at the conclusion of
the expiration date for the initial term or renewal period as applicable. The
term during which this Agreement is in effect is referred to herein as the
"EMPLOYMENT PERIOD."
2. POSITION AND DUTIES.
(a) During the Employment Period, the Employee shall serve
as a full-time employee of the Company as Executive Vice President of Product
Development, with such
duties and responsibilities as are customarily assigned to such position,
including, without limitation, managing the development and updating content for
all applications, directing the evaluation of all applications, directing the
beta-testing of products, directing the relational aspect of online applications
to the rest of the Web site and such other duties and responsibilities not
inconsistent therewith as may from time to time be assigned to him by the
President, Chief Executive Officer or the Board of Directors.
(b) During the Employment Period, the Employee shall devote
his loyalty, attention, and time to the business and affairs of the Company and,
to the extent necessary to discharge the responsibilities assigned to the
Employee under this Agreement, use the Employee's best efforts to carry out such
responsibilities faithfully and efficiently.
3. COMPENSATION.
(a) Base Salary. The Employee's base salary initially shall
be $150,000 per annum, payable monthly, which salary shall be evaluated annually
and is subject to such increases as the Board of Directors of the Company
approves (in either case, as applicable for such periods, "ANNUAL BASE SALARY").
(b) Other Benefits. In addition, during the Employment
Period the Employee shall be entitled to participate, in accordance with the
relevant provisions thereof, in all applicable incentive, savings, and
retirement plans, practices, policies, and programs of the Company (including
but not limited to disability, health, life and dental insurance) for which
senior management employees are eligible generally.
(c) All compensation hereunder shall be subject to all
applicable federal and state withholding, payroll and other taxes.
4. TERMINATION OF EMPLOYMENT.
(a) Death or Disability. The Employee's employment shall
terminate automatically upon the Employee's death during the Employment Period.
The Company shall be entitled to terminate the Employee's employment because of
the Employee's Disability during the Employment Period. "DISABILITY" means that
the Employee has been unable, for a period of thirty (30) consecutive calendar
days, to perform the Employee's duties under this Agreement, as a result of
physical or mental illness or injury. A termination of the Employee's employment
by the Company for Disability shall be communicated to the Employee by written
notice, and shall be effective on the date of receipt of such notice by the
Employee (the "DISABILITY EFFECTIVE DATE").
(b) By the Company.
(i) The Company may terminate the Employee's
employment during the Employment Period for Cause or Without
Cause. A termination of the Employee's employment with Cause
shall be effective when communicated to the Employee by written
notice. "CAUSE" means:
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A. participation in a fraud or theft
against the Company;
B. any chemical dependence which materially
adversely affects the performance of his duties and
responsibilities to the Company;
C. breach of Employee's fiduciary
obligations to the Company in a material respect;
D. Employee repeatedly willfully fails to
perform his duties after written notice with reasonable
opportunity to cure;
E. material breach of the Company's
policies or any material provision of this Agreement;
X. xxxxx misconduct resulting in
substantial loss to the Company or damage to the
reputation of the Company; or
G. knowing material violation of securities
laws, rules or regulations.
(ii) "WITHOUT CAUSE" means termination of Employee's
employment for some reason other than that listed in Paragraph
4(b)(i) above. A termination of the Employee's employment
Without Cause shall be effective when communicated to the
Employee by written notice.
(c) By the Employee. The Employee may signify his intention
to terminate his employment at any time upon the giving of one hundred eighty
(180) days' notice ("NOTICE PERIOD") to the Company of his intent to do so. Upon
the expiration of the Notice Period the termination will be effective and the
Date of Termination will be effective as referred to below. The Company reserves
the right to accelerate the effective "Date of Termination" in its discretion
after the inception of the Notice Period.
(d) Date of Termination. The "DATE OF TERMINATION" means the
date of the Employee's death, the Disability Effective Date, the date on which
the termination of the Employee's employment by the Company for Cause or Without
Cause is effective, or the date on which the termination of the Employee's
employment by the Employee is effective, as the case may be.
5. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) Termination by the Company without Cause or by the
Employee for Good Reason. If the Company terminates the employment of the
Employee without Cause (as defined in Section 4(b) above) or if the Employee
terminates his employment for Good Reason (as defined below) at any time during
which the Employee does not directly, or indirectly through one or more
intermediaries, control the Company:
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(i) the Company shall pay the Employee the portion
of his base salary in effect at the time of termination as he
may be entitled to receive for services rendered prior to the
date of such termination;
(ii) the Company shall pay the Employee for any
accrued but unused vacation;
(iii) for a period of twelve (12) months following the
date on which the Employee's employment with the Company
terminates, the Company shall continue to pay the Employee his
base salary in effect at the time of his termination of
employment and shall continue to provide the Employee with all
benefits specified in this Agreement, with no adverse tax
consequences to the Employee, as if he had remained employed by
the Company pursuant to this Agreement during the entire such
twelve (12) month period; and
(iv) the Company shall take all action necessary to
provide that the all stock options held by the Employee shall
become fully vested and exercisable, to the extent not already
fully vested and exercisable, as of the date of such termination
of employment.
For purposes of this Agreement, the Employee shall be deemed to
have terminated his employment for "GOOD REASON" if he voluntarily terminates
his employment with the Company under any of the following circumstances:
(i) any demotion or diminution in the Employee's
position, title, reporting position or duties;
(ii) any reduction in the Employee's base salary;
(iii) failure to reelect Employee as a member of the
Company's board of directors;
(iv) relocation of the Employee's office to a
location more than thirty (30) miles outside of Research
Triangle Park, North Carolina; or
(v) any material breach of this Agreement by the
Company.
(b) Termination on Account of Death or Disability. If the
Company terminates the employment of the Employee on account of Disability (as
defined in Section 4(a) above) of the Employee, or in the event of the
Employee's death, the Company shall pay or provide to the Employee or his
beneficiary such compensation and benefits as are set forth in subsections
(a)(i), (a)(iii) and (a)(iv) above.
(c) Termination with Cause. If the Company terminates the
employment of the Employee with Cause (as defined in Section 4(b) above), the
Company shall pay the
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Employee or his beneficiary such compensation as is set forth in subsections
(a)(i) and (a)(ii) above.
6. CHANGE IN CONTROL.
(a) If a Change in Control (as defined in subsection (b)
below) occurs and, following the Change in Control either (i) Employee remains
employed with the surviving entity for such period of time as shall be specified
by the board of directors (or other governing body) of such surviving entity at
the time of such Change in Control, (ii) Employee's employment is terminated by
the Company without Cause, or (iii) Employee terminates his employment for Good
Reason as described in Section 5(a), the Company shall make a lump sum payment
to the Employee on the expiration date of the period of time referred to in
clause (i) or the effective date of the termination referred to in clause (ii)
or (iii), as applicable, of an amount equal to the lesser of (x) 2.99 times that
highest amount of the annual cash compensation (including cash bonuses and other
cash-based benefits, including for these purposes amounts earned or payable
whether or not deferred) received from the Company during any of the five
calendar years preceding such date and (y) the largest amount payable to the
Employee that would not trigger an excise tax payable by the Employee pursuant
to Section 280G of the Internal revenue Code of 1986, as amended. Such payment
shall be in addition to the payments and benefits provided in Section 5 (a)(i),
5(a)(ii) and 5(a)(iv) but in lieu of any other salary or benefits under this
Agreement.
(b) For purposes of this Agreement, a "CHANGE IN CONTROL"
shall be deemed to have occurred on the earliest of the following dates:
(i) the date on which any entity or person shall
have become the beneficial owner of, or shall have obtained
voting control over, thirty percent (30%) or more of the
outstanding Common Stock of the Company (excluding for this
purpose any person or entity beneficially owning more than 50%
of the Common Stock of the Company as of the date hereof); or
(ii) the date the shareholders of the Company approve
a definitive agreement to (A) merge or consolidate the Company
with or into another corporation other than with respect to a
merger or consolidation which would result in the voting
securities of the Company beneficially owned by Employee
immediately prior thereto continuing to represent (either by
remaining outstanding or being converted into voting securities
of the surviving entity) more than 50% of the combined voting
power of the voting securities of the surviving entity
outstanding immediately after such merger or consolidation; (B)
sell or otherwise dispose of all or substantially all of the
assets of the Company; or (C) dissolve or liquidate the Company.
7. EXPENSES. The Company agrees to reimburse the Employee for
reasonable and necessary expenses incurred by the Employee in the furtherance of
the Company's business in accordance with such procedures as the Company may
from time to time establish.
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8. REPRESENTATIONS AND WARRANTIES OF THE EMPLOYEE. The Employee
represents and warrants that:
(a) the Employee is under no contractual or other
restriction or obligation which is inconsistent with the execution of this
Agreement, the performance of duties hereunder or other rights of the Company
hereunder; and
(b) to the best of the Employee's knowledge, the Employee is
under no physical or mental disability rendering him incapable of performing the
essential functions involved in his anticipated duties or that would otherwise
hinder the performance of duties under this Agreement.
9. COVENANT NOT TO COMPETE. The Employee covenants that during the
"NONCOMPETITION PERIOD," as defined in paragraph 15, and within the
"NONCOMPETITION AREA," as defined in paragraph 16, he shall not, directly or
indirectly, as principal, agent, consultant, trustee or through the agency of
any corporation, partnership, association, or agency (other than the Company)
engage in the "BUSINESS," as defined in paragraph 17. Specifically, but without
limiting the foregoing, the Employee agrees that during such period and within
such area, he shall not do any of the following: (a) be the owner of the
outstanding capital stock of any corporation which conducts a business of a like
or similar nature to the "Business" (other than stock of a corporation traded on
a national securities exchange or automated quotation system); (b) be an officer
or director of any corporation which conducts a business of a like or similar
nature to the "Business"; (c) be a member of any partnership which conducts a
business of a like or similar nature to the "Business"; or (d) be a consultant
to, an owner of or an employee of any other business which conducts a business
of a like or similar nature to the Business.
10. NONDISCLOSURE COVENANT.
(a) The parties acknowledge that the Company is an
enterprise whose success is attributable largely to the ownership, use and
development of certain valuable confidential and proprietary information (the
"CONFIDENTIAL DATA"), and that the Employee's employment with the Company will
involve the Employee's access to and work with such information. The Employee
acknowledges that his relationship with the Company is a confidential
relationship. The Employee covenants and agrees that (i) he shall keep and
maintain the Confidential Data in strictest confidence, and (ii) he shall not,
either directly or indirectly, use any Confidential Data for his own benefit, or
divulge, disclose, or communicate any Confidential Data in any manner whatsoever
to any person or entity other than the employees or agents of the Company having
a need to know such Confidential Data, and only to the extent necessary to
perform their responsibilities on behalf of the Company, and other than in the
performance of the Employee's duties in the employment by the Company. The
Employee's agreement not to disclose Confidential Data shall apply to all
Confidential Data, whether or not the Employee participated in the development
thereof. Upon termination of employment for any reason, the Employee will return
to the Company all Company documents, notes, programs, data and any other
materials (including any copies thereof) in his/her possession.
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(b) For purposes of this Agreement, the term "CONFIDENTIAL
DATA" shall include any and all information related to the business of the
Company, or to its products, sales or businesses which is not general public
knowledge, specifically including (but without limiting the generality of the
foregoing) all financial and accounting data; computer software; processes;
formulae; inventions; methods; trade secrets; computer programs; engineering or
technical data, drawings, or designs; manufacturing techniques; patents, patent
applications, copyrights and copyright applications (in any such case, whether
registered or to be registered in the United States of America or elsewhere)
applied for, issued to or owned by the Company; information concerning pricing
and pricing policies; marketing techniques; suppliers; methods and manner of
operations; and information relating to the identity, needs and location of all
past, present and prospective customers. The parties stipulate that as between
them the above-described matters are important and confidential and gravely
affect the successful conduct of the business of the Company and that any breach
of the terms of this paragraph shall be a material breach of this Agreement.
11. NONSOLICITATION COVENANT. The Employee covenants that during the
Noncompetition Period he shall not directly or indirectly, on behalf of himself
or on behalf of any other person, firm, partnership, corporation, association or
other entity, call upon any of the customers or clients of the Company for the
purpose of soliciting or providing any product or service similar to that
provided by the Company nor will he, in any way, directly or indirectly, for
himself, or on behalf of any other person, firm, partnership, corporation,
association, or other entity solicit, divert or take away, or attempt to
solicit, divert, or take away any of the customers, clients, business, or
patrons of the Company. The Employee further covenants that during the
Noncompetition Period he shall not, directly or indirectly, as principal, agent,
consultant, trustee or through the agency of any corporation, partnership,
association, or agency, induce or attempt to induce any person to leave the
employ of the Company.
12. INVENTIONS. All inventions, designs, improvements and
developments made by the Employee, either solely or in collaboration with
others, during his employment with the Company, whether or not during working
hours, and relating to any methods, apparatus or products which are
manufactured, sold, leased, used or developed by the Company or which pertain to
the Business (the "DEVELOPMENTS"), shall become and remain the property of the
Company. The Employee shall disclose promptly in writing to the Company all such
Developments. The Employee acknowledges and agrees that all Developments shall
be deemed "WORKS MADE FOR HIRE" within the meaning of the United States
Copyright Act, as amended. If, for any reason, such Developments are not deemed
works made for hire, the Employee shall assign, and hereby assigns, to the
Company, all of the Employee's right, title and interest (including, but not
limited to, copyright and all rights of inventorship) in and to such
Developments. At the request and expense of the Company, whether during or after
employment hereunder, the Employee shall make, execute and deliver all
application papers, assignments or instruments, and perform or cause to be
performed such other lawful acts as the Company may deem necessary or desirable
in making or prosecuting applications, domestic or foreign, for patents
(including reissues, continuations and extensions thereof) and copyrights
related to such Developments or in vesting in the Company full legal title to
such Developments. The Employee shall assist and cooperate with the Company or
its representatives in any controversy or legal proceeding relating to such
Developments, or to any patents, copyrights or trade secrets
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with respect thereto. If for any reason the Employee refuses or is unable to
assist the Company in obtaining or enforcing its rights with respect to such
Developments, the Employee hereby irrevocably designates and appoints the
Company and its duly authorized agents as the Employee's agents and
attorneys-in-fact to execute and file any documents and to do all other lawful
acts necessary to protect the Company's rights in the Developments. The Employee
expressly acknowledges that the special foregoing power of attorney is coupled
with an interest and is therefore irrevocable and shall survive (i) the
Employee's death or incompetency and (ii) any termination of this Agreement.
13. INDEPENDENT COVENANTS. Each of the covenants on the part of the
Employee contained in paragraphs 9, 10, 11 and 12 of this Agreement shall be
construed as an agreement independent of each other such covenant. The existence
of any claim or cause of action of the Employee against the Company, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by the Company of any such covenant, except that failure by the
Company to pay all amounts due under this Agreement within thirty (30) days
after written notice from Employee shall constitute grounds for termination of
Sections 9 and 12 of this Agreement.
14. REASONABLENESS; INJUNCTION. The Employee acknowledges that the
covenants contained in this agreement are reasonably necessary and designed for
the protection of the Company and its business, and that such covenants are
reasonably limited with respect to the activities prohibited, the duration
thereof, the geographic area thereof, the scope thereof and the effect thereof
on the Employee and the general public. The Employee further acknowledges that
violation of the covenants would immeasurably and irreparably damage the
Company, and by reason thereof the Employee agrees that for violation or
threatened violation of any of the provisions of this Agreement, the Company
shall, in addition to any other rights and remedies available to it, at law or
otherwise, be entitled to any injunction to be issued by any court of competent
jurisdiction enjoining and restraining the Employee from committing any
violation or threatened violation of this Agreement. The Employee consents to
the issuance of such injunction. Furthermore, the Company shall, in addition to
any other rights or remedies available to it, at law or otherwise, be entitled
to reimbursement of court costs, attorneys' fees, and other expenses incurred as
a result of a breach of this Agreement. The Employee agrees to reimburse the
Company for such expenses promptly following a final determination that the
Employee has breached this Agreement. In the event of a final determination that
Employee has not breached this Agreement, the Company agrees to reimburse the
Employee for his court costs and attorneys' fees promptly following such
determination.
15. NONCOMPETITION PERIOD. This Agreement shall remain enforceable
during the Employee's employment with the Company and for a period of one year
after termination of the Employee's employment for any reason.
16. NONCOMPETITION AREA.
(a) The Employee acknowledges and agrees that the Company
does business on an international basis and that the Employee will assist
Company in developing Company's business in both the United States and Europe,
with customers throughout the United States and
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additionally existing in Europe, particularly servicing France, Spain and
Germany, and that any breach of the Employee's covenants contained herein would
materially damage the Company, regardless of the area of the world in which the
activities constituting such breach were to occur. Accordingly, the terms and
provisions of this Agreement shall apply in the following Noncompetition Area:
(b) The State of North Carolina;
(c) Any state other than North Carolina where Company
conducts the "Business" and in or for which the Employee assists or performs
services assisting Company;
(d) Any political subdivision of foreign countries where
Company does "Business" or will do "Business" during the period of employment;
and
(e) Any other state, country, or political subdivision where
Company does "Business" and in or for which the Employee assists or performs
services assisting Company.
17. BUSINESS. For the purposes of this Agreement, the "Business"
shall include any business, service, or product engaged in, provided, or
produced by the Company from the date of this Agreement to the date of the
termination of the employment, including, but not limited to, (i) the business
of development, production, marketing, design, manufacturing, leasing or selling
software related to business plans, accounting or legal services for use by
small businesses, whether for use by professionals or consumes; (ii) the
business of development, marketing and operation of a business services Internet
portal for use by small businesses, and other products or services related to
any of the foregoing; (iii) providing web-hosted applications and technology
infrastructure syndication and/or (iv) any other business conducted by the
Company immediately prior to the date of termination of Employee's employment or
in which the Company shall at the time of termination of Employee's employment
with the Company be actively preparing for. For purposes of the foregoing
definition of "Business," a "SMALL BUSINESS" is any business enterprise with
fewer than 100 employees and a "BUSINESS SERVICES INTERNET PORTAL" is a web site
providing users with multiple online business resources covering broad topics
for small businesses such as, for example only, marketing, financial management,
legal, and business strategies using databases, online documents, reference
material, chat rooms, newsgroups, hyperlinking or other information tools.
18. MISCELLANEOUS.
(a) This Agreement shall be subject to and governed by the
substantive laws of the State of North Carolina, without giving effect to the
conflicts of laws provisions thereof. The Employee hereby submits to the
jurisdiction and venue of the state and federal courts of North Carolina.
(b) The Company's failure to insist upon strict compliance
with any provision of this Agreement shall not be deemed a waiver of such
provision or any other provision.
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(c) This Agreement may not be modified except by an
agreement in writing executed by the parties. The parties expressly waive their
right to orally modify this provision.
(d) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision.
(e) This Agreement shall not be assignable without the
written consent of the Company and the Employee.
(f) This Agreement shall inure to the benefit of and be
binding upon the Company and it successors and assigns.
(g) This Agreement expresses the whole and entire Employment
Agreement between the parties and supersedes and replaces any prior employment
agreement, understanding or arrangement between Company and the Employee.
19. This Agreement terminates the Employment Agreement dated July
14, 1999, as amended to date. Except for that agreement, all other agreements
between the Company and Employee remain in full force and effect.
IN WITNESS WHEREOF, the parties executed this Agreement under
seal as of the day and year first above written.
SMART ONLINE, INC.
Attest: By: _____________________________________
By: ___________________________ Name: ___________________________________
Corporate Secretary Title: __________________________________
WITNESS: ______________________ EMPLOYEE: _________________________(SEAL)
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