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EXHIBIT 10.4
EMPLOYMENT AGREEMENT
BETWEEN
MIDCOM COMMUNICATIONS INC.
AND
XXXXXXX X. XXXXXXX
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made effective the 24th day
of May, 1996 (the "Effective Date") between MIDCOM COMMUNICATIONS INC., a
Washington corporation (the "Company" or "Employer") and XXXXXXX X. XXXXXXX
("Oberlin" or "Employee").
RECITALS
A. The Company is desirous of retaining an experienced executive with
telecommunications background.
X. Xxxxxxx has agreed to accept the positions and serve as the President
and Chief Executive Officer of the Company.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the parties
agree as follows:
1. EMPLOYMENT. The Company hereby agrees to provide employment to
Employee, and Employee agrees to be employed by the Company and to perform the
services and fulfill the duties of Employee all in accordance with the terms and
conditions of this Agreement.
2. TERM. This Agreement shall commence on the Effective Date and shall
terminate on May 31, 2001, subject to earlier termination as provided in Section
9. The fact that Employee is or may be a shareholder and/or director of the
Company shall not entitle him to any rights to employment by the Company.
3. DUTIES. Employee shall serve as the President and Chief Executive
Officer of the Company, and shall faithfully and diligently perform such duties
and exercise such powers as:
(i) Are set forth in the description of duties of officers in the
current Bylaws of the Company (which may be amended by the Company from time to
time);
(ii) Are customarily expected of the President and Chief Executive
Officer of business organizations which are similar to the Company; and
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(iii) May from time to time be properly assigned to him by the Board
of Directors of the Company. At the request of the Board of Directors of the
Company. Employee also shall serve as President and/or as a Director of any of
the Company's subsidiaries and affiliates without additional compensation.
4. EXTENT OF SERVICES. Employee shall devote his full working time,
attention and skill to the duties and responsibilities set forth in Section 3.
Employee may participate in other businesses as an investor, provided that:
(i) Employee shall not actively participate in the operation or
management of such businesses; provided, that this shall not prevent Employee
from serving as a member of the board of directors of another corporation if
the Board of Directors of the Company approves of his service in that position;
and
(ii) Employee shall not, without the prior approval of the Directors
of the Company, make or maintain any investment in any entity with which the
Company as a commercial relationship of any kind, including that of lessor,
partner, investor, vendor, supplier, consultant or otherwise, or which is in
competition with the Company; provided, that this shall not prevent Employee
from investing in the securities of any publicly traded companies so long as
such investments do not constitute more than five percent (5%) of the
outstanding voting securities of any such company. The Company acknowledges that
it shall not be a violation of this Agreement for Employee to invest in one or
more dealers which has a commercial relationship with the Company, subject to
compliance by Employee with the provisions of RCW 23B.08.700 through .730
(dealing with Employee's obligation to disclose conflicts of interest to
qualified directors).
(iii) Employee's activities and investments shall not be inconsistent
with the Company's Policy on Conflicts of Interest.
5. SALARY. In consideration for the performance of Employee's
obligations under this Agreement. Employee shall be paid a salary of
Twenty-Five Thousand Dollars ($25,000) per month, payable semi-monthly, during
the term of this Agreement. Employee's salary shall be paid in installments in
accordance with the Company's payroll policy for other employees. The Company
shall review Employee's salary and other compensation on an annual basis, and
may from time to time increase Employee's salary as it deems appropriate in its
sole discretion. For the year 1996, the Company may,in the sole discretion of
its Board of Directors, award bonuses to Employee based upon the performance of
the Employee and/or the Company, or create other Bonuses or benefit programs
for Employee. For each calendar year effective with the year starting January
1, 1997, based upon a business plan presented by Employee and approved by the
Company's Board of Directors in its discretion, the Company may from time to
time, award bonuses to Employee. Employee will present the business plan not
later than thirty (30) days prior to the commencement of the applicable
calendar year. The bonuses will be structured by the Board to provide Employee
one hundred percent (100%) of his then-current base salary if the Company meets
the targets set forth in the business plan, or a greater or lesser
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percentage of his base salary in proportion to the amount by which the Company
exceeds or falls short of the targets set forth in the business plan. The Board
of Directors of the Company will formulate and adopt a bonus plan for Employee
on or before August 30, 1996 for the calendar year ending December 31, 1996.
6. STOCK OPTIONS. As an incentive to Employee to use his best efforts to
enhance the value of the Company, the Company has granted Employee stock options
to purchase 1,214,724 shares of stock of the Company in accordance with that
certain MIDCOM Communications Inc. 1993 Stock Option Plan, as amended and
restated (the "Option Plan"), a copy of which is attached as Attachment A to
this Agreement, including vesting at twenty percent (20%) on May 25, 1997 and
20% per year for each of the next four (4) years at the option price equal to
the fair market value of the stock of $8 per share. The options are more
particularly described in the Option Plan and in the Stock Option Agreement
which shall be executed simultaneously with this Agreement, a form of which is
attached as Attachment B to this Agreement. The increase in the number of shares
authorized to be issued under the Option Plan is subject to the approval of the
shareholders of the Company at its next annual meeting. On or after August 15,
1996, such options may be issued by the Company directly to, or transferred by
Employee to, a family limited partnership entitled "Oberlin Family Limited
Partnership II," at Employee's election.
7. VACATION AND OTHER BENEFITS. Employee shall be entitled to four (4)
weeks of paid vacation each year, in addition to the holidays observed by the
Company for its employees in general. Vacation or holiday time that is not taken
shall be carried into the next calendar year, or upon termination, unused
vacation will be paid for in applicable salary. The Company shall also provide
Employee, without cost to Employee, with medical, life, disability and group
term life insurance benefits. Employee shall also be entitled to participate in
Employer's 401(k) profit sharing plan pursuant to the terms of such plan
attached hereto as Attachment C.
8. RELOCATION EXPENSES. Employee shall be reimbursed by Employer for all
reasonable relocation expenses in the event Employee relocates his domicile
within one (1) year of the date of this Agreement. To the extent such reasonable
relocation expenses exceed the amounts deductible as moving expenses, pursuant
to the Internal Revenue Code of 1987 as amended, the balance of such
reimbursements shall be paid as taxable compensation to Employee. Until such
time as Employee relocates his domicile, Employer shall reimburse Employee
and/or his spouse for all reasonable commuting expenses from his present
domicile to the principal offices of Employer.
9. TERMINATION PRIOR TO THE END OF TERM.
(a) The Company may terminate this Agreement for cause prior to the
end of the term. The term "for cause" shall mean a termination based on a
determination in good faith by the Board of Directors of the Company that
Employee has committed an act of dishonesty related to his employment, obtained
any benefit of money or other property in connection with his employment to
which he was not entitled or engaged in any willful misconduct with respect to
his duties or other obligations under this Agreement. In the event of any
termination of this
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Agreement for cause, Employee shall be paid all compensation and benefits earned
through the date of termination, but the Company shall not be obligated to
provide any further compensation or benefits to him under this Agreement.
(b) The Company may, at its option and at any time, terminate this
Agreement prior to the end of the term without cause. In the event that the
Company exercises this right, Employee shall be entitled to receive all
compensation (including salary and bonus) and benefits earned through the date
of termination, plus two years of "Severance," payable in twenty-four (24) equal
monthly installments, without interest, commencing on the last day of the month
following such termination. As used in this Agreement, a year of "Severance"
means an amount equal to the sum of (1) Employee's then-current annualized
salary, plus (2) either (i) Employee's average annual bonus for the fiscal years
preceding the termination or (ii) if no bonus has been established for or paid
to Employee during such years, then Employee's then-current annualized salary.
In addition, the Company shall continue for a period of twenty-four (24) months
following the date of termination to provide to Employee, without cost to
Employee, the same medical, life, disability and group term life insurance
benefits as would have been available to him had he remained employed by the
Company, or, if Employee is not eligible to participate in such plans because he
is no longer a full time employee of the Company, then the Company shall pay
Employee a monthly amount equal to the per-employee premium payable by the
Company for participants in the plan(s) for which Employee is ineligible. Should
Employee's employment be terminated under this Paragraph 9(b), however, any
vesting of stock options granted to Employee under Paragraph 6 of this Agreement
shall continue for the shorter of twenty-four (24) months or the remaining term
of the option following the date of termination, as if Employee had remained
employed during such period.
(c) This Agreement shall terminate in the event Employee dies, or is
unable to perform his duties as a result of a physical or mental disability at
any time during the term of this Agreement. In the event of a termination due to
Employee's inability to perform his duties as a result of a physical or mental
disability, Employee shall be paid all compensation and benefits earned through
the date of such termination. For purposes of this Agreement, Employee shall be
deemed to be disabled when each of the following conditions are met:
(i) The Employee shall become physically or mentally incapable
(excluding infrequent and temporary absences due to ordinary
illnesses) of properly performing the services required of him by this
Agreement;
(ii) Employee's physical or mental incapacity shall exist or
shall be reasonably expected to exist for more than ninety (90) days
in the aggregate during any period of twelve (12) consecutive calendar
months; and
(iii) Such physical or mental incapacity is independently
diagnosed by a qualified medical practitioner.
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In the event of termination due to the death of Employee, all compensation and
benefits accrued through the date of Employee's death shall be paid to
Employee's estate. In the event of Employee's death, any stock options granted
under Section 6 will immediately vest effective on the date of Employee's death,
but only to the extent such stock options would have vested if Employee's
employment had continued for a period of two (2) additional years following the
date of Employee's death. Employee's estate must exercise such stock options,
pursuant to the terms of the Option Plan, within one (1) year following the date
of Employee's death. If Employee's estate does not timely exercise the stock
options, they will automatically expire without further action by the Company.
(d) In the event of a "Change of Control Event" (as defined
below), the Employee may, at his option, terminate this Agreement prior to the
end of the term. The Employee must exercise this option by written notice
delivered to the Company within one hundred eighty (180) days of the Change of
Control Event. In the event Employee does not exercise such option to terminate
within such one hundred eighty (180) day period, this Agreement shall remain in
full force and effect subject to the same conditions for the balance of its
term. Employee shall be entitled to the same Severance, stock option vesting and
other benefits described in paragraph 9(b) in the event Employee makes the
election provided for in this paragraph 9(d). For purposes of this paragraph
9(d), a "Change of Control Event" means (1) an event or series of events by
which any Person or other entity or group (as such term is used in Section 13(d)
and Section 14(d) of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act") of persons or other entities acting in concert as a partnership
or other group (a "Group of Persons") (other than persons who are, or groups of
persons entirely made up of, (i) management personnel or directors of the
Company or (ii) any affiliates or any such management personnel or directors)
shall, as a result of a tender or exchange offer or offers, an open market
purchase or purchases, a privately negotiated purchase or purchases or
otherwise, become the beneficial owner (within the meaning of Rule 13d-3 under
the Exchange Act, except that a Person shall be deemed to have a "beneficial
ownership" of all securities that such Person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, of forty percent (40%) or more of the combined voting
power of the then outstanding voting stock of the Company; (2) the Company
consolidates with, or merges with or into, another Person, or sells, assigns,
conveys, transfers, leases or otherwise disposes of all or substantially all of
its assets to any Person, or any Person consolidates with, or merges with or
into the Company, in any such event pursuant to a transaction in which the
outstanding voting stock of the Company is converted into or exchanged for cash,
securities or other Property; (3) during any consecutive two-year period,
individuals who at the beginning period constituted the Board of the Company
(together with any new directors whose appointment by such Board or whose
nomination for election by the stockholders of the Company was approved by a
vote of 66-2/3% of the directors then still in office who were either directors
at the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of the Company then in office; or (4) any liquidation or dissolution of
the Company.
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(e) The parties may, by mutual agreement set forth in writing,
terminate this Agreement ("Termination by Mutual Agreement"). A Termination by
Mutual Agreement shall be deemed to apply in the event (i) Employee recommends
to the Board of Directors of the Company that the Company relocate its
headquarters to a location which is closer to Employee's personal residence,
(ii) Employee provides reasonable projections to the Board of Directors which
demonstrate that the Company will experience financial benefits from such
relocation (taking into account the expenses of such relocation), and (iii) the
Board of Directors votes against Employee's recommendation to relocate or
declines to vote such recommendation within ninety (90) days following the first
Board meeting at which Employee presents such recommendation in writing, then
Employee may, at his option, terminate this Agreement prior to the end of its
term. Employee must exercise this option by written notice delivered to the
Company within ninety (90) days of the vote of the Board of Directors, or, if
the Board takes no action on such recommendation, within one hundred eighty
(180) days following the first Board meeting at which Employee presented such
recommendation in writing. In the event Employee does not exercise such option
to terminate within the applicable time period, this Agreement shall remain in
full force and effect subject to the same conditions for the balance of its
term. In the case of any Termination by Mutual Agreement, Employee shall be
entitled to one year of Severance, payable in twelve (12) equal monthly
installments. In addition, the Company shall continue for a period of twelve
(12) months following the date of termination to provide the Employee, without
cost to Employee, the same medical, life, disability and group term life
insurance benefits as would have been available to him had he remained employed
by the Company, or, if Employee is not eligible to participate in such plans
because he is no longer a full time employee of the Company, then the Company
shall pay Employee a monthly amount equal to the per-employee premium payable by
the Company for participants in the Plan(s) for which Employee is ineligible.
Upon a Termination by Mutual Agreement, any vesting of stock granted to Employee
under paragraph 6 of this Agreement shall continue for the shorter of twelve
(12) months following the date of termination or the remaining term of the
option, as if Employee had remained employed during such period.
10. INDEMNIFICATION. The Company shall defend, indemnify and hold Employee
harmless from any and all liabilities, obligations, claims or expenses which
arise in connection with or as a result of Employee's service as an officer or
employee (or director if Employee is elected and serves as a director) of the
Company and/or any of its subsidiaries to the fullest extent allowed by law;
provided, that the Company shall not be obligated to defend, indemnify or hold
Employee harmless from any liabilities, obligations, claims or expenses which
result from Employee having committed an act of dishonesty, obtained any benefit
of money or other property to which he was not entitled or engaged in any wilful
misconduct.
11. NON-INTERFERENCE AND CONFIDENTIALITY.
(a) During the term of this Agreement, Employee shall comply with his
fiduciary obligations as an officer of the Company and the restrictions
contained in Section 4.
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(b) During the term of this Agreement, Employee shall not, directly
or indirectly, as a director, officer, employee, owner, partner, agent,
consultant, lessor, creditor or otherwise, for any person, firm or entity whose
business is the same as or similar to the business engaged in by the Company at
any time during the term of this Agreement: (1) solicit from any person or
entity that was a customer of the Company during the term of this Agreement, any
business of a type or nature similar to the Company's business with such
customer; (2) solicit or attempt to persuade any person or entity that was a
customer of the Company during the term of this Agreement to terminate or
rescind its business and contractual relationship with the Company; (3) solicit
for employment any employee of the Company who at the time of such solicitation
is employed in an executive or management capacity, or attempt to persuade or
entice any such employee to terminate his or her employment with the Company; or
(4) employ any person who was employed by the Company in an executive or
management capacity during the term of this Agreement; provided, however, that
the contact or solicitation of any MIDCOM customer by a subsequent employer of
Employee which was not originated or suggested by Employee to his subsequent
employer shall not be deemed to be a breach of this Section 12(b). The
provisions of this Section 12(b) shall continue for a period of six (6) months
following the expiration or earlier termination of this Agreement, unless
Employee's employment is terminated by the Company under Section 9(b) or by
Employee under Section 9(d) or 9(e), in which event Employee shall be released
from the restrictions set forth in clauses 12(b)(3) and 12(b)(4) upon the
effective date of such termination.
(c) Employee shall not, during his employment hereunder or at any
time thereafter, use for his own purposes or disclose to any other person or
entity any "Confidential Information" concerning the Company, its affiliates or
any other business operations, except as may be consistent with his duties
hereunder or as may be required by order of a court of competent jurisdiction.
"Confidential Information" means any information, formula, pattern, compilation,
program, device, method, technique, customer list or process concerning the
Company or its business or customers: (i) that derives independent economic
value, actual or potential, from not being generally known to, or not being
readily ascertainable by proper means by, other persons who can obtain economic
value from its disclosure or use; or (ii) the disclosure of which would be
harmful to the interests of the Company.
(d) Employee agrees that the provisions of this Section are
reasonable. However, if any court of competent jurisdiction determines that any
provision within this Section is unreasonable in any respect, the parties intend
that this Section shall be enforced to the fullest extent allowable by such
court.
12. NOTICES. All notices or other communications required or permitted by
this Agreement shall be in writing and shall be sufficiently given if sent by
certified mail, postage prepaid, addressed as follows:
If to Employee, to: Xxxxxxx X. Xxxxxxx
000 Xxxxxxxx Xxxxxx
Xxxxxxxxxx Xxxxx, XX 00000
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If to the Company: MIDCOM Communications Inc.
Attention: Legal Department
1600 MIDCOM Tower
0000 Xxxxx Xxxxxx
Xxxxxxx, XX 00000
Any such notice or communication shall be deemed to have been given as of
the date mailed. Any address may be changed by giving written notice of such
change in the manner provided herein for giving notice.
13. WAIVER OF BREACH. The waiver by a party of a breach of any provision
of this Agreement shall not operate or be construed as a waiver of any
subsequent breach.
14. ASSIGNMENT. Neither party may assign its rights or delegate its
duties hereunder without the prior written consent of the other party.
15. ENTIRE AGREEMENT. This Agreement contains the entire understanding of
the parties with regard to the subject matter of this Agreement and may only be
changed by written agreement signed by both parties. Any and all prior
discussions, negotiations, commitments and understandings related thereto are
merged herein.
16. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the respective parties, and their legal representatives, successors,
permitted assigns and heirs.
17. LAW. This Agreement shall be governed by, construed and enforced in
accordance with the laws of the State of Washington, without giving effect to
principles and provisions thereof relating to conflict or choice of laws and
irrespective of the fact that any one of the parties is now or may become a
resident of a different state.
18. VALIDITY. In case any term of this Agreement shall be invalid,
illegal, or unenforceable, in whole or in part, the validity of any of the
other terms of this Agreement shall not in any way be affected thereby.
"COMPANY" "EMPLOYEE"
MIDCOM COMMUNICATIONS INC. XXXXXXX X. XXXXXXX
/s/ Xxxxxxx X. Xxxxxxx
BY: /s/ Xxxx X. Xxxxxxx -----------------------
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Xxxx X. Xxxxxxx
ITS: Chairman, Board of Directors
Attachment A: Stock Option Plan
Attachment B: Stock Option Agreement
Attachment C: 401(k) Plan
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