EMPLOYMENT AGREEMENT
AGREEMENT made this 18th day of October 1996, by and between
TOTALNET COMMUNICATIONS INC., a Texas corporation with principal offices at 000
Xxxx Xxx Xxxxxxxxx, Xxxxx 000, Xxxxxxx, Xxxxx 00000 (the "Corporation"), and
XXXXXX X. XXXXXXX, residing at 0000 Xxxx, Xxxxxxx, Xxxxx 00000 ("Executive").
W I T N E S S E T H :
WHEREAS, the Corporation is to be acquired by GST
Telecommunications, Inc. ("GST") pursuant to a merger whereby a subsidiary of
GST is to be merged with and into the Corporation (the "Merger"); and
WHEREAS, it is a condition to the Merger that Executive
enter into this Agreement; and
WHEREAS, the Corporation and Executive have agreed to modify
and formally document their existing employment relationship for their mutual
benefit and are desirous of setting out the terms and conditions thereof; and
WHEREAS, the Corporation desires to employ Executive, and
Executive desires to undertake such employment, effective upon the completion of
the Merger, upon the terms and subject to the conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants hereinafter set forth, the parties hereto agree as follows:
1. EMPLOYMENT OF EXECUTIVE. The Corporation hereby
employs Executive as its Chief Operating Officer to perform such
duties on behalf of the Corporation as may from time to time be
assigned to her, subject at all times to the control and direction of the
Corporation's Board of Directors (the "Board of Directors") and Chief Executive
Officer (the "Chief Executive Officer"). Executive may be elected or appointed
to such offices of the Corporation or its subsidiaries as may from time to time
be determined by the Board of Directors, provided that Executive shall not be
entitled to additional compensation for serving in any such offices. Executive's
principal place of employment shall be in Houston, Texas. Executive and the
Chief Executive Officer shall mutually determine the travel requirements for the
performance by Executive of her duties hereunder.
2. ACCEPTANCE OF EMPLOYMENT; FULL TIME AND ATTENTION.
Executive hereby accepts such employment and agrees that throughout the period
of her employment hereunder, she shall devote all of her full time, attention,
knowledge and skills, faithfully, diligently and to the best of her ability, in
furtherance of the business of the Corporation, its parent corporation, GST
Telecommunications, Inc. ("GST") and the subsidiaries of GST (collectively,
along with the Corporation and GST, the "GST Companies"), and shall perform the
duties assigned to her pursuant to Paragraph 1 hereof, subject, at all times, to
the direction and control of the Board of Directors and the Chief Executive
Officer. Executive shall at all times be subject to, observe and carry out such
rules, regulations, policies, directions and restrictions as the GST Companies
shall from time to time establish. During the period of her employment
hereunder, Executive shall not, except as hereinafter provided, directly or
indirectly, accept employment or compensation from, or
-2-
perform services of any nature for, any business enterprise other than the GST
Companies.
3. TERM. Except as otherwise provided herein, the term of
Executive's employment hereunder shall commence as of the date hereof and shall
continue until September 30, 1998.
4. COMPENSATION. As compensation for her services hereunder,
the Corporation shall pay to Executive a base salary at the rate of $122,500 per
annum during the portion of the term hereof ending September 30, 1997 and at the
rate of $134,750 during the remainder of such term, payable in equal
installments no less frequently than semi-monthly. Executive shall also be
entitled to receive incentive compensation based upon the achievement by the
Corporation of certain predetermined operating criteria. Such operating criteria
and the related bonus opportunity are set forth on Exhibit A attached hereto.
All compensation paid to Executive shall be subject to withholding and other
employment taxes imposed by applicable law.
5. ADDITIONAL BENEFITS. In addition to the compensation
payable to Executive under Paragraph 4 above, she (and her family) shall be
entitled to participate, to the extent she is (and they are) eligible under the
terms and conditions thereof, in any profit sharing, stock option, pension,
retirement, hospitalization, insurance, disability, medical service, bonus or
other employee benefit plan generally available to the executive officers of the
Corporation that may be in effect from time to time during the period of
Executive's employment hereunder. The Corporation shall be under no obligation
to institute or continue the existence of any such employee benefit plan. To the
extent
-3-
relevant to any such employee benefit plan, Executive shall receive credit for
her service with the Corporation prior to the effective date of the Merger.
6. REIMBURSEMENT OF EXPENSES. The Corporation shall reimburse
Executive in accordance with applicable policies of the Corporation for all
expenses reasonably incurred by her in connection with the performance of her
duties hereunder and the business of the Corporation, upon the submission to the
Corporation of appropriate receipts or vouchers and approval thereof by the
Chief Financial Officer of the Corporation. In addition, the Corporation shall
reimburse Executive for continuing professional education costs incurred by
Executive in an amount not to exceed $1,500 during any calendar year.
7. VACATION. Executive shall be entitled to five weeks' paid
vacation in respect of each 12-month period during the term of her employment
hereunder, such vacation to be taken at times mutually agreeable to Executive
and the Chief Executive Officer. Vacation time shall not be cumulative from one
12-month period to the next, but Executive shall be entitled to receive vacation
pay for any vacation time not taken by her.
8. RESTRICTIVE COVENANT. In consideration of the Corporation's
entering into this Agreement, Executive agrees that during the Restricted Period
(as hereinafter defined) she will not (i) directly or indirectly own, manage,
operate, join, advise, control, participate in, invest in, finance, lend money
to, guarantee the debts or obligations of or otherwise be connected with, in any
manner, whether as an officer, director, employee, stockholder, partner,
venturer, investor, agent, broker, lender,
-4-
guarantor or otherwise, any business entity that is engaged (a) in the design,
development, construction or operation of alternate access or other
telecommunications networks within or without the United States of America (1)
in all locations in which any of the GST Companies are doing business at the
time of such termination, and (2) in all locations in respect of which any of
the GST Companies are actively planning for and/or pursuing a business
opportunity at the time of such termination, whether or not the Corporation
theretofore has submitted any bids (the locations referred to in clauses (1) and
(2) above being hereinafter referred to as the "Restricted Locations"), (b) in
the business of providing long distance or other telecommunications services,
including, without limitation, reseller services, in any Restricted Locations or
(c) in any other business engaged in by any of the GST Companies in any
Restricted Locations on the date of termination of Executive's employment; (ii)
for herself or on behalf of any other person, partnership, corporation or
entity, directly or indirectly or by action together with others call on any
customer of the Corporation in the Restricted Locations for the purpose of
soliciting, diverting or taking away any customer from the Corporation; or (iii)
directly or indirectly induce, influence or seek to induce or influence any
person engaged as an employee, representative, agent, consultant, independent
contractor or otherwise by the Corporation, to terminate his or her relationship
with the Corporation or retain such person. Nothing contained herein shall be
deemed to prohibit Executive from investing her funds, solely on a passive
basis, in securities of an issuer if the securities of such issuer are listed
for trading on a national
-5-
securities exchange or are traded in the over-the-counter market and Executive's
holdings therein represent less than 2% of the total number of shares or
principal amount of the securities of such issuer outstanding.
For the purposes of this Paragraph 8, the term Restricted
Period shall mean the period commencing on the date hereof and ending on the
earlier of September 30, 1998 or the date of termination of Executive's
employment hereunder; provided, however, that if Executive's employment
hereunder is terminated prior to September 30, 1998 by the Corporation for Cause
(as hereinafter defined) or by Executive otherwise than for Employer Breach, and
(x) such termination occurs on or before March 31, 1998, then the Restricted
Period shall end one year after such termination, or (y) if such termination
occurs on or after April 1, 1998, then the Restricted Period shall end six
months after such termination.
Executive acknowledges that the provisions of this Paragraph 8
are reasonable and necessary for the protection of the Corporation and are
essential to the willingness of the Corporation to employ Executive, and that
each provision, and the period or periods of time, geographic areas and types
and scope of restrictions on the activities specified herein are, and are
intended to be, divisible. In the event that any provision of this Paragraph 8,
including any sentence, clause or part hereof, shall be deemed contrary to law
or invalid or unenforceable in any respect by a court of competent jurisdiction,
the remaining provisions shall not be affected, but shall, subject to the
discretion of such court, remain in full force and effect and any invalid and
unenforceable provisions shall be deemed, without
-6-
further action on the part of the parties hereto, modified, amended and limited
to the extent necessary to render the same valid and enforceable.
9. CONFIDENTIAL INFORMATION. Executive shall hold in a
fiduciary capacity for the benefit of the GST Companies all information,
knowledge and data relating to or concerned with their operations, sales,
business and affairs, including without limitation, lists of customers and
vendors, product and service planning information, financing information,
marketing research, business plans, prospects and strategies (the "Confidential
Information") and she shall not, directly or indirectly at any time either
during the term of this Agreement or after termination of her employment
hereunder, use, disclose or divulge any Confidential Information to any person,
firm or corporation other than to the GST Companies or their designees and
employees, or except as may otherwise be required in connection with the
business and affairs of the GST Companies; provided that Executive may use,
disclose or divulge Confidential Information that is or becomes generally
available to the public through no wrongful act on Executive's part. All
originals and copies of all records, reports, documents, lists, drawings,
memoranda and notes relating to or containing any Confidential Information are
and shall remain the sole and exclusive property of the GST Companies and shall
be returned to the Corporation, whether or not requested by it, upon termination
for any reason of Executive's employment hereunder.
10. EQUITABLE RELIEF. The parties hereto acknowledge that
Executive's services are unique and that, in the event of a breach or a
threatened breach by Executive of any of her
-7-
obligations under this Agreement, the Corporation shall not have an adequate
remedy at law. Accordingly, in the event of any such breach or threatened breach
by Executive, the GST Companies shall be entitled to such equitable and
injunctive relief as may be available to restrain Executive and any business,
firm, partnership, individual, corporation or entity participating in such
breach or threatened breach from the violation of the provisions hereof. Nothing
herein shall be construed as prohibiting the GST Companies from pursuing any
other remedies available at law or in equity for such breach or threatened
breach, including the recovery of damages and the immediate termination of the
employment of Executive hereunder.
11. SURVIVAL OF PROVISIONS. Neither the termination of this
Agreement, nor of Executive's employment hereunder, shall terminate or affect in
any manner any provision of this Agreement that is intended by its terms to
survive such termination.
12. TERMINATION FOR CAUSE. The Corporation shall have the
right at any time to terminate Executive's employment hereunder for Cause. For
purposes of this Agreement, the following shall constitute Cause: (i) theft,
embezzlement, fraud, misappropriation of funds, other acts of dishonesty or the
violation of any law or ethical rule by Executive relating to Executive's
employment; (ii) Executive being convicted or pleading NOLO CONTENDERE to a
felony involving the operation of a motor vehicle or being indicted in a federal
or state court for any other type of felony; (iii) Executive, in carrying out
her duties and responsibilities under this Agreement, (a) is guilty of willful
gross neglect or (b) voluntarily engages in conduct that results in material
harm to the
-8-
Corporation or any affiliated entity, unless such conduct was reasonably
believed by Executive in good faith to be in the best interest of the
Corporation, or (iv) by reason of the physical or mental incapacity of
Executive, she shall fail to substantially perform her usual and regular duties
for the Corporation for a period of 90 consecutive days or for an aggregate of
90 days in any consecutive one-year period. For purposes of this Agreement, an
action shall be considered "willful" if it is done intentionally, purposely or
knowingly, as distinguished from an act done carelessly, thoughtlessly or
inadvertently.
13. TERMINATION FOR EMPLOYER BREACH. Executive may upon
written notice to the Corporation terminate this Agreement (a termination for
"Employer Breach") in the event of the breach by the Corporation of any material
provision of this Agreement and if such breach is susceptible of cure, the
failure to effect such cure within 10 days after written notice of such breach
is given to the Corporation. For purposes of this Agreement, Employer Breach
shall include, without limitation, (i) removal of Executive, without her written
consent, from the position of Chief Operating Officer of the Corporation, (ii) a
significant diminution in Executive's duties, responsibilities or authority, or
the assignment to Executive of duties and responsibilities inconsistent with her
position, (iii) a reduction in Executive's base salary or bonus opportunity,
(iv) without her written consent the requirement that Executive relocate her own
office location to a location more than 25 miles from the present location of
the Corporation's principal office or engage in travel beyond the scope of the
travel requirements determined in accordance with Paragraph 1 hereof, or
-9-
(v) without her written consent, the imposition upon Executive of additional
titles or the addition of duties and responsibilities substantively different
than those inherent in her position as Chief Operating Officer.
14. TERMINATION BY CORPORATION WITHOUT CAUSE OR BY EXECUTIVE
AS A RESULT OF EMPLOYER BREACH. In the event that the Corporation terminates
this Agreement otherwise than by reason of Cause or if the Executive shall
terminate this Agreement as a result of Employer Breach, the Corporation shall
pay to Executive, as liquidated damages, a sum equal to the greater of (i) the
total compensation payable to Executive pursuant to Paragraph 4 hereof during
the remainder of the term of this Agreement, or (ii) $75,000. If clause (i)
above shall be applicable, Executive shall receive the base salary payable
pursuant to Paragraph 4 hereof, or if clause (ii) above shall be applicable,
Executive shall receive the sum of $75,000, in a single lump sum within 10 days
after such termination. Any incentive compensation payable pursuant to Paragraph
4 hereof in the event this Paragraph 14 shall be applicable, shall be payable as
and when provided in such Paragraph 4. Any damages due Executive under this
Paragraph 14 shall be reduced dollar for dollar by any compensation of any kind
paid to Executive, by any subsequent employer or any entity she provides
consulting services to, which competes with the business of the Corporation
described in Paragraph 8, during the one year period following termination of
Executive's employment with the Corporation.
15. INSURANCE POLICIES. The Corporation shall have the
right from time to time to purchase, increase, modify or terminate
-10-
insurance policies on the life of Executive for the benefit of the Corporation,
in such amounts as the Corporation shall determine in its sole discretion. In
connection therewith, Executive shall, at such time or times and at such place
or places as the Corporation may reasonably direct, submit herself to such
physical examinations on an annual basis (or more frequently) should an insurer
or prospective insurer so require, and execute and deliver such documents as the
Corporation may deem necessary to obtain such insurance policies.
16. ENTIRE AGREEMENT; AMENDMENT. This Agreement embodies the
entire agreement and understanding of the parties hereto with respect to the
subject matter hereof, and supersedes all prior and contemporaneous agreements
or understanding, oral and written, relative to said subject matter. This
Agreement may not be changed, amended, terminated, augmented, rescinded or
discharged (other than by performance), in whole or in part, except by a writing
executed by each of the parties hereto.
17. NOTICES. Any notice required, permitted or desired to be
given to any party hereto pursuant to any of the provisions of this Agreement
shall be deemed to have been sufficiently given or served for all purposes if
delivered in person or by responsible overnight delivery service or sent by
certified mail, return receipt requested, postage and fees prepaid to their
addresses set forth above, if to the Corporation at its address set forth above,
with copies to: GST Telecommunications, Inc., 0000 X.X. Xxxxxxxx Xxx, Xxxxxxxxx,
Xxxxxxxxxx 00000, ATTENTION: Chief Executive Officer, and Xxxxxx Xxxxxxxx Frome
& Xxxxxxxxxx LLP, 000 Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, Attention: Xxxxxxx
Xxxxx, Esq.
-11-
and if to Executive at her address set forth above, with a copy to Xxxxx & Xxxxx
L.L.P, Xxx Xxxxx Xxxxx, 000 Xxxxxxxxx, Xxxxxxx, Xxxxx 00000, Attn: Xxxx X.
Xxxxxxx, Esq. Either of the parties hereto may at any time and from time to time
change the address to which notice shall be sent hereunder by notice to the
other party given under this Paragraph 16. The date of the giving of any notice
hand delivered or delivered by responsible overnight carrier shall be the date
of its delivery and of any notice sent by mail shall be the date five days after
the date of the posting of the mail.
18. NO ASSIGNMENT; BINDING EFFECT. Neither this Agreement, nor
any of the rights, interests or obligations hereunder, including the right to
receive any payments hereunder, may be transferred or assigned (by operation of
law or otherwise) by Executive. This Agreement and the various rights and
obligations arising hereunder shall inure to the benefit of and be binding upon
Executive, her heirs, executors and administrators and upon the Corporation, its
successors and assigns.
19. WAIVERS. No waiver of any of the provisions or conditions
of this Agreement or any of the rights of a party hereto shall be effective or
binding unless such waiver shall be in writing and signed by the party claimed
to have given or consented thereto. Except to the extent that a party hereto may
have otherwise agreed to in writing, no waiver by that party of any condition of
this Agreement or breach by the other party of any of its obligations hereunder
shall be deemed to be a waiver of any other condition or subsequent or prior
breach of the same or any other obligation or representation or warranty by such
other party, nor shall any forbearance by the first party to seek a remedy for
-12-
any noncompliance or breach by such other party be deemed to be a waiver by the
first party of its rights and remedies with respect to such noncompliance or
breach.
20. GOVERNING LAW. This Agreement shall in all respects be
construed in accordance with and governed by the laws of the State of Delaware,
without regard to the principles of conflicts of laws thereof.
21. ARBITRATION.
(a) Each of the parties hereto hereby irrevocably consents to
arbitration of any dispute, controversy or claim arising out of or relating to
this Agreement. Each of the parties hereto hereby irrevocably waives, to the
fullest extent legally possible, any objection to the use of arbitration to
resolve any such dispute, controversy or claim. If the parties in good faith
cannot resolve any controversy or claim arising out of or related to this
Agreement or in connection with a breach thereof within 10 days after the
claimant gives written notice of such controversy or claim to the other party,
either party may demand and commence arbitration of the controversy or claim. In
the event of a demand for arbitration, the Corporation and Executive shall each
select one arbitrator within 30 days after such demand shall have been given
(the "Demand Date") and the two arbitrators, within 45 days thereafter shall
select a third arbitrator. If the third arbitrator shall not be selected within
45 days after the Demand Date, either the Corporation or Executive may apply to
the American Arbitration Association (or any successor thereto) for the
appointment of an arbitrator in Denver, Colorado and the parties shall be bound
by the appointments made by such Association. The
-13-
arbitration shall be held in Denver, Colorado as promptly as practicable
thereafter under the rules of the American Arbitration Association in effect at
the time such controversy, claim or breach is submitted to arbitration. The
award or decision made in accordance with such rules shall be delivered in
writing to the parties hereto and shall be final, binding and conclusive upon
them in the absence of fraud and judgment upon such award or decision may be
entered in any court having jurisdiction thereof. Each party in such arbitration
shall bear its own costs and expenses incurred in such arbitration, provided,
however, that the Corporation shall bear the cost of all hotel, meal and
transportation expenses reasonably incurred in connection with such arbitration.
(b) Notwithstanding the provisions of Section 21(a), the
parties hereto shall have the right to seek and obtain from a court of competent
jurisdiction a temporary restraining order, injunction, specific performance or
other equitable relief to enforce the provisions of this Agreement.
22. INVALIDITY. If any clause, paragraph, section or part of
this Agreement shall be held or declared to be void, invalid or illegal, for any
reason, by any court of competent jurisdiction, such provision shall be
ineffective but shall not in any way invalidate or affect any other clause,
paragraph, section or part of this Agreement.
-14-
23. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall constitute an original instrument, but each of
which when taken together shall constitute one and the same instrument.
24. PAYMENT OF PRIOR PERIOD COMPENSATION. Concurrently with
the execution and delivery of this Agreement, the Corporation is paying to
Executive the sum of $67,875, representing incentive compensation payable to
Executive on account of the period January 1, 1996 through September 30, 1996.
Upon receipt of such payment by Executive, the Corporation shall have no further
obligation to her on account of salary and bonus, incentive and other similar
compensation in respect of all periods ending on or prior to the date hereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Employment Agreement to be duly executed on the day and year first above
written.
TOTALNET COMMUNICATIONS INC.
By: /s/ Xxxxxxxx X. Xxxxxx
-------------------------
Name: Xxxxxxxx X. Xxxxxx
Title: Vice President
/s/ Xxxxxx X. Xxxxxxx
---------------------
XXXXXX X. XXXXXXX
-15-
EXHIBIT A
For each of the fiscal periods October 1, 1996 through
September 30, 1997 and October 1, 1997 through September 30, 1998 (each a
"Fiscal Period"), the Corporation shall pay to Executive incentive compensation
based upon the achievement by the Corporation of Adjusted EBITDA and Gross
Margins as set forth below, provided that Executive is employed by the
Corporation on the last day of the applicable Fiscal Period.
A. ADJUSTED EBITDA COMPENSATION. If the Corporation achieves
Adjusted EBITDA of $50,000 or more, Executive shall receive $20,000 of incentive
compensation.
X. XXXXX MARGIN COMPENSATION.
Incentive Compensation
GROSS MARGIN TO EXECUTIVE
at least $2,800,000 but not
more than $2,999,999 $20,000
at least $3,000,000 but not
more than 3,299,999 $60,000
$3,300,000 or more $100,000
C. DEFINITIONS. Adjusted EBITDA shall mean earnings before
income taxes, depreciation and amortization, but without deduction of the
incentive compensation calculated in accordance with this Exhibit A payable to
Executive. Gross margin shall mean gross revenues less cost of goods/services
sold.
D. PAYMENT OF COMPENSATION. The amount of any incentive
compensation to which Executive becomes entitled shall be paid within 120 days
after the end of the applicable Fiscal Period.
-16-
