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EXHIBIT 10.7
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, is effective as of June 1, 1998, between AboveNet
Communications, Inc., a corporation organized under the laws of the State of
California ("Employer"), and Xxxxxxx Xxxx ("Executive").
WHEREAS, Executive desires to provide services to Employer and Employer
desires to retain the services of Executive;
WHEREAS, Employer and Executive desire to formalize the terms and
conditions of Executive's employment with Employer.
NOW, THEREFORE, Employer and Executive hereby agree as follows:
1. Employment.
1.1 General. Employer hereby employs Executive in the capacity
of Chief Executive Officer. Executive hereby accepts such employment, upon the
terms and subject to the conditions herein contained. Executive currently serves
as a member of the Board of Directors of Employer (the "Board").
1.2 Duties. During Executive's employment with Employer,
Executive shall report directly to the Board and shall be responsible for
performing those duties consistent with the position of Chief Executive Officer
as may from time to time be reasonably assigned to or requested of Executive by
the Board. Executive shall use his reasonable efforts to perform faithfully and
effectively such responsibilities. Executive shall conduct all of his activities
in a manner so as to maintain and promote the business and reputation of
Employer.
1.3 Full-Time Position. Executive, during his employment with
Employer, shall devote all of his business time, attention and skills to the
business and affairs of Employer. Executive may also serve as a director (but
not as an officer, employee, finder or consultant) to other companies that are
not directly competitive with Employer; provided that Executive shall advise the
Board in writing of all compensation of any nature that Executive shall be
entitled to in connection with such other directorships.
1.4 Location of Employment. Executive's principal place of
employment during his employment with Employer shall be in Silicon Valley,
California. In the event that Employer shall change the location of its
principal office from Silicon Valley, California, and Executive does not
terminate his employment pursuant to Section 3.1.5 hereof, Executive shall be
entitled to be reimbursed for reasonable documented relocation expenses,
including moving costs, temporary housing, commuting expenses and other
relocation costs not to exceed $100,000.
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2. Compensation and Benefits.
2.1 Salary. Employer shall pay to Executive, and
Executive shall accept, as full compensation for any and all services rendered
and to be rendered by him to Employer in all capacities during the term of his
employment under this Agreement, (a) a base salary at the annual rate of
$150,000 for the first year of employment hereunder and $175,000 for the second
through fourth years of employment hereunder, or at such higher rate as the
Board shall determine in its sole discretion ("Base Salary"), payable in
accordance with the regular payroll practices of Employer, and (b) the
additional benefits hereinafter set forth in this Section 2. Notwithstanding the
foregoing, in the event that a Corporate Transaction (as hereinafter defined)
occurs on or before December 31, 1999, Executive's Base Salary for the balance
of the employment year in which the Corporate Transaction occurs shall be
increased to an annual rate of $225,000 and Executive's Base Salary for each
year of employment following the year of the Corporate Transaction shall be
increased by an amount equal to not less than 10% of the Base Salary for the
preceding year of employment hereunder. The preceding sentence shall not apply
if no Corporate Transaction occurs on or before December 31, 1999.
For all purposes under this Agreement, "Corporate Transaction"
means one of the following events:
(a) An underwritten initial public offering of Employer's
securities;
(b) The consummation of a merger or consolidation of Employer
with or into another entity or any other corporate reorganization, if more than
50% of the combined voting power of the continuing or surviving entity's
securities outstanding immediately after such merger, consolidation or other
reorganization is owned by persons who were not shareholders of Employer
immediately prior to such merger, consolidation or other reorganization;
(c) The sale, transfer or other disposition of all or
substantially all of Employer's assets;
(d) Any transaction as a result of which any person becomes the
beneficial owner of securities of Employer representing at least 50% of the
total voting power represented by Employer's then outstanding voting securities.
For purposes of this Subsection (e), the term "person" shall exclude (i) any
person who is a shareholder of Employer on the date of this Agreement or (ii) a
trustee or other fiduciary holding securities under an employee benefit plan of
Employer or of a parent or subsidiary of Employer.
A transaction shall not constitute a "Corporate Transaction" if
(i) its sole purpose is to change the state of Employer's incorporation, (ii)
its sole purpose is to create a holding company that will be owned in
substantially the same proportions by the persons who held Employer's securities
immediately before such transaction or (iii) if in a transaction under
subparagraph (b) or (c) above, the consideration payable to the Company or the
shareholders is valued (in the good faith judgment of the Company's Board of
Directors) at less than $1.35 per share (as adjusted for stock splits,
combinations, stock dividends and the like).
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2.2 Additional Compensation. Executive shall be entitled to an annual
bonus of up to the amount of his Base Salary, as determined by the Board in its
sole discretion based upon performance targets established by the Board at the
beginning of each year of employment hereunder. Notwithstanding the foregoing,
in the event that during a fiscal year ending on or before December 31, 1999, a
Corporate Transaction occurs or Employer reports earnings before depreciation
and amortization for a fiscal year ending on or before December 31, 1999, the
minimum annual bonus hereunder shall be $50,000 for such fiscal year, and the
minimum bonus for each subsequent fiscal year shall be the minimum bonus for the
preceding fiscal year plus an additional 10%. The preceding sentence shall not
apply if no Corporate Transaction occurs in a fiscal year ending on or before
December 31, 1999, and Employer does not report earnings before depreciation and
amortization for a fiscal year ending on or before December 31, 1999.
2.3 Stock Options. In January 1998, Executive was granted a stock option
to purchase 250,000 shares of Employer's Common Stock.
2.4 Executive Benefits.
2.4.1 Expenses. Employer shall reimburse Executive for
expenses he reasonably incurs in connection with the performance of his duties
(including business travel and entertainment expenses), all in accordance with
Employer's policies with respect thereto.
2.4.2 Employer Plans. Executive shall be entitled to
participate in such executive benefit plans and programs as Employer may from
time to time offer or provide to executives of Employer, including, but not
limited to, participation in life insurance, health and accident, medical and
dental, disability and retirement plans and programs.
2.4.3 Vacation. Executive shall be eligible for three
weeks' paid vacation leave.
2.4.4 Car Allowance. Employer shall pay to Executive a
car allowance of $600 per month.
2.4.5 Cellular Telephone. Employer shall purchase a
cellular telephone for Executive's use and shall reimburse Executive for
business telephone calls related to Executive's employment made to or from such
telephone within 30 days after receipt of telephone bills for such telephone
calls.
2.5 Employment Term. Executive's employment by Employer pursuant to this
Agreement shall commence on the date hereof (the "Commencement Date"). Except as
provided in Section 3.1 hereof, Executive's employment by Employer pursuant to
this Agreement shall continue until the fourth anniversary of the Commencement
Date (the "Initial Term"). Thereafter, this Agreement shall automatically be
renewed for successive one-year periods (the Initial Term, together with any
subsequent employment period or periods, being referred to herein as the
"Employment Term"); provided, however, that either party may elect to terminate
this Agreement as of the anniversary of the Commencement Date in 2002 or as of
any
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subsequent anniversary of the Commencement Date by written notice to such effect
delivered to the other party at least 120 days prior to such termination date.
2.6 Disability Policy. The Company will maintain an accident and
disability policy for Executive during his employment period. The policy shall
not be for less than 60% of Executive's Base Salary.
3. Termination of Employment.
3.1 Events of Termination. Executive's employment with Employer
shall terminate upon the occurrence of any one or more of the following events:
3.1.1 Death. In the event of Executive's death,
Executive's employment shall terminate on the date of death.
3.1.2 Disability. In the event of Executive's Disability
(as hereinafter defined), Employer shall have the option to terminate
Executive's employment by giving a notice of termination to Executive. The
notice of termination shall specify the date of termination, which date shall
not be earlier than 30 days after the notice of termination is given. For
purposes of this Agreement, "Disability" means the inability of Executive to
substantially perform his duties hereunder for 180 days out of 365 consecutive
days as a result of a physical or mental illness, all as determined in good
faith by the Board.
3.1.3 Termination by Employer for Cause. Employer may,
at its option, terminate Executive's employment for "Cause," based on objective
factors determined in good faith by a majority of the Board, by giving a notice
of termination to Executive specifying the reasons for termination and, if
Executive shall fail to cure same within 10 days of his receiving the notice of
termination, his Employment shall terminate at the end of such 10-day period;
provided that in the event the Board in good faith determines that the
underlying reasons giving rise to such determination cannot be cured, then said
cure period shall not apply and Executive's employment shall terminate on the
date of Executive's receipt of the notice of termination. "Cause" shall mean (a)
Executive's conviction of, guilty or "no contest" plea to or confession of guilt
of a felony, (b) a willful act by Executive which constitutes gross misconduct
and which is materially injurious to Employer or (c) violation by Executive of
the Inventions Agreement (as defined in Section 4.1 hereof) without the prior
written consent of Employer.
3.1.4 Without Cause by Employer. Employer may, at its
option, terminate Executive's employment for any reason whatsoever (other than
for the reasons set forth above in this Section 3.1) by giving written notice of
termination to Executive, and Executive's employment shall terminate on the
later of (a) the date the notice of termination is given or (b) the date set
forth in such notice of termination.
3.1.5 Employer's Material Breach. Executive may, at his
option, terminate Executive's employment upon Employer's Material Breach of this
Agreement by giving Employer written notice of such breach (which notice shall
identify the manner in which Employer has materially breached this Agreement)
and, if such breach is not cured within 30 days of Employer's receiving such
written notice, Executive's employment shall terminate at the end of such 30-day
period. Employer's "Material Breach" of this Agreement shall mean (a) the
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failure of Employer to pay Base Salary or additional compensation hereunder in
accordance with this Agreement, (b) the assignment to Executive without
Executive's consent of duties substantially inconsistent with his duties, as set
forth in Section 1.2 hereof, (c) the relocation of Employer's principal offices
to a geographic location other than Northern California, or (d) a failure to
reelect Executive as a member of the Board.
3.1.6 Without Material Breach by Executive. Executive
may terminate Executive's employment for any reason whatsoever by giving written
notice of termination to Employer. Executive's employment shall terminate on the
earlier of (a) the date, following the date of the notice of termination, upon
which a suitable replacement for Executive is found by Employer or (b) 10 days
after the date of receipt by Employer of the notice of termination.
3.2 Certain Obligations of Employer Following Termination of Executive's
Employment. Following the termination of Executive's employment under the
circumstances described below, Employer shall pay to Executive in accordance
with its regular payroll practices the following compensation and provide the
following benefits in full satisfaction and final settlement of any and all
claims and demands that Executive now has or hereafter may have against Employer
under this Agreement:
3.2.1 Death; Disability. In the event that Executive's
employment is terminated by reason of Executive's death or Disability, Executive
or his estate, as the case may be, shall be entitled to the following payments:
(a) Base Salary through the date Executive's employment
is terminated;
(b) Any additional compensation (including compensation
pursuant to Section 2.2 and reimbursement pursuant to Section 2.4.1 hereof),
prorated to the date of death of Executive or the date of termination due to
Executive's Disability; and
(c) Employer shall pay to Executive or his estate, as
the case may be, the amounts and shall provide all benefits generally available
under the employee benefit plans, policies and practices of Employer, determined
in accordance with the applicable terms and provisions of such plans, policies
and practices in each case, as accrued to the date of termination or otherwise
payable as a consequence of Executive's death or Disability.
3.2.2 Without Cause by Employer; Material Breach by
Employer. In the event that Executive's employment is terminated by Employer
pursuant to Section 3.1.4 hereof or by Executive pursuant to Section 3.1.5
hereof, Executive shall be entitled to the following payments and benefits:
(a) Base Salary through the date Executive's employment
is terminated;
(b) Any additional compensation (including compensation
pursuant to Section 2.2 hereof, reimbursements pursuant to Section 2.4.1 hereof
and benefits
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pursuant to Section 2.4.2 hereof), prorated to the date Executive's
employment is terminated hereunder;
(c) Continuing payments of Base Salary, payable in
accordance with the regular payroll practices of Employer, for 12 months
following the date of termination of Executive's employment; and
(d) Immediate full vesting of the option shares held by
Executive. This Subsection (d) shall apply only if either (i) Executive's
employment is terminated on or before December 31, 1999, or (ii) a Corporate
Transaction occurs on or before December 31, 1999. This Subsection (d) shall be
inoperative if no Corporate Transaction occurs on or before December 31, 1999,
and Executive's employment is terminated after December 31, 1999.
3.2.3 Termination by Executive Without Material Breach
or by Employer for Cause. In the event Executive's employment is terminated by
Executive pursuant to Section 3.1.6 hereof or by Employer pursuant to Section
3.1.3 hereof, Executive shall be entitled to no further compensation or other
benefits under this Agreement except as to that portion of any unpaid Base
Salary and other benefits accrued and earned by him hereunder, including
compensation pursuant to Section 2.2 hereof, reimbursements pursuant to Section
2.4.1 hereof and benefits pursuant to Section 2.4.2 hereof, up to and including
the effective date of such termination. In addition, Executive shall be entitled
to receive any additional compensation earned but not yet paid with respect only
to any fiscal year prior to the fiscal year of termination.
3.3 Nature of Payments. All amounts to be paid by Employer to Executive
pursuant to this Section 3 are considered by the parties to be severance
payments. In the event such payments are treated as damages, it is expressly
acknowledged by the parties that damages to Executive for termination of
employment would be difficult to ascertain and the above amounts are reasonable
estimates thereof.
3.4 Duties Upon Termination. Upon termination of Executive's employment
with Employer pursuant to Sections 3.1.1 through 3.1.6 hereof or upon expiration
of the Employment Term, Executive shall be released from any duties and
obligations hereunder (except those duties and obligations set forth in Sections
4, 5.11 and 5.12 hereof). Upon termination of Executive's employment with
Employer pursuant to Sections 3.1.1 through 3.1.6 hereof, the obligations of
Employer to Executive shall be as set forth in Section 3.2 hereof.
4. Confidentiality; Non-Solicitation; Non-Compete.
4.1 Nondisclosure of Confidential Information. As a condition of
his employment hereunder, Executive shall have executed Employer's standard form
of Proprietary Information and Inventions Agreement (the "Inventions
Agreement").
4.2 Certain Activities. Executive shall not, while employed by
Employer and for a period of two years thereafter, directly or indirectly hire,
offer to hire, entice away or in any other manner persuade or attempt to
persuade any officer, employee, agent, lessor, lessee, licensor, licensee,
customer, prospective customer, supplier or shareholder or
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prospective shareholder of Employer to discontinue or alter his, her or its
relationship with Employer.
4.3 Covenant Not to Compete. During the Executive's employment
and for a period of one year after the termination of Executive's employment,
but only as long as Executive is receiving severance payments pursuant to
Section 3.2 hereof, Executive shall not directly or indirectly engage in
competition with Employer by being associated with any competitor of Employer
that sells or offers to sell any products or services which compete with the
products or services offered or sold by Employer or being developed by Employer
for sale at the time of termination of Executive, or induce or attempt to
induce, directly or indirectly, any then potential customer contemplating doing
business with Employer to not commence doing business, or any current customer
of Employer to cease doing business, in whole or in part, with Employer or
solicit business of any such customer for any products or services of any
competitor of Employer which compete with the products or services offered or
sold by Employer or being developed by Employer for sale at the time of
termination of Executive.
4.4 Injunctive Relief. Executive acknowledges and agrees that
(a) Employer will be irreparably injured in the event of a breach by Executive
of any of his obligations under this Section 4, (b) monetary damages will not be
an adequate remedy for any such breach, (c) Employer shall be entitled to
injunctive relief, in addition to any other remedy which it may have, in the
event of any such breach, including, but not limited to, termination of
Executive's employment for Cause and (d the existence of any claims which
Executive may have against Employer, whether under this Agreement or otherwise,
shall not be a defense to the enforcement by Employer of any of its rights under
this Section 4.
4.5 Non-Exclusivity and Survival. The covenants and obligations
of Executive contained in this Section 4 are in addition to, and not in lieu of,
any covenants and obligations which Executive may have with respect to the
subject matter hereof, whether by contract, as a matter of law or otherwise, and
such covenants and obligations, and their enforceability, shall survive any
termination of Executive's employment by either party and any investigation made
with respect to the breach thereof by Employer at any time.
5. Miscellaneous Provisions.
5.1 Severability. If in any jurisdiction any term or provision
hereof is determined to be invalid or unenforceable, (a) the remaining terms and
provisions hereof shall be unimpaired, (b) any such invalidity or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction and (c) the invalid or
unenforceable term or provision shall, for purposes of such jurisdiction, be
deemed replaced by a term or provision that is valid and enforceable and that
comes closest to expressing the intention of the invalid or unenforceable term
or provision.
5.2 Execution in Counterparts. This Agreement may be executed in
one or more counterparts, and by the different parties hereto in separate
counterparts, each of which shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement (and all signatures
need not appear on any one counterpart), and this
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Agreement shall become effective when one or more counterparts has been signed
by each of the parties hereto and delivered to each of the other parties hereto.
5.3 Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed duly given when
delivered by hand, or when delivered if mailed by registered or certified mail
or private courier service, postage prepaid, return receipt requested or via
facsimile (with written confirmation of receipt) as follows:
If to Employer, to:
AboveNet Communications, Inc.
00 Xxxx Xxx Xxxxxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxx, XX 00000
Telefax No.: (000) 000-0000
Copy to:
Xxxxx Xxxxxx, Esq.
Xxxxxxxxx Xxxxxxx Xxxxxx Xxxxxxxxxx Xxxxxxxx & Xxxxxxxxx, LLP
000 Xxxxxxxxxxxx Xxxxx
Xxxxx Xxxx, XX 00000
Telefax No.: (000) 000-0000
If to Executive, to:
Xxxxxxx Xxxx
0000 Xxxxxxxxxx Xxxxx
Xxxxxxxx, XX 00000
Copies to:
Xxxxx Xxxxxx
Executive Vice President and Chief Financial Officer
c/o AboveNet Communications, Inc.
00 Xxxx Xxx Xxxxxxxx Xxxxxx
Xxx Xxxx, XX
Telefax No.: (000) 000-0000
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Xxxxxx X. Xxxxxx
President and Chief Operating Officer
c/o AboveNet Communications, Inc.
00 Xxxx Xxx Xxxxxxxx Xxxxxx
Xxx Xxxx, XX
Telefax No.: (000) 000-0000
or to such other address(es) as a party hereto shall have designated by like
notice to the other parties hereto.
5.4 Amendment. No provision of this Agreement may be modified,
amended, waived or discharged in any manner except by a written instrument
executed by Employer and Executive.
5.5 Entire Agreement. This Agreement, the Stock Option Agreement
and the Inventions Agreement between the parties of even date herewith
constitute the entire agreement of the parties hereto with respect to the
subject matter hereof and supersede all prior agreements and understandings of
the parties hereto, oral or written, with respect to the subject matter hereof.
5.6 Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California applicable to
contracts made and to be wholly performed therein without regard to its
conflicts or choice-of-law provisions.
5.7 Headings. The headings contained herein are for the sole
purpose of convenience of reference and shall not in any way limit or affect the
meaning or interpretation of any of the terms or provisions of this Agreement.
5.8 Binding Effect; Successors and Assigns. Executive may not
delegate his duties or assign his rights hereunder. This Agreement shall inure
to the benefit of, and be binding upon, the parties hereto and their respective
heirs, legal representatives, successors and permitted assigns.
5.9 Waiver, etc. The failure of either of the parties hereto to
at any time enforce any of the provisions of this Agreement shall not be deemed
or construed to be a waiver of any such provision, nor to in any way affect the
validity of this Agreement or any provision hereof or the right of either of the
parties hereto to thereafter enforce each and every provision of this Agreement.
No waiver of any breach of any of the provisions of this Agreement shall be
effective unless set forth in a written instrument executed by the party against
whom or which enforcement of such waiver is sought, and no waiver of any such
breach shall be construed or deemed to be a waiver of any other or subsequent
breach.
5.10 Representations and Warranties. Executive and Employer
hereby represent and warrant to the other that: (a) he or it has full power,
authority and capacity to execute and deliver this Agreement and to perform his
or its obligations hereunder, (b) such execution, delivery and performance will
not (and with the giving of notice or lapse of time or both would not) result in
the breach of any agreements or other obligations to which he or it is a
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party or he or it is otherwise bound and (c) this Agreement is his or its valid
and binding obligation in accordance with its terms. Employer represents that it
will purchase directors' and officers' liability insurance covering Executive in
such amounts as reasonably determined by the Board and consistent with the
amounts purchased for other executive officers of the Company.
5.11 Enforcement. If any party institutes legal action to
enforce or interpret the terms and conditions of this Agreement, the prevailing
party shall be awarded reasonable attorneys' fees at all trial and appellate
levels, and the expenses and costs incurred by such prevailing party in
connection therewith.
5.12 Arbitration. Except as provided in Section 4 hereof, any
dispute arising out of this Agreement, including but not limited to the
determination by the Board of a termination for Cause pursuant to Section 3.1.3
hereof, or in respect of the breach hereof shall be resolved under the following
procedures. The burden of proof for demonstrating Cause shall be on Employer.
The party claiming to be aggrieved shall furnish to the other party a written
statement of the grievance and the relief requested and proposed. If the other
party does not agree to furnish the relief requested or proposed, or otherwise
does not satisfy the demand of the party claiming to be aggrieved, the parties
shall submit the dispute to non-binding mediation before a mediator to be
jointly selected by the parties. Employer shall pay the cost of the mediation,
including the reasonable attorneys' fees of Executive. If the mediation does not
produce a resolution of the dispute, the parties agree that the dispute shall be
resolved by final and binding arbitration before an arbitrator mutually selected
by the parties or, if no agreement is reached, then under the Expedited Labor
Arbitration Rules of the American Arbitration Association, except that the
arbitrator shall be selected by alternately striking names from a panel of five
neutral labor or employment arbitrators designated by the American Arbitration
Association. The arbitrator shall have the authority to grant any relief
authorized by law. The arbitrator shall not have the authority to modify, change
or refuse to enforce the terms of this Agreement. In addition, the arbitrator
shall not have the authority to require Employer to change any lawful policy or
benefit plan. The hearing shall be transcribed. Employer shall bear the costs of
arbitration if Executive prevails. If Employer prevails, Executive shall pay
half the cost of arbitration or $500, whichever is less. Executive shall pay the
first $10,000 of his attorneys' fees related to the arbitration, and Employer
shall reimburse Executive for his reasonable attorneys' fees related to the
arbitration in excess of $10,000. Employer shall pay all of its attorneys' fees
related to the arbitration. Arbitration shall be the exclusive final remedy for
any dispute between the parties; provided, however, that nothing in this Section
5.12 shall limit the right of Employer to go to court to obtain injunctive
relief for violation of Section 4 hereof. The parties further agree that no
dispute shall be submitted to arbitration where the party claiming to be
aggrieved has not provided the other party with a written statement of the
grievance and first sought mediation. All mediation and arbitration shall be
conducted in California.
5.13 Continuing Effect. Where the context of this Agreement
requires, the respective rights and obligations of the parties shall survive any
termination or expiration of the term of this Agreement.
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5.14 Expenses. Each party to this Agreement agrees to bear his
or its own expenses in connection with the negotiation and execution of this
Agreement.
IN WITNESS WHEREOF, this Agreement has been executed and
delivered by the parties hereto as of the date first above written.
ABOVENET COMMUNICATIONS, INC.
By:_________________________________
Xxxxx Xxxx, Chairman of the Board
____________________________________
XXXXXXX XXXX
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