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EXHIBIT 10.3
EMPLOYMENT AGREEMENT
EXECUTIVE EMPLOYMENT AGREEMENT made as of the 31st day of July, 1998
and effective as of the 27th day of October, 1997 (the "Effective Date") by and
between NET2000 GROUP, INC., a Delaware corporation, (the "Company"), and Xxxx
X. Xxxxxx, residing at 00000 Xxxxxxxxx Xxxx, Xxxxxxxxxxxx, XX 00000 (the
"Executive").
WITNESSETH
WHEREAS, the Company desires to employ the Executive, and the
Executive is willing to be employed by the Company, upon the terms and subject
to the conditions hereinafter set forth,
NOW, THEREFORE, in consideration of the promises and the mutual
covenants contained herein, the parties hereto agree as follows:
1. Employment. The Company agrees to and does hereby employ the
Executive, and the Executive agrees to and does hereby accept employment by the
Company, subject to the terms and conditions herein set forth.
2. Term. The term of the Executive's employment hereunder shall
commence on October 27, 1997 (the "Effective Date"), unless sooner terminated in
accordance with the provisions of Section 5 hereof, ending two and one-half
years after the Effective Date. Thereafter, the term of this Agreement shall be
automatically renewed for successive one year terms, unless sooner terminated in
accordance with the provisions of Section 5 hereof, or unless either party gives
to the other party written notice of intent not to renew the Agreement at least
sixty days prior to the end of the then current term. For the purposes of this
Agreement, the initial two and one-half year term, as well as any extended
terms, shall be the "Term".
3. Duties.
3.1 During the Term, the Executive shall be employed as Chief
Operating Officer of the Company based in Vienna, Virginia and any successors
thereto or to its business, and shall be in charge of and responsible for the
general and supervisory duties normally and customarily attendant to such office
and shall render such other lawful services, and exercise such powers, which are
from time to time requested of him, assigned to him or vested in him by the
Chief Executive Officer of the Company and which are commensurate with his
position as Chief Operating Officer.
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3.2 The Executive agrees that, during the Term, unless the Chief
Executive Officer of the Company shall otherwise consent, he will devote such
amount of his time, energies, labor and skills to the business of the Company
and to the duties and responsibilities specified in Section 3.1 as shall be
reasonably necessary; provided that for reasonable periods of time each month
the Executive may engage in charitable activities as long as such activities do
not interfere with the Executive's responsibilities hereunder
4. Compensation and Benefits.
4.1 Salary. In consideration for services performed hereunder, the
Company shall pay to the Executive an annual base salary of $145,000 in
installments payable in accordance with the Company's customary payroll
practices, but in no event less than one time per month. On each anniversary of
the Effective Date of this Agreement, the Executive's base salary shall be
increased, at a minimum, by an amount equal to the base salary then in effect
multiplied the percentage increase in the consumer price index from the
preceding year. Any additional increase will be voted on by the Compensation
Committee of the Board of Directors and may be based on market value for
comparable positions, performance and other variables.
4.2 Bonus. The Executive shall also be eligible to receive a bonus
in cash and stock options in an amount up to 25% of the Executive's then current
salary per calendar year based on meeting annual deliverables or goals agreed to
with the senior management team of the Company. The Company shall pay 50% of the
Bonus in cash and the remaining 50% of the Bonus shall be paid as follows: the
Executive shall be granted an option to purchase shares of the Company's common
stock with an aggregate exercise price equal to 50% of the Bonus. The Company
shall determine the number of common shares to be granted under the option by
dividing 50% of the Bonus by the fair market value of the Company's common stock
at the time of grant. At the time of grant, the stock options shall have an
exercise price at the then fair market value of the Company's stock, a maturity
of 10 years and shall vest in the following manner: 50% at the time of grant and
25% on the first anniversary of the date of grant and 25% on the second
anniversary of the date of grant. Other terms of stock options not defined
herein will be in accordance with the Company's then applicable stock option
plan.
For example, if the Company awards a Bonus to the Executive in an
amount equal to $20,000, the Executive would receive $10,000 in cash and
(assuming a fair market value of the Company's common stock of $1 per share at
the time of grant) an option to purchase 10,000 shares of the Company's common
stock and an exercise price equal to $1 per share.
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4.3 Stock Options.
(a) The Executive shall be entitled to participate in the
Company's 1997 Equity Incentive Plan (the "1997 Plan") subject to the terms and
conditions set out in the Stock Option Agreement attached hereto as Exhibit A.
(b) If the Company receives equity financing of at least
$4,000,000 relating to the Company's operations as a Competitive Local Exchange
Carrier (the "Financing"), the Executive shall receive an additional option to
purchase shares of Company common stock at an exercise price of the then current
fair market value for such common stock (the "Adjustment Option") in an amount
necessary to maintain Executive's level of ownership at 2.25% of all the
outstanding shares of the Company on a fully diluted basis (including all
options, whether exercised or unexercised, and all shares in the Company's
option pool). The shares subject to the Adjustment Option shall vest in
accordance with the Stock Option Agreement attached hereto as Exhibit A. The
Executive shall be entitled to only one adjustment pursuant to this Section
4.3(b) and such adjustment shall occur simultaneously with the closing of the
Financing.
(c) If there is a Change in Control (as defined in Section 2.7
of the Stock Option Agreement attached hereto as Exhibit A) the options
described in this Section 4.3 will vest in accordance with the terms and
conditions set forth in such Incentive Stock Option Agreement.
4.4 Preferred Stock Option. The Company shall grant to the
Executive options to purchase 21,898 shares of the Company's Series A Preferred
Stock (the "Series A Preferred Stock") at a price per share of $3.425 and
options to purchase additional shares of the Company's Preferred Stock
("Additional Preferred Stock") at an aggregate offering amount of $50,000,
pursuant to the terms of the Stock Option Agreements attached as Exhibits B and
C.
4.5 Health Insurance. The Company shall provide to the Executive
at no expense to Executive health insurance (PPO or equivalent) for Executive
and his immediately family.
4.6 Life Insurance. The Company shall provide the Executive with a
policy of term life insurance in an amount equal to not less than two (2) times
his yearly salary hereunder, payable to such beneficiary or such beneficiaries
as shall be designated in writing by the Executive.
4.7 Vacation. The Executive shall be entitled to annual vacation
leave of three weeks plus all paid Xxxx Atlantic holidays.
4.8 Automotive. The Company shall provide Executive an automobile
allowance of $400 per month to cover Executive's use of his vehicle for business
purposes.
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4.9 Computer Equipment. The Company shall provide the Executive
with a computer, peripherals and an ISDN phone line at Executive's residence.
4.10 Fringe Benefits. The Executive shall be entitled to
participate in all benefit programs that the Company establishes and makes
available to its employees, if any, to the extent that Executive's position,
tenure, salary, age, health and other qualifications make him eligible to
participate.
5. Termination of Executive's Employment. The employment of the
Executive by the Company pursuant to this Agreement shall terminate upon the
occurrence of any of the following:
5.1 Expiration of the Term in accordance with Section 2;
5.2 At the election of the Company, for cause, immediately upon
written notice by the Company to the Executive. For the purposes of this Section
5.2, cause for termination shall be deemed to exist upon either (a) the
conviction of the Executive of, or the entry of a pleading of guilty or nolo
contendere by the Executive to, any crime involving moral turpitude that may
reasonably be expected to have an adverse impact on the Company's reputation or
standing in the community or any felony, or (b) willful misconduct in connection
with the Executive's duties, or willful failure to perform his responsibilities
in the best interest of the Company (including, without limitation, material
breach by the Executive of this Agreement but not minor violations of rules and
policies), except in cases involving the mental or physical incapacity or
disability of the Executive; provided however, that the Board may terminate the
Executive's employment pursuant to Section 5.2(b) only after the failure by the
Executive to correct or cure, or to commence and continue to pursue the
correction or curing of, such refusals within forty-five (45) days after receipt
by the Executive of written notice by the Board of each specific claim of any
such misconduct or failure. The Executive shall have the opportunity to appear
before the Board to discuss such written notice during such forty-five (45) day
period. "Willful misconduct" and "willful failure to perform" shall not include
action or inaction on the part of the Executive which were taken or not taken in
good faith by the Executive;
5.3 Upon the death or thirty (30) days after the disability of the
Executive. As used in this Agreement, the term "disability" shall mean the
inability of the Executive, due to a physical or mental disability, for a period
of one hundred eighty (180) days, regardless of whether consecutive, during any
360-day period to perform the services contemplated under this Agreement. A
determination of disability shall be made by a physician satisfactory to both
the Executive and the Company, provided that if the Executive and the Company do
not agree on a physician, the Executive and the Company shall each select a
physician and these two together shall select a third physician, whose
determination as to disability shall be binding on all parties;
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5.4 At the election of the Executive, upon not less than
forty-five (45) days prior written notice of termination other than for "good
reason" as defined below; or
5.5 At the election of the Company, otherwise than for cause, upon
not less than sixty (60) days prior written notice or at the election of the
Executive for "good reason" upon not less than thirty (30) days prior written
notice of termination. "Good reason" shall include the occurrence of a material
breach of this Agreement by the Company or a material reduction in the
responsibilities or reporting relationship of the Executive.
6. Effect of Termination
6.1 If the Executive's employment is terminated as a result of the
circumstances described under Section 5.2 or Section 5.4 then the Company shall
have no further obligations or liabilities to the Executive hereunder, such that
all benefits and salary provided for within this Agreement shall terminate
simultaneously with the termination of the Executive's employment except for
benefits and salary earned and accrued through the date of such termination.
Nothing in this Section 6.1 shall supersede any rights of the Executive to
receive any amounts or benefits otherwise due to him upon the occurrence of any
of the events described in the immediately preceding sentence, whether such
rights are created by this Agreement or otherwise.
6.2 If the Executive's employment is terminated during the initial
twelve months of the Term as a result of circumstances described under Section
5.3 or Section 5.5 then the Company shall be obligated to pay the Executive or
the Estate (as the case may be), during each of the six months following the
termination date, a severance payment in an amount equal to one full month of
his Base Salary in effect as of the effective date of termination and in
addition an amount equal to one twelfth (1/12) of the prior year's Bonus. If the
Executive's employment hereunder is terminated after the initial twelve months
of the Term as a result of circumstances described under Section 5.3 or Section
5.5 then the Company shall be obligated to pay the Executive or the Estate (as
the case may be), during each of the three months following the termination
date, a severance payment in the amount equal to one full month of his Base
Salary in effect as of the effective date of termination and in addition an
amount equal to one twelfth (1/12) of the prior year's Bonus. The Company will
be obligated to continue the Executive's medical benefits in effect as of the
effective date of the termination for disability for six months.
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6.3 Termination within 180 days of Agreement Expiration. If the
Executive is terminated within 180 days of the expiration of the Agreement, then
the Executive shall receive during each of the three months following the
termination date a severance payment in an amount equal to one full month of his
Base Salary in effect as of the effective date of termination and in addition an
amount equal to one twelfth (1/12) of the prior year's Bonus. The Company will
be obligated to continue the Executive's medical benefits in effect as of the
effective date of the termination for six months.
6.4 Call Option
If the Executive's employment hereunder is terminated, for any
reason or no reason, with or without Cause, the Company shall have the right and
option (the "Purchase Option") to purchase any Common Stock issued to the
Executive pursuant to the exercise of options issued pursuant to Section 4.3
hereof and any Series A Preferred Stock or Additional Preferred Stock issued to
the Executive pursuant to Section 4.4 hereof, (collectively the "Purchase Option
Stock"), in accordance with the terms and provisions of Article V of the Stock
Restriction Agreement to be entered into by and between the Company and the
Executive upon exercise of any such options (the "Stock Restriction Agreement),
attached as Exhibit D.
6.5 Put Option.
If the Executive's employment hereunder is terminated, for any
reason or no reason, with or without Cause, the Executive shall have the right
and option (the "Put Option") to require the Company to repurchase any or all of
the Purchase Option Stock (as defined above), in accordance with Article V of
the Stock Restriction Agreement.
6.6 Survival.
The provisions of Sections 7 and 8 shall survive the
termination of this Agreement.
7. Non-Compete.
(a) So long as the Company is not in breach of this Agreement,
during the Term and for a period of eighteen (18) months after the termination
(subject to early termination as provided herein) or expiration thereof, the
Executive will not directly or indirectly:
(i) recruit, solicit or induce, or attempt to induce, any
employee or employees of the Company or its affiliates to terminate their
employment with, or otherwise cease their relationship with, the Company or its
affiliates; or
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(ii) solicit, divert or take away, or attempt to divert or
to take away, the business or patronage of any of the clients, customers or
accounts of the Company or its affiliates that were clients, customers or
accounts of the Company while the Executive was employed by the Company, or
prospective clients, customers or accounts to which written correspondence was
made within the last 60 days while the Executive was employed by the Company;
provided, however, that Executive may participate in a passive
management role of another entity and have responsibilities for overseeing
employees of another entity, who of their own accord and with no direct or
indirect stimulus from Executive, participate in activities described in
Sections 7(a)(i) and 7(a)(ii).
(b) The parties agree that the relevant public policy aspects
of covenants not to compete have been discussed, and that every effort has been
made to limit the restrictions placed upon the Executive to those that are
reasonable and necessary to protect the Company's legitimate interests.
(c) If any restriction set forth in this Section 7 is found by
any court of competent jurisdiction to be unenforceable because it extends for
too long a period of time or over too great a range of activities or in too
broad a geographic area, it shall be interpreted to extend only over the maximum
period of time, range of activities or geographic area as to which it may be
enforceable.
(d) The restrictions contained in this Section 7 are necessary
for the protection of the business and goodwill of the Company and/or its
affiliates and are considered by the Executive to be reasonable for such
purposes. The Executive agrees that any material breach of this Section 7 will
cause the Company and/or its affiliates substantial and irrevocable damage and
therefore, in the event of any such breach, in addition to such other remedies
which may be available, the Company shall have the right to seek specific
performance and injunctive relief.
8. Proprietary Information and Developments.
8.1 Proprietary Information.
(a) The Executive agrees that all information, whether or not
in writing, relating to the business, technical or financial affairs of the
Company and that is generally understood in the industry as being trade secret,
confidential and/or proprietary, that is designated as being confidential or
proprietary information of the Company, either verbally or in writing, or that
is designated as representing trade secrets of the Company, either verbally or
in writing (collectively, "Proprietary Information"), is and shall be the
exclusive property of the Company. For purposes of this Agreement, Proprietary
Information shall mean, by way of illustration and not limitation, all
confidential information (whether or not patentable and
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whether or not copyrightable) owned, possessed or used by the Company,
including, without limitation, any invention, existing or future product,
formula, method, manufacturing techniques and procedures, composition, compound,
project, development, plan, vendor information, supplier information, customer
information, apparatus, equipment, trade secret, process, research, reports,
clinical data, financial data, technical data, test data, computer program,
software, software documentation, hardware design, technology, marketing or
business plan, forecast, unpublished financial statement, budget license, patent
applications, contracts, joint ventures, price, cost and personnel data.
(b) The Executive agrees not to and will not disclose any
Proprietary Information to others outside the Company or use the same for any
unauthorized purposes without written approval by an officer of the Company,
from the Effective Date, during or after his employment unless and until such
Proprietary Information (i) has become public knowledge through legal means
without fault by the Executive, or (ii) is already public knowledge prior to the
signing of this Agreement.
(c) The Executive agrees that all files, letters, memoranda,
reports, records, data, schematics, sketches, drawings, laboratory notebooks,
program listings, computer programs, databases, products, test equipment,
prototypes or other written, photographic, magnetic or other tangible material
containing or embodying Proprietary Information, whether created by the
Executive or others, which shall come into his custody or possession
(hereinafter collectively referred to as the Company Records) shall be, shall
continue to be and are the exclusive property of the Company to be used by the
Executive only in the performance of his duties for the Company. All such
Company Records or copies thereof and all other tangible property of the Company
in the custody or possession of the Executive shall be delivered to the Company,
upon the earlier of (i) a request by the Company or (ii) termination of this
Agreement. After such request, termination or delivery, the Executive agrees not
to and shall not retain any such Company Records or copies thereof or any such
other tangible property.
8.2 Developments.
(a) The Executive agrees to make and will make full and prompt
disclosure to the Company of all inventions, know-how, improvements, product
ideas, new products, discoveries, methods, developments, software, and works of
authorship, whether or not patentable and whether or not copyrightable, and all
other intellectual property rights, including but not limited to patents,
copyrights, copyrightable works, trade secrets and trademarks, and all books,
schematics, magnetic files and written records related thereto which are or were
created, made, conceived, reduced to practice by or became owned by the
Executive or under his direction or jointly with others during his employment
whether or not during normal working hours or on the premises of the Company to
the extent relevant to the Company's business, as contemplated under the most
recent version of the business plan as of the Effective Date, including but not
limited to, its techniques, developments, projects or products, but excluding
systems, methods and techniques used prior to his employment by the Company (all
of which,
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whether disclosed or not, are collectively referred to in this Agreement as
"Developments"). Notwithstanding anything contained in this Section 8.2 to the
contrary, Developments shall not include the patents held by the Executive prior
to his commencement of his employment with the Company.
(b) The Executive agrees to assign and does hereby assign,
convey and transfer to the Company (or any person or entity designated by the
Company) all his rights, title and interest in and to all Developments; provided
that the Executive may use Developments described in (a)(ii) above in a manner
that complies with terms set forth in Section 7 (Non-Compete) and Section 8.1
(Proprietary Information) hereof.
(c) The Executive agrees to cooperate fully with the Company,
both during and after his employment with the Company, with respect to the
worldwide procurement, maintenance and enforcement, including assistance or
cooperation in legal proceedings, of copyrights, patents and similar protections
(both in the United States and foreign countries) relating to Developments; and,
if such cooperation by the Executive is required after the Executive has ceased
to be employed by the Company, then the Company will reimburse the Executive for
any expenses reasonably incurred by Executive in connection with such
cooperation. The Executive shall sign all papers, copyright applications,
assignments, declarations, powers of attorney, patent applications, and other
related or necessary documents, which the Company may deem necessary or
desirable in order to enforce and/or protect its rights and interests in any
Developments or any Proprietary Information.
8.3 Other Agreements. Except as set forth in Exhibit E, Executive
hereby represents that he is not bound by the terms of any agreement with any
previous employer or other party to refrain from using or disclosing any trade
secret or confidential or proprietary information in the course of his
employment with the Company or to refrain from competing, directly or
indirectly, with the business of such previous employer or any other party. The
Executive intends to exercise his best efforts and use his best skills in
performing his obligations under this Agreement, except to the extent it may be
prohibited by prior employment agreements. The Executive represents that his
performance of all the terms of this Agreement and as an employee of the Company
does not and will not breach any agreement to keep in confidence proprietary
information, knowledge or data acquired by him in confidence or in trust prior
to his employment with the Company.
8.4 Company and Affiliates. Where the term "Company" is used in
this Section 8 it will be deemed to include any affiliate of the Company.
9. Notices. All notices required or permitted under this Agreement
shall be in writing and shall be deemed effective upon delivery personally, by
facsimile or by overnight mail, or upon deposit in the United States Post
Office, by registered or certified mail, postage prepaid, addressed to the other
party at the address shown above, or at such other address or addresses as
either party shall designate to the other in accordance with this Section 9.
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10. Pronouns. Whenever the context may require, any pronouns used in
this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular forms of nouns and pronouns shall include the plural,
and vice versa.
11. Entire Agreement. This Agreement and the exhibits hereto
constitutes the entire agreement between the parties and supersedes all prior
agreements and understandings, whether written or oral, relating to the subject
matter of this Agreement.
12. Amendment. This Agreement may be amended or modified only by a
written instrument executed by both the Company and the Executive.
13. Governing Law. This Agreement shall be construed, interpreted and
enforced in accordance with the laws of the Commonwealth of Virginia.
14. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of both parties and their respective successors and
assigns, including any corporation with which or into which the Company may be
merged or which may succeed to its assets or business, provided, however, that
the obligations of the Executive are personal and shall not be assigned by him.
15. Arbitration. The parties agree that any controversy, claim, or
dispute arising out of or relating to this Agreement, or the breach thereof, or
arising out of or relating to the employment of the Executive, or the
termination thereof, including any claims under federal, state, or local law,
shall be resolved by arbitration in Fairfax, Virginia in accordance with the
Employment Dispute Resolution Rules of the American Arbitration Association. The
parties agree that any award rendered by the arbitrator shall be final and
binding, and that judgment upon the award may be entered in any court having
jurisdiction thereof.
16. Indemnification. The Company shall indemnify and save harmless
the Executive for any liability incurred by reason of any act or omission
performed by the Executive while acting in good faith on behalf of the Company
and within the scope of the authority of the Executive pursuant to this
Agreement and to the fullest extent provided under the By-laws, the Certificate
of Incorporation and the General Corporation Law of the State of Delaware,
except that the Executive must have in good faith believed that such action was
in, or not opposed to, the best interests of the Company, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe that such
conduct was unlawful.
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17. Miscellaneous.
17.1 No delay or omission by the Company in exercising any right
under this Agreement shall operate as a waiver of that or any other right. A
waiver or consent given by the Company on any one occasion shall be effective
only in that instance and shall not be construed as a bar or waiver of any right
on any other occasion.
17.2 The captions of the sections of this Agreement are for
convenience of reference only and in no way define, limit or affect the scope or
substance of any section of this Agreement.
17.3 In case any provision of this Agreement shall be invalid,
illegal or otherwise unenforceable, the validity, legality and enforceability of
the remaining provisions shall in no way be affected or impaired thereby.
17.4 This Agreement is effective as of the date of execution of
this Agreement, will survive Employees employment with the Company, and does not
in any way restrict Employees right or the right of the Company to terminate
Executive's employment.
17.5 Executive certifies and acknowledges that he has carefully
read all of the provisions of this Agreement and that he understands and will
fully and faithfully comply with its provisions.
[signatures on next page]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year set forth above.
NET2000 GROUP, INC.
By: /s/ Xxxxxxx X. Xxxxxx, Xx.
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Its: President
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EXECUTIVE
/s/ Xxxx X. Xxxxxx
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Xxxx X. Xxxxxx
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