Exhbit 10.5
REDEMPTION AND NONCOMPETITION AGREEMENT
Redemption and Noncompetition Agreement (the "AGREEMENT"), made as of
September 1, 1998 (the "Agreement"), by and among HARVARDNET, INC., a Delaware
corporation with its principal place of business at Xxx Xxxxxxx Xxxxx,
Xxxxxxxxxx, XX 00000 (the "COMPANY"), and Xxxxxxx Xxxxxxxxxx ("XXXXXXXXXX") and
Xxxxxxx Xxxxxxxxxx ("BSOUTHWORTH"), whose address is 0 Xxxxx Xxxxx Xxxx, Xxxxx,
XX 00000.
RECITALS
1. Xxxxxxxxxx is President and Chief Executive Officer of the Company.
Xxxxxxxxxx and BSouthworth, as joint tenants with right of survivorship, are the
holder of record and beneficially of 300,000 shares of the Company's issued and
outstanding Common Stock, $0.01 par value per share ("COMMON STOCK").
2. Xxxxxxxxxx has substantial experience in the Company's business and
intimate knowledge of its customers, processes, trade secrets and other business
information.
3. Xxxxxxxxxx will benefit substantially as a result of the Purchasers'
investment in the Company, including the expansion of the Company's business to
be financed with the funds to be invested by the Purchasers.
4. The Purchasers wish to protect the value of their investment from
the risk of competition posed by Xxxxxxxxxx.
5. The parties are entering into this Agreement to provide for
Xxxxxxxxxx'x agreement not to compete with the Company and other agreements with
the Company, including the Company's partial redemption of Xxxxxxxxxx'x and
BSouthworth's shares of Common Stock.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties agree as follows:
1. PURCHASE OF STOCK. (a) The Company hereby purchases from Xxxxxxxxxx
and BSouthworth, and Xxxxxxxxxx and BSouthworth, jointly and severally, hereby
sell, assign, transfer and deliver to the Company, all legal and beneficial
right, title and interest in and to 75,000 shares (the "PURCHASED SHARES") of
the Common Stock for an aggregate purchase price of $1,009,136 (the "PURCHASE
PRICE"). In furtherance thereof, (i) the Company is hereby delivering to
Xxxxxxxxxx and BSouthworth the Purchase Price by electronic transfer of
immediately available funds in accordance with the wire transfer instructions
attached hereto as EXHIBIT A, and (ii) Xxxxxxxxxx and BSouthworth are
surrendering to the Company for cancellation stock certificates numbers 1 and 8
evidencing not less than 75,000 shares of Common Stock in the aggregate, duly
endorsed for transfer, with his signature guaranteed. The Company shall issue to
Xxxxxxxxxx and BSouthworth promptly after the date hereof a new certificate for
any shares of Common Stock evidenced by the surrendered certificate(s) that are
not being purchased by the Company pursuant to this Agreement.
(b) As a material inducement to the Company to purchase shares of
Common Stock as contemplated by this Section 1, Xxxxxxxxxx and BSouthworth,
jointly and severally hereby represent and warrant to the Company as follows:
(i) Xxxxxxxxxx and BSouthworth hold as joint tenants with
right of survivorship good and marketable title to all legal and
beneficial right, title and interest in and to the Purchased Shares
free and clear of all liens, pledges, security interests, options,
stockholder's agreements, voting agreements, restrictions on transfer,
rights of first refusal, rights of others, powers-of-attorney and other
encumbrances (collectively, "LIENS") whatsoever.
(ii) Xxxxxxxxxx and BSouthworth each have full power and
authority to execute, deliver and perform their respective obligations
under this Agreement and the Stockholders' Agreement of even date
herewith among the Company, Xxxxxxxxxx, BSouthworth and the Company's
other stockholders (the "STOCKHOLDERS' AGREEMENT"), and to consummate
the transactions contemplated hereby and thereby. This Agreement and
the Stockholders' Agreement constitutes Xxxxxxxxxx'x and BSouthworth's
legal, valid and binding obligation enforceable in accordance with its
terms except that such enforceability may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting or relating to
enforcement of creditors' rights generally. Neither the execution,
delivery or performance of this Agreement or the Stockholders'
Agreement, nor the consummation of the transactions contemplated hereby
and thereby will, with or without the giving of notice or the passage
of time, or both conflict with, result in a default or loss of rights
(or give rise to any right of termination, cancellation or
acceleration) under, or result in the creation of any Liens, pursuant
to (A) any provision of the Company's certificate of incorporation or
by-laws, (B) any note, bond, indenture, mortgage, deed of trust,
contract, agreement, lease or other instrument or obligation to which
Xxxxxxxxxx or the Company is a party or by which Xxxxxxxxxx or the
Company, or their respective properties are bound or affected, or (C)
any law, order, judgment, ordinance, rule, regulation or decree to
which Xxxxxxxxxx, BSouthworth or the Company is a party or by which
their respective properties are bound or affected.
(iii) No permit, consent, filing or approval of any third
party is required to be obtained or made by Xxxxxxxxxx, BSouthworth or
the Company in connection with the execution and delivery of this
Agreement or the Stockholders' Agreement or the consummation of the
transactions contemplated hereby and thereby.
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2. NONCOMPETITION AND NONDISCLOSURE AGREEMENT.
(a) DEFINITIONS.
"CAUSE" means any of the following: (a) Xxxxxxxxxx'x
commission or conviction of an act involving dishonesty,
fraud, embezzlement, moral turpitude, securities laws
violations, or theft or a felony of any type (excluding minor
acts outside of Xxxxxxxxxx'x employment with the Company, such
as minor traffic violations or minor domestic relations
matters); (b) a material violation of any policy of the
Company relating to ethical business conduct, fiduciary duties
or conflicts of interest; (c) Xxxxxxxxxx'x commission of an
act of dishonesty with regard to the Company; (d) the
adjudication of the mental incompetency of Xxxxxxxxxx; (e) any
conduct by Xxxxxxxxxx that would cause the suspension or
revocation of any license, permit, authorization or contract
right held by the Company or any of its Subsidiaries that is
material to the operation of the Company's or any Subsidiary's
business; (f) Xxxxxxxxxx'x xxxxx and habitual neglect of duty;
(g) Xxxxxxxxxx'x prolonged absence from duty without the
consent of the Company other than as a result of illness,
injury or death; or (h) any material breach by Xxxxxxxxxx of
the terms of this Agreement or the Stockholder's Agreement of
even date herewith among the Company, Xxxxxxxxxx and the
Company's other stockholders (as amended), such breach not
being remedied within thirty (30) days of Xxxxxxxxxx receiving
written notice of the breach.
"COMPETING BUSINESS" means any one or more of the following:
(i) internet or information service provider or provider of
other telephone or voice or data telecommunication businesses
engaged anywhere in the Protected Territory; (ii) any other
business in which the Company or any of its Subsidiaries
engages at the time Xxxxxxxxxx'x employment with the Company
terminates for any reason; or (iii) any other business in
which the Company or its Subsidiaries actively contemplate
engaging (as evidenced by the creation or ongoing development
of a business plan with respect thereto) at the time
Xxxxxxxxxx'x employment with the Company terminates for any
reason.
"PERSON" means an individual, partnership, corporation,
limited liability company, association, trust, joint venture,
unincorporated organization and any government, governmental
department or agency or political subdivision thereof.
"PROTECTED TERRITORY" means the states of New York, New
Hampshire, Maine, Massachusetts, Connecticut, Vermont and
Rhode Island
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"SUBSIDIARY" means any person that the Company now or
hereafter shall at the time own, directly or indirectly
through any other person, at least a majority of the
outstanding capital stock (or other beneficial interest)
entitled to vote generally; and the term "Subsidiaries" shall
mean all of such persons collectively.
"TERMINATION WITHOUT CAUSE" means the Company's termination of
Xxxxxxxxxx'x employment for any reason other than for Cause or
Xxxxxxxxxx'x voluntary resignation of Xxxxxxxxxx following
either (i) the Company reducing Xxxxxxxxxx'x salary below the
present rate thereof (I.E., $[ ] PER ANNUM) or (ii) the
Company removing from Xxxxxxxxxx the title of "Chairman".
(b) TERM. The term of this Agreement shall be for a period
commencing on the date hereof and ending on the second anniversary of the date
on which Xxxxxxxxxx ceases for any reason, with or without Cause, to be employed
by the Company; PROVIDED, HOWEVER, that if such termination of employment with
the Company constitutes a Termination Without Cause, the term of this Agreement
shall be a period of one year after the date on which Xxxxxxxxxx ceases to be
employed by the Company; and in such event, the Company may, at its option,
extend the period of this Agreement on a quarter-by-quarter basis for up to one
additional year by giving notice to Xxxxxxxxxx of any such extension not less
than 30 days before the then scheduled end of the term. In consideration for any
such extension of the term hereof, the Company shall pay to Xxxxxxxxxx $30,000
for each quarter that the term hereof is so extended.
(c) NONCOMPETITION. During the term hereof, Xxxxxxxxxx agrees
that he will not, singly, jointly, or as a partner, member, employee, agent,
officer, director, stockholder (except as a holder of not more than one percent
of the outstanding stock of any company listed on a national securities
exchange, or actively traded in a national over-the-counter market), consultant,
independent contractor, or joint venturer of any other Person, or in any other
capacity, directly or indirectly, whether through a family member or otherwise,
do any of the following:
(i) own, manage, operate, join, control, or participate in the
ownership, management, operation or control of, or permit the
use of his name by, or work for, or provide consulting,
financial or other assistance to a Competing Business within
the Protected Territory;
(ii) employ, retain or engage (as an employee, consultant or
independent contractor) any person who, on the date hereof or
at any time prior to the second anniversary of the date
hereof, is an employee of the Company or any of its
Subsidiaries except for (x) persons who have not been employed
by the Company or any of its Subsidiaries in any capacity
during the 545 days immediately preceding the date Xxxxxxxxxx
ceases to be employed by the Company and (y) persons who the
Company terminates and who
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Xxxxxxxxxx has not induced or attempted to induce to terminate
their employment with the Company or any of its Subsidiaries
in violation of this Agreement;
(iii) induce or attempt to induce any person who, on the date
hereof or at any time prior to the second anniversary of the
date hereof, is an employee of the Company or any of its
subsidiaries to terminate his or her employment with the
Company or any of its Subsidiaries; or
(iv) induce or attempt to induce any person that is a customer
of the Company or any of its subsidiaries, or that otherwise
is a contracting party with the Company or any of its
subsidiaries, as of the date hereof or at any time prior to
the second anniversary of the date hereof to terminate any
written or oral agreement or understanding with the Company or
any of its subsidiaries.
3. CONFIDENTIALITY; NONDISPARAGEMENT. Xxxxxxxxxx hereby agrees that
during the term hereof or at any time thereafter he will not, directly or
indirectly, disclose, divulge, render, offer or discuss any knowledge or
information concerning the affairs or plans of the Company or any of its
Subsidiaries and in no event shall he make or publish, either orally or in
writing, any disparaging, defamatory, derogatory or other negative comments
about the Company, its officers, directors or stockholders, products, practices
or operations, or the Company's business or financial condition, plans or
prospects. The Company hereby agrees that it shall not make or publish, either
orally or in writing, any disparaging, defamatory, derogatory or other negative
comments about Xxxxxxxxxx.
4. NO RIGHT TO EMPLOYMENT; SEVERANCE. Xxxxxxxxxx agrees that this
Agreement does not create an obligation of the Company or any other Person to
continue his employment, nor does it give rise to any right to or expectancy of
employment with the Company; it being agreed that Xxxxxxxxxx is for all purposes
an employee at will of the Company. In the event that Xxxxxxxxxx'x employment is
terminated and such termination constitutes a Termination Without Cause, the
Company shall pay Xxxxxxxxxx, as severance and as additional consideration for
Xxxxxxxxxx'x continued compliance with his obligations under Sections 2 and 3
hereof following such a Termination Without Cause, the sum of $120,000, such
amount to be payable in twelve (12) monthly installments of $10,000 each;
PROVIDED, HOWEVER, the Company shall have no obligation to make any such payment
to Xxxxxxxxxx, or any payment contemplated by Section 2(b) to be made during any
extension of the term hereof, if at the time such payment is to be made
Xxxxxxxxxx shall be in breach of any of his obligations hereunder. In the event
of any such termination of employment, Xxxxxxxxxx shall have no obligation to
seek other employment and there shall be no offset against amounts due to
Xxxxxxxxxx under this Section 4 on account of any remuneration attributable to
any subsequent employment Xxxxxxxxxx may obtain.
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5. ENFORCEMENT. (a) The Company and Xxxxxxxxxx agree that the covenants
set forth in this Agreement shall be enforced to the fullest extent permitted by
law. Accordingly if, in any judicial or similar proceedings, a court or any
similar judicial body shall determine that such covenant is unenforceable
because it covers too extensive a geographical area or survives too long a
period of time, or for any other reason, then the parties intend that such
covenant shall be deemed to cover only such maximum geographical area and
maximum period of time, and shall otherwise be deemed to be limited in such
manner, as will permit enforceability by such court or similar body. The Company
and Xxxxxxxxxx further agree that covenants set forth in this Agreement are
reasonable in all the circumstances for the protection of the legitimate
interests of the Company and its stockholders. In the event that any one or more
of such covenants shall, either taken by itself or themselves together, be
adjudged to go beyond what is reasonable in all the circumstances for the
protection of the interests of the Company and its stockholders, but would be
adjudged reasonable if any particular covenant or covenants or parts thereof
were deleted, restricted or limited in a particular manner, then the said
covenants shall apply with such deletions, restrictions or limitations, as the
case may be.
(b) The Company and Xxxxxxxxxx each agree that the breach of this
agreement by the other will cause irreparable damage to such party and that in
the event of such breach such party shall have, in addition to any and all
remedies of law, the right to an injunction, specific performance or other
equitable relief to prevent the violation of the other's obligations hereunder.
(c) Without limitation of the foregoing, each of the parties
acknowledges that any breach by Xxxxxxxxxx of his obligations under Section 2 or
3 hereof will cause the Company to incur money damages, the amount of which will
be difficult or impossible to ascertain and establish. Accordingly, unless
Xxxxxxxxxx ceases and desists from breaching his obligations hereunder on or
before the 10th day (excluding Saturdays, Sundays and legal holidays) of his
receipt from the Company of notice of such breach (such notice to be delivered
in accordance with the Stockholder's Agreement), each of the parties agrees that
the liquidated damages for any such reason shall be in amount equal to not less
than the amount the Company has theretofore paid to Xxxxxxxxxx in accordance
with Section 4 hereof and during any extension of the term hereof in accordance
with Section 2(b); provided that, notwithstanding the foregoing, nothing herein
shall preclude the Company from recovering damages that it incurs and is able to
establish in excess of such sum.
6. AMENDMENT; GOVERNING LAW; BINDING AUTHORITY; ENTIRE AGREEMENT. This
Agreement represents the entire agreement between the parties, and supersedes
and replaces all prior agreements and understandings, with respect to the
subject matter hereof, including, without limitation, the Employment Agreement
dated as of October 30, 1997 between the Company and Xxxxxxxxxx, which
Employment Agreement is hereby terminated and of no further force or effect.
This Agreement may be changed or terminated only by an agreement in writing
signed by both of the parties hereto. This Agreement shall be binding upon the
heirs, executors, administrators,
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successors and assigns of the parties hereto. This Agreement shall be governed
by the laws of the State of New Hampshire.
7. CONSENT TO JURISDICTION. Xxxxxxxxxx hereby agrees to submit to the
nonexclusive jurisdiction of the court in and of the State of New Hampshire and
to the courts to which an appeal of the decisions of such courts may be taken
and consents that service of process with respect to all courts in and of the
State of New Hampshire may be made by registered mail to Xxxxxxxxxx'x address
set forth on page 1 hereof.
8. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY VOLUNTARILY
AND IRREVOCABLY WAIVES TRIAL BY JURY IN ANY ACTION OR OTHER PROCEEDING BROUGHT
IN CONNECTION WITH THIS AGREEMENT, ANY OF THE RELATED AGREEMENTS, DOCUMENTS OR
ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
9. SUCCESSORS AND ASSIGNS. The Company shall have the right to assign
this Agreement to its successors and assigns, and all covenants and agreements
hereunder shall inure to the benefit of and be enforceable by said successors or
assigns
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IN WITNESS WHEREOF, this Agreement has been executed as of the date and
year first above written.
HARVARDNET INC.
By: /s/ Xxxxxxx Xxxxxxxxxx
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Xxxxxxx Xxxxxxxxxx
Chief Executive Officer
/s/ Xxxxxxx Xxxxxxxxxx
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Xxxxxxx Xxxxxxxxxx
/s/ Xxxxxxx Xxxxxxxxxx
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Xxxxxxx Xxxxxxxxxx
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