EMPLOYMENT AGREEMENT
Exhibit 10.5
THIS
EMPLOYMENT AGREEMENT
(“Agreement”)
is made and entered into as of this 7th day of November,
2018 with an effective date as of the 6th day of November, 2018
(the “Effective
Date”), by and between Fusion Connect, Inc., a
Delaware corporation (hereinafter called the “Company”),
and Xxxxxxx X. Xxxxx (hereinafter called “Executive”).
W I T N E S S E T H:
WHEREAS, the Company currently employs
Executive as Chief Executive Officer pursuant to the terms of an
employment agreement, dated as of November 5, 2015, by and between
the Company and Executive (the “2015
Agreement”);
WHEREAS, the Company and its
wholly-owned subsidiary Fusion BCHI Acquisition LLC
(“Merger
Sub”) entered into an Agreement and Plan of Merger
(“Merger
Agreement”) with Birch Communications Holdings, Inc.
(“BCHI”),
pursuant to which, among other things, BCHI merged with and into
Merger Sub (the “Merger”)
and the separate corporate existence of BCHI ceased with Merger Sub
as the surviving corporation in the Merger;
WHEREAS, the Company and Executive
desire to continue Executive’s employment with the Company,
on the terms set forth in this Agreement (the “Closing”);
WHEREAS, upon the Effective Date, this
Agreement shall supersede and replace the 2015 Agreement and all
prior agreements concerning the terms of Executive’s
employment with the Company that may exist in its
entirety.
NOW THEREFORE, the Company and
Executive, intending to be legally bound, hereby mutually covenant
and agree as follows:
ARTICLE I
Employment and Term
1.1 Employment and Term. The
Company hereby agrees to continue to employ Executive and Executive
hereby agrees to continue to serve the Company, on the terms and
conditions set forth herein, for the period commencing on the
Effective Date and expiring on October 31, 2021 (the
“Initial
Term”), unless sooner terminated as hereinafter set
forth; provided, however, that the Initial Term shall automatically
be extended for an additional two (2) year period thereafter (the
“Term
Extension,” together with the
Initial Term, the “Employment
Period”) unless and until one party provides the other
party with written notice of its intent to terminate the Initial
Term no less than ninety (90) days prior to its expiration. This
Agreement shall supersede and replace the 2015 Agreement and all
prior agreements concerning the terms of Executive’s
employment with the Company that may exist in their
entirety.
1.2 Duties of Executive. For the
Employment Period, Executive shall continue to serve as the Chief
Executive Officer of the Company and each of its subsidiaries
(collectively, the “Companies”)
and shall have powers and authority superior to any other officer
or employee of the Companies. In addition, during the Employment
Period, Executive shall serve as the Chairman of the Board of
Directors of the Company (the “Board”).
Executive shall be required to report solely to, and shall be
subject solely to the supervision and direction of, the Board and
no other person or group shall be given authority to supervise or
direct Executive in the performance of his duties. In addition,
Executive shall regularly consult with the Vice-Chairman of the
Board with respect to the Company’s business and affairs.
Executive shall devote substantially all his working time and
attention to the business and affairs of the Company (excluding any
vacation and sick leave to which the Executive is entitled), render
such services to the best of his ability, and use his reasonable
best efforts to promote the interests of the Companies. It shall
not be a violation of this Agreement for the Executive to (a) serve
on corporate, civic or charitable boards or committees, (b) deliver
lectures, fulfill speaking engagements or teach at educational
institutions, and (c) manage personal investments, so long as such
activities do not interfere in any material manner with the
performance of the Executive’s responsibilities as the Chief
Executive Officer of the Companies in accordance with this
Agreement.
1.3 Place of Performance. In
connection with his employment by the Company, the Executive shall
be based at the Company’s principal executive offices located
in Manhattan, New York except for travel reasonably necessary in
connection with the Company’s business.
ARTICLE II
Compensation
and Benefits
2.1 Base Salary. Commencing on
December 31, 2018, Executive shall receive a base salary at the
annual rate of not less than $1,000,000.00 (the “Base
Salary”) during the Employment Period, with such Base
Salary payable in installments consistent with the Company’s
normal payroll schedule, but in no event less frequently than
monthly, and subject to applicable withholding and other taxes. The
Base Salary shall be reviewed by the Board (or authorized committee
thereof) on an annual basis and will be adjusted for cost of living
increases, performance, and market conditions. The Base Salary, if
increased, shall not thereafter be decreased for any
reason.
2.2 Annual Incentive Compensation.
For each calendar year during the Employment Period, Executive
shall be entitled to receive annual bonus payments and/or incentive
compensation based upon the achievement of corporate and individual
performance targets, which shall be determined by the Board (or any
authorized committee thereof) within the first 90 days of each
calendar year after consultation with the Executive. Such potential
bonus payments and/or incentive compensation shall be considered at
least annually by the Board or committee and shall be determined in
good faith by the Board or committee based upon actual corporate
and individual performance for such year and shall be payable in
accordance with the procedures specified by the Board.
Executive’s annual bonus targeted amount will be up to two
hundred percent (200%) and no less than fifty percent (50%) of
Executive’s Base Salary then in effect; provided, however, that for the initial
calendar year of employment, Executive shall receive an annual cash
bonus with a minimum annual payout level for such bonus of 50% of
his Base Salary. In determining annual bonuses, the Board shall
consider, among other factors, the role that Executive has played
during the year in structuring proposed mergers and acquisitions
and financing transactions and any investment banking fees that may
have been saved as a result of him providing such services of the
Company’s behalf. Annual bonus payments and/or incentive
compensation shall be paid no later than March 15th of the year
following the end of the performance period.
-2-
2.3 Special Cash Bonus. In
recognition of the strategic leadership that Executive will
continue to provided the Company with regard to on-going
integration activities associated with the Company’s
acquisition of Birch Communications and MegaPath, Executive shall
receive a special cash bonus in the amount of $2,383,333.28,
subject to applicable withholdings, $563,888.88 to be paid on
January 15, 2019 and $363,888.88 to be paid on each of February 15,
March 15, April 15, May 15 and June 15, 2019 (each such date a
“Payment Date”). Interest shall accrue on the
$2,383,333.28 cash bonus from May 5, 2018 at the rate of eight
percent (8%) per annum with such interest amount to be paid pro
rata on the same date as the bonus Payment Date(s) in
2019.
2.4 Equity
Compensation.
(a) Executive shall be
entitled to participate in all equity compensation plans of the
Company (the “Plans”)
in effect during the term of this Agreement.
(b) The Company agrees
to grant Executive 3,961,934 shares of restricted stock of the
Company (the “Restricted Stock
Award”) pursuant to the Fusion Telecommunications
International, Inc. 2016 Equity Plan (the “2016 Equity
Incentive Plan”), within five (5) business days
following execution of this Agreement by both parties.
Notwithstanding
the date on which the shares of restricted stock are actually
granted and delivered to Executive, the Restricted Stock Award
shall vest and be non-forfeitable as follows: (i) 657,682 shares
shall be vested on the date this Agreement is executed by both
parties, and (ii) 10.0% of the remaining 3,304,249 shares of
restricted stock shall vest and be non-forfeitable on a quarterly
basis over a 2.5 year period until all of the shares have vested
subject to Executive’s continued employment with the Company
on each such vesting date, except as otherwise set forth herein.
The Company shall permit Executive to satisfy any federal, state,
local and employment tax withholding obligations by withholding
shares of stock subject to the Restricted Stock Award as permitted
pursuant to Article 15 of the 2016 Equity Incentive Plan or any new
equity incentive plan, as the case may be, and any applicable award
agreement.
(c) Notwithstanding the
preceding clause (b) or anything contained in this Agreement to the
contrary, all options, restricted shares or other equity-based
grants (whether granted in connection with the Agreement or
otherwise and whether or not granted and delivered under clause
(b)) shall vest and become immediately exercisable as to 100% of
the shares of common stock not otherwise vested upon any
termination of Executive’s employment pursuant to
Section
3.5. Moreover, all equity-based awards held by Executive as
of immediately prior to any “Change in
Control” (as hereinafter defined) shall vest in full
immediately upon a Change in Control, with all applicable
performance-based vesting conditions deemed satisfied at the
maximum level. In the event that Executive is terminated pursuant
to Section 3.5,
Executive shall have the right to exercise his options for the
longer of (i) five (5) years from the effective date of his
employment termination (but not beyond the expiration date of the
options which shall be the tenth anniversary of the grant date), or
(ii) the remaining term of the options. For the avoidance of doubt,
the Company’s non-renewal of Executive’s employment
following expiration of the Initial Term or any Term Extension
shall be considered as a Termination Without Cause pursuant to
Section
3.5 for purposes of vesting of any and all unvested options
and restricted shares. Additionally, notwithstanding the preceding
clause (c) or anything contained in this Agreement to the contrary,
an additional eighteen (18) months of the unvested options and
restricted shares shall vest and become immediately exercisable
upon any termination of Executive’s employment pursuant to
Sections 3.2 or
3.3.
-3-
(d) The Company shall
take all action reasonably requested by Executive to permit a
“cashless” exercise of some or all of his options or
the payment of applicable federal, state, local and employment
taxes upon the vesting of restricted shares or the settlement of
any other equity-based awards in accordance with the terms of the
applicable Plan.
(e) During the
Employment Period, Executive shall be eligible to receive, from
time to time, other equity-based awards in amounts, and subject to
such terms, conditions, and restrictions as determined by the
Compensation Committee of the Board in its sole discretion. The
methodology for determining the amount, terms, conditions, and
restrictions of Executive’s equity-based awards during the
Employment Period will be no less favorable to Executive than the
methodology used by the Compensation Committee of the Board for all
other senior-level executives of the Companies.
(f) The provisions of
the Plans shall not be adversely modified as to the Executive
without the Executive’s prior written consent.
2.5 Expense Reimbursement. During
the Employment Period, the Company, upon the submission of
reasonable supporting documentation by Executive, shall reimburse
Executive for all reasonable expenses actually paid or incurred by
Executive in the course of, and pursuant to, the business of the
Company, including expenses for travel and entertainment. Expenses
shall be reimbursed under this Section
2.5 within sixty
(60) days of submission of reasonably supporting documentation by
Executive.
2.6 Incentive, Savings and Retirement
Plans. During the Employment Period, Executive shall be
entitled to participate in all incentive, savings and retirement
plans, practices, policies and programs applicable to other key
executives of the Companies, in each case comparable to those
currently in effect or as subsequently amended. Such plans,
practices, policies and programs, in the aggregate, shall provide
Executive with compensation, benefits and reward opportunities at
least as favorable as the most favorable of such compensation,
benefits and reward opportunities provided at any time hereafter
with respect to other key executives of the Companies.
2.7 Welfare Benefit Plans. During
the Employment Period, Executive and/or Executive’s spouse
and eligible dependents, as the case may be, shall be eligible for
participation in, and shall receive all benefits under, welfare
benefit plans, practices, policies and programs provided by the
Companies (including, without limitation, medical, prescription,
dental, disability, salary continuance, employee life, group life,
accidental death and travel accident insurance plans and programs),
at least as favorable as the most favorable of such plans,
practices, policies and programs in effect at any time hereafter
with respect to other key executives of the Companies.
2.8 Working Facilities. During the
Employment Period, the Company shall furnish the Executive with an
office, a secretary and such other facilities and services suitable
to his position and adequate for the performance of his duties
hereunder.
2.9 Vacation. During the Employment
Period, the Executive shall be entitled to paid vacation in
accordance with the most favorable plans, policies, programs and
practices of the Companies as in effect at any time hereafter with
respect to other key executives of the Companies; provided,
however, that in no event shall Executive be entitled to fewer than
five (5) weeks paid vacation per year.
-4-
2.10 Indemnification;
D&O Insurance. The Company shall at all times maintain
directors’ and officers’ liability insurance under
which Executive shall be covered on a basis that is no less
favorable than the coverage provided to any director or executive
officer of the Companies, and the Company shall otherwise indemnify
Executive to the fullest extent permitted by applicable law,
whether under the Company’s governing documents or
otherwise.
2.11 Sale
Bonus. In the event that all or substantially of the
consolidated assets of the Companies are sold, or more than 50% of
its equity securities (in vote and value) is sold to a person or
entity, or group of affiliated persons or entities, in one or a
series of related transactions (“Company
Sale”), during the term of this Agreement while
Executive remains employed as Chief Executive Officer of the
Companies or if transaction documents in respect of a Company Sale
are signed during the six-month period immediately following
Executive’s termination for any reason other than a
Termination for Cause pursuant to Section 3.1
below, Executive will be eligible to receive, and the Company shall
pay, within five (5) business days of closing of the Company Sale,
a one-time bonus equal to 3% of the aggregate consideration
paid/distributed to stockholders of the Company, which bonus shall
be paid in cash.
ARTICLE III
Termination
3.1 Termination for Cause.
Notwithstanding anything contained in this Agreement to the
contrary, this Agreement may be terminated by the Company for
Cause. As used in this Agreement, “Cause”
means (a) subject to the following sentences, an act or acts of
personal dishonesty taken by Executive and intended to result in
personal enrichment of Executive at the expense of the Companies
and that are not remedied within thirty (30) days after receipt of
written notice thereof from the Company, (b) subject to the
following sentences, violation by Executive of any material
obligations of Executive under this Agreement which are
demonstrably willful and deliberate on Executive’s part and
which are not remedied within thirty (30) days after receipt of
written notice thereof from the Company, or (c) the conviction of
the Executive for any criminal act which is a felony. Upon any
determination by the Board that Cause exists under clauses (a) and
(b) of the preceding sentence, the Board shall cause a special
meeting of the Board to be called and held at a time mutually
convenient to the Board and Executive, but in no event later than
ten (10) business days after Executive’s receipt of the
notice contemplated by clauses (a) and (b). Executive shall have
the right to appear before such special meeting of the Board with
legal counsel of his choosing to refute any determination of Cause
specified in such notice, and any termination of Executive’s
employment by reason of such Cause determination shall not be
effective until Executive is afforded such opportunity to appear,
unless Executive fails to make himself available during such ten
(10) business day period. Any termination for Cause pursuant to
clause (a) or (b) of the first sentence of this Section 3.1
shall be made in writing by the Board to Executive, which notice
shall set forth in reasonable detail all acts or omissions upon
which the Board is relying for such termination. Upon any
termination pursuant to this Section 3.1,
Executive shall be entitled to be paid his Base Salary to the date
of termination and the Company shall have no further liability
hereunder (other than for reimbursement for reasonable business
expenses incurred prior to the date of such termination). For
purposes of this provision, no act or failure to act, on the part
of Executive, shall be considered “willful” unless it
is done, or omitted to be done, by Executive in bad faith or
without reasonable belief that Executive’s action or omission
was in the best interests of the Company. Any act, or failure to
act, based upon authority given pursuant to a resolution duly
adopted by the Board or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be
done, by Executive in good faith and in the best interests of the
Company. If the Board does not deliver to Executive written notice
of termination within sixty (60) days after the Board has actual
knowledge that an event constituting Cause has occurred, the event
will no longer constitute Cause.
-5-
3.2 Disability. Notwithstanding
anything contained in this Agreement to the contrary, the Board, by
written notice to Executive, shall at all times have the right to
terminate this Agreement, and Executive’s employment
hereunder, as a result of Executive’s Disability. As used in
this Agreement, “Disability” means the absence of
Executive from Executive’s duties and responsibilities
provided for herein for a period of more than one hundred twenty
(120) consecutive days in any 12-month period as a result of
incapacity due to mental or physical illness which is determined to
be total and permanent by a physician selected by (i) the Company
and reasonably acceptable to Executive or Executive’s legal
representative and (ii) the insurance company which insures the
Company’s long-term disability plan in which the Executive is
eligible to participate. In such event, Executive’s
employment with the Company shall terminate effective on the 10th
day after receipt of such notice by Executive (the
“Disability
Effective Date”), provided that, within the 10 days
after such receipt, Executive shall not have returned to full-time
performance of Executive's duties. Subject to Section 3.7,
upon any termination pursuant to this Section 3.2,
Executive shall be entitled to be paid an amount equal to Base
Salary for the remaining term of the Agreement. In the event that
this Agreement has less than six (6) months remaining at such time,
Executive shall be entitled to a payment equal to six (6) months of
his Base Salary. In addition, Executive shall be entitled to any
earned but unpaid bonus payments, incentive compensation and/or
equity compensation pursuant to Article II
above, any accrued but unused vacation pay, reimbursement for
reasonable business expenses incurred prior to the date of
termination (collectively, the “Accrued
Obligations”), as well as any applicable disability
income payments under any disability income plan of the
Company.
3.3 Death. In the event of the
death of Executive during the term of this Agreement, the Company
shall pay to the estate of the deceased Executive an amount equal
to the Base Salary for the remaining term of this Agreement. In the
event that this Agreement has less than six (6) months remaining at
such time, Executive’s estate shall be entitled to a payment
equal to six (6) months of his Base Salary. In addition,
Executive’s estate shall be entitled to the Accrued
Obligations, as well as any applicable life insurance benefits
under any life insurance plan of the Company.
3.4 Optional Termination.
Notwithstanding anything contained in this Agreement to the
contrary, Executive shall, by giving the Company no less than
thirty (30) days prior written notice, have the right to terminate
this Agreement at his sole discretion. Upon any termination
pursuant to this Section 3.4,
the Execution shall be entitled to be paid his Base Salary to the
date of termination and the Company shall have no further liability
hereunder (other than the Accrued Obligations), unless the
Executive and the Company agree to a different
arrangement.
3.5 Termination Without Cause. At
any time during the Employment Period, the Company shall have the
right to terminate Executive’s employment hereunder by
written notice to Executive; provided, however, that in addition to
the Accrued Obligations the Company shall (a) pay to Executive in
cash, in twelve (12) equal monthly installments, after the
effective date of the termination, any pro-rata bonus that would be
payable had Executive completed a full year of employment and
performance metrics, if any, were met, (b) pay to Executive, in
cash, in twelve (12) equal monthly installments, after the
effective date of the termination, an amount equal to two hundred
percent (200%) of his Base Salary then in effect and two hundred
percent (200%) of his highest annual bonus for the three (3) years
preceding Executive’s termination subject to Section 3.7,
and (c) use reasonable efforts to maintain Executive’s
coverage (and, where applicable, the coverage for his spouse and
eligible dependents) under the Company’s medical plan(s) for
the duration of the Post-Employment Restricted Period (as defined
below) on the same terms as immediately prior to the termination of
Executive’s employment, provided that, in the event that such
coverage cannot be maintained, the Company shall, for the duration
of the Post-Employment Restricted Period, reimburse Executive for
premiums paid by Executive to continue such coverage pursuant to
COBRA. The Company shall be deemed to have terminated the
Executive’s employment pursuant to this Section 3.5
if such employment is terminated (a) by the Company without Cause,
or (b) by the Executive voluntarily for “Good Reason.”
For purposes of this Agreement, “Good Reason”
means:
-6-
(i) the assignment to
Executive of any duties inconsistent in any material respect with
Executive’s position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as
contemplated by Section 1.2
of this Agreement, or any other action by the Company which results
in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by Executive;
(ii) any
failure by the Company to comply with any of the provisions of
Article
II or Section 5.9
of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof
given by Executive;
(iii) the
Company’s requiring Executive to be based at any office or
location more than 25 miles from Grand Central Station in New York,
New York, except for travel reasonably required in the performance
of Executive’s responsibilities;
(iv) any
change in the designation of the person that Executive is obligated
to report to under Section 1.2
hereof;
(v) any purported
termination by the Company of Executive’s employment
otherwise than as expressly permitted by this
Agreement;
(vi) any
failure by the Company to comply with and satisfy Section
5.3(c) of this Agreement;
(vii) any
termination by Executive for any reason during the six (6)-month
period following the effective date of any “Change in
Control”; or
(viii) all
payments pursuant to Section 3.5
are conditioned upon Executive’s execution and delivery of a
release (the “Release”)
of any and all claims that Executive may have against the Companies
and their directors, officers or stockholders related to
Executive’s employment and/or termination of employment and
such release becoming effective and irrevocable in accordance with
its terms on or before the 30th day following
Executive’s termination of employment. If Executive fails to
execute and deliver the Release, or if the Release has not become
effective and irrevocable by the 30th day after the date
of Executive’s termination of employment, Executive shall not
be entitled to any payments pursuant to Section 3.5;
provided,
however, that if
the 30-day period begins in one taxable year and ends in a second
taxable year, such payments shall not commence until the second
taxable year. The Release shall be in a form satisfactory to the
Company and shall be a general release of all claims, except that
such release shall not include and shall not limit or release (A)
Executive’s rights or claims relating to the obligations of
the Company under this Agreement that are conditioned upon
execution of the Release; (B) Executive’s rights to
indemnification from the Companies in respect of Executive’s
services as a director, officer or employee of the Companies (or of
any entity for which Executive has served in any such capacity or a
similar capacity at the request of the Companies) as provided by
law, any indemnification agreement or similar agreement by and
between the Company and Executive, the certificates of
incorporation or bylaws (or like constitutive documents), or any of
Executive’s rights to payment under any director’s and
officer’s liability insurance carried by the Companies; (C)
Executive’s entitlement, if any, to continued medical, dental
and vision insurance coverage under and pursuant to COBRA; (D) any
rights of Executive under any welfare benefit plan, practice or
program provided by the Companies (including medical, dental,
short-term and long-term disability, salary continuance, life
insurance, accidental death and travel accident insurance plans and
programs) in which Executive participated prior to the termination
date; or (E) any rights or claims of Executive that may arise out
of events occurring after the effective date of the Release. The
Company shall promptly deliver the Release to Executive upon
termination of his employment.
-7-
3.6 Benefits. Except as otherwise
expressly provided herein or in the applicable plan,
Executive’s accrual of, or participation in plans providing
for, the benefits pursuant to Sections
2.6 and 2.7 shall
cease at the effective date of the termination of employment under
this Agreement, and Executive shall be entitled to accrued benefits
pursuant to such plans only as provided in such plans.
3.7 Section 409A.
(a) This Agreement is
intended to comply with or otherwise be exempt from Section 409A
and its corresponding regulations, to the extent applicable, and
shall be so construed. Notwithstanding anything in this Agreement
to the contrary, payments of “nonqualified deferred
compensation” subject to Section 409A may only be made under
this Agreement upon an event and in a manner permitted by Section
409A, to the extent applicable. For purposes of Section 409A, all
payments of “nonqualified deferred compensation”
subject to Section 409A to be made upon the termination of
Executive’s employment under this Agreement may only be made
upon a “separation from service” under Section 409A.
Each payment made under this Agreement shall be treated as a
separate payment and the right to a series of installment payments
under this Agreement is to be treated as a right to a series of
separate payments. In no event shall Executive, directly or
indirectly, designate the calendar year of payment with respect to
any amount that is “nonqualified deferred compensation”
subject to Section 409A. All reimbursements provided under this
Agreement that are “nonqualified deferred compensation”
that is subject to Section 409A shall be made or provided in
accordance with Section 409A, including, where applicable, the
requirements that (a) any reimbursement is for expenses incurred
during the Employment Period (or during such other time period
specified in this Agreement), (b) the amount of expenses eligible
for reimbursement during a calendar year may not affect the
expenses eligible for reimbursement in any other calendar year, (c)
the reimbursement of an eligible expense will be made on or before
the last day of the taxable year following the year in which the
expense is incurred, and (d) the right to reimbursement is not
subject to liquidation or exchange for another benefit. Nothing
herein shall be construed as having modified the time and form of
payment of any amounts or payments of “nonqualified deferred
compensation” within the meaning Section 409A that were
otherwise payable pursuant to the terms of any agreement between
Company and Executive in effect prior to the date of this
Agreement.
(b) If Executive is
considered a “specified employee” (as defined under
Section 409A) and payment of any amounts under this Agreement is
required to be delayed for a period of six (6) months after
separation from service pursuant to Section 409A, payment of such
amounts shall be delayed as required by Section 409A, and the
accumulated postponed amounts shall be paid in a lump-sum payment
within five (5) days after the end of the six (6) month period. If
Executive dies during the postponement period prior to the payment
of benefits, the amounts postponed on account of Section 409A shall
be paid to the personal representative of Executive’s estate
within sixty (60) days after the date of Executive’s
death.
3.8 Definition of “Change in
Control”. For purposes of this Agreement, a
“Change in
Control” shall mean:
-8-
(i) The acquisition
(other than by or from the Company), at any time after the date
hereof, by any unaffiliated person, entity or “group”,
within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934 (the “Exchange
Act”), of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of 50% or more of either the then
outstanding shares of common stock or the combined voting power of
the Company’s then outstanding voting securities entitled to
vote generally in the election of directors; or
(ii) All
or any of the seven (7) individuals who, as of the date hereof,
constitute the Board (as of the date hereof the “Incumbent
Board”) cease for any reason to constitute at least a
majority of the Board, provided that any person becoming a director
subsequent to the date hereof whose election, or nomination for
election by the Company’s stockholders, was approved by a
vote of at least a majority of the directors then comprising the
Incumbent Board (other than an election or nomination of an
individual whose initial assumption of office is in connection with
an actual or threatened election contest relating to the election
of the directors of the Company, as such terms are used in Rule
14a-l l of Regulation 14A promulgated under the Exchange Act) shall
be, for purposes of this Agreement, considered as though such
person were a member of the Incumbent Board; or
(iii) Approval
by the stockholders of the Company of (A) a reorganization, merger
or consolidation with respect to which persons who were the
stockholders of the Company immediately prior to such
reorganization, merger or consolidation do not, immediately
thereafter, own more than fifty percent (50%) of the combined
voting power entitled to vote generally in the election of
directors of the reorganized, merged or consolidated
company’s then outstanding voting securities, (B) a
liquidation or dissolution of the Company, or (C) the sale of all
or substantially all of the assets of the Companies, unless the
approved reorganization, merger, consolidation, liquidation,
dissolution or sale is subsequently abandoned.
(iv) The
approval by the Board of the sale, distribution and/or other
transfer or action (and/or series of sales, distributions and/or
other transfers or actions from time to time or over a period of
time), that results in the Company’s ownership of less than
50% of the Company’s and its subsidiaries (on a consolidated
basis) current assets.
-9-
ARTICLE IV
Restrictive Covenants
4.1 Nondisclosure. During the
Employment Period and for twenty four (24) months thereafter,
Executive shall not divulge, communicate, use to the detriment of
the Companies or for the benefit of any other person or persons, or
misuse in any way, any Confidential Information pertaining to the
business of the Companies. Any Confidential Information or data now
or hereafter acquired by Executive with respect to the business of
the Companies shall be deemed a valuable, special and unique asset
of the Company that is received by the Executive in confidence and
as a fiduciary, and Executive shall remain a fiduciary to the
Company with respect to all of such information. For purposes of
this Agreement, “Confidential
Information” means all material information about the
business of the Companies disclosed to the Executive or known by
the Executive as a consequence of or through his employment by the
Company (including information conceived, originated, discovered or
developed by Executive) after the date hereof, and not generally
known or readily available to the public. The above restrictions
shall not apply to: (a) information that at the time of disclosure
is in the public domain through no fault of Executive; (b)
information received from a third party outside of the Company that
was disclosed without a breach of any confidentiality obligation;
(c) information approved for release by a written authorization of
the Company; or (d) information that may be required by law or an
order of any court, agency, or proceeding to be disclosed. For the
avoidance of doubt, nothing herein is intended to or shall prohibit
Executive from utilizing any knowledge, information, business
techniques and/or methods that Executive knew prior to his
affiliation with the Companies, or that are generally known and
used by persons with training and experience comparable to that of
Executive, or that are common knowledge in the industry. Moreover,
nothing in this Agreement is intended to or shall limit any
party’s ability to (x) report possible violations of federal
securities laws to the appropriate government enforcing agency and
make such other disclosures that are expressly protected under
federal or state “whistleblower” laws or (y) respond to
inquiries from, or otherwise cooperate with, any governmental or
regulatory investigation.
4.2 Nonsolicitation of Employees.
During the Employment Period and for a period of eighteen (18)
months thereafter, Executive shall not directly or indirectly, for
himself or for any other person, firm, corporation, partnership,
association or other entity, attempt to employ or enter into any
contractual arrangement with any employee of the Companies or
former employee of the Companies, unless such employee or former
employee has not been employed by the Company or one of its
subsidiaries for a period in excess of three (3) months.
Notwithstanding the foregoing, the provisions of this Section 4.2
shall not be violated by (a) general advertising or solicitation
not specifically targeted at employees of the Companies or (b)
actions taken by any person or entity with which Executive is
associated if Executive is not directly or personally involved in
any manner in such solicitation or recruitment and has not
identified such employee for recruiting or
solicitation.
-10-
4.3 Covenant Not to Compete.
Executive will not, at any time, during the Employment Period, and
for a period of twelve (12) months thereafter (the
“Post-Employment
Restricted Period”), either directly or indirectly,
engage in, with or for any enterprise, institution, whether or not
for profit, business, or company, competitive with the Business (as
defined herein) of the Companies as such Business is conducted on
the date thereof, as a creditor, guarantor, or financial backer,
stockholder, director, officer, consultant, advisor, employee,
member, or otherwise of or through any corporation, partnership,
association, sole proprietorship or other entity; provided, that an
investment by Executive, his spouse or his children is permitted if
such investment is not more than four percent (4%) of the total
debt or equity capital of any such competitive enterprise or
business. As used in this Agreement, the “Business”
of the Companies shall be deemed to include the provision of any
form of traditional communications services, Internet based video
conferencing services, Unified communications as a service
(“UCaaS”),
clouding computing, cloud connectivity, cloud storage, cloud
security and software as a service (“SaaS”);
provided, however, the foregoing prohibition shall not apply to any
category of service from which the Company is deriving less than
five percent (5%) in annual revenue. The foregoing prohibition
shall not prevent Executive’s employment or engagement after
the Employment Period (a) by any entity as long as the activities
of such employment or engagement do not involve work on matters
related to the Business or (b) by an investment fund that invests
in entities engaged in the Business so long as Executive is not
employed or engaged as an executive officer or director of such
entity engaged in the Business. This covenant not to compete for
the Post-Employment Restricted Period shall only be effective if
Executive has received all compensation and benefits due to him
pursuant to this Agreement, including but not limited to
compensation and benefits under Section 3.5,
to the extent applicable. For the avoidance of doubt, in the event
of the Company’s non-renewal of Executive’s employment
following expiration of the Initial Term or any Term Extension, the
covenant not to compete for one (1) year shall only apply if and to
the extent that the Company elects to pay severance to Executive in
an amount equivalent in all respects to that which he would be
entitled to receive as if he was terminated Without Cause pursuant
to Section 3.5.
The Company shall have the right in its sole discretion to waive
this non-compete clause, in whole or in part.
4.4 Mutual Non-disparagement.
Executive agrees that he will not, directly or indirectly,
individually or in concert with others, engage in any conduct or
make any statement that is likely to have the effect of undermining
or disparaging the reputation of the Company, or its good will,
products, or business opportunities, or that is likely to have the
effect of undermining or disparaging the reputation of any officer,
director, agent, representative or employee, past or present, of
the Company. The Company agrees that, except for circumstances
relating to a termination of Executive’s employment by the
Company for Cause, its executive officers or directors shall not
directly or indirectly, individually or in concert with others,
engage in any conduct or make any statement that is likely to have
the effect of undermining or disparaging the reputation of
Executive.
4.5 Injunction. It is recognized
and hereby acknowledged by the parties that a breach by Executive
of any of the covenants contained in Section 4.1,
4.2,
4.3 or
4.4 of this
Agreement will cause irreparable harm and damage to the Company or
the Companies, as the case may be, the monetary amount of which may
be virtually impossible to ascertain. As a result, Executive
recognizes and hereby acknowledges that the Company shall be
entitled to seek an injunction from any court of competent
jurisdiction in Manhattan, New York enjoining and restraining any
violation of any or all of the covenants contained in this
Article
IV by the Executive, and that such right to injunction shall
be cumulative and in addition to whatever other remedies the
Company may possess.
-11-
ARTICLE V
Miscellaneous
5.1 Governing Law; Jurisdiction.
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York without giving
effect to any conflicts-of-law provisions. In respect of any claim
arising out of or relating to this Agreement, the parties hereby
irrevocably submit to the exclusive jurisdiction of the United
States District Court for the Southern District of New York, or any
state court located in Manhattan, New York.
5.2 Notices. Any notice required or
permitted to be given under this Agreement shall be in writing and
shall be deemed to have been given when delivered by hand or when
deposited in the United States mail, by registered or certified
mail, return receipt requested, postage prepaid, addressed as
follows:
-12-
|
If to
the Company:
|
Fusion
Connect, Xxx.000 Xxxxxxxxx Xxxxxx,Xxxxx 0000Xxx Xxxx, Xxx Xxxx
10170Attention: General Counsel
|
|
|
with
copy to Vice-Chairman of the Board of Directors
|
|
If to
Executive:
|
Xxxxxxx
X. Xxxxx(to his last known address in the records of the
Company)
with a
copy to Xxxxx X. Xxxxxx, Esq., DLA Piper LLP (US)
0000
Xxxxxx xx xxx Xxxxxxxx
Xxx
Xxxx, XX 00000
|
or to
such other addresses as either party hereto may from time to time
give notice of to the other in the aforesaid manner.
5.3 Successors.
(a) This Agreement is
personal to Executive and without the prior written consent of the
Company shall not be assignable by Executive otherwise than by will
or the laws of descent and distribution. This Agreement shall inure
to the benefit of, and be enforceable by, Executive’s legal
representatives.
(b) This Agreement
shall inure to the benefit of and be binding upon the Company and
its successors and permitted assigns.
(c) The Company shall
require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to expressly assume and
agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement,
“Company” shall mean the Company as hereinbefore
defined and any successor to its business and/or assets which
assumes and agrees to perform this Agreement by operation of law or
otherwise.
5.4 Severability. The invalidity of
any one or more of the words, phrases, sentences, clauses or
sections contained in this Agreement shall not affect the
enforceability of the remaining portions of this Agreement or any
part thereof, all of which are inserted conditionally on their
being valid in law, and, in the event that any one or more of the
words, phrases, sentences, clauses or sections contained in this
Agreement shall be declared invalid, this Agreement shall be
construed as if such invalid word or words, phrase or phrases,
sentence or sentences, clause or clauses, or section or sections
had not been inserted. If such invalidity is caused by length of
time or size of area, or both, the otherwise invalid provision will
be considered to be reduced to a period or area which would cure
such invalidity.
-13-
5.5 Waivers. The waiver by either
party of a breach or violation of any term or provision of this
Agreement shall not operate nor be construed as a waiver of any
subsequent breach or violation.
5.6 Damages. Nothing contained
herein shall be construed to prevent the Company or the Executive
from seeking and recovering from the other damages sustained by
either or both of them as a result of its or his breach of any term
or provision of this Agreement, or any other remedy available at
law or in equity.
5.7 No Third Party Beneficiary.
Nothing expressed or implied in this Agreement is intended, or
shall be construed, to confer upon or give any person (other than
the parties hereto and, in the case of Executive, his heirs,
personal representative(s) and/or legal representative) any rights
or remedies under or by reason of this Agreement.
5.8 Full Settlement. The
Company’s obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder
shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have
against Executive or others, or on account of any remuneration or
other benefit earned or received by Executive after the termination
of Executive’s employment hereunder. In no event shall
Executive be obligated to seek other employment or take any other
action by way of mitigation of the amounts payable to Executive
under any of the provisions of this Agreement. The Company agrees
to pay, to the full extent permitted by law, all legal fees and
expenses which Executive may reasonably incur as a result of any
contest by the Company or others of the validity or enforceability
of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any
contest by Executive about the amount of any payment pursuant to
Section
5.9 of this Agreement), plus in each case interest at the
applicable Federal rate provided for in Section 7872(f)(2) of the
Internal Revenue Code of 1986, as amended (the “Code”).
5.9 Section 280G of the
Code. Notwithstanding
any other provision of this Agreement or any other plan,
arrangement or agreement to the contrary, if any of the payments or
benefits provided or to be provided by the Company or its
affiliates to Executive or for Executive’s benefit pursuant
to the terms of this Agreement or otherwise (the
“Covered
Payments”) constitute parachute payments (the
“Parachute
Payments”) within the meaning of Section 280G of the
Code and, but for this Section 5.9,
would be subject to the excise tax imposed under Section 4999 of
the Code (or any successor provision thereto) or any similar tax
imposed by state or local law or any interest or penalties with
respect to such taxes (collectively, the “Excise
Tax”), then prior to making the Covered Payments, a
calculation shall be made comparing (i) the Net Benefit (as defined
below) to Executive of the Covered Payments after payment of the
Excise Tax to (ii) the Net Benefit to Executive if the Covered
Payments are limited to the extent necessary to avoid being subject
to the Excise Tax. Only if the amount calculated under (i) above is
less than the amount under (ii) above will the Covered Payments be
reduced to the minimum extent necessary to ensure that no portion
of the Covered Payments is subject to the Excise Tax (that amount,
the “Reduced
Amount”). “Net
Benefit” shall mean the present value of the Covered
Payments net of all federal, state, local, foreign income,
employment and excise taxes.
-14-
Any
such reduction shall be made in accordance with Section 409A and
the following:
(i) the Covered
Payments consisting of cash severance benefits that do not
constitute nonqualified deferred compensation subject to Section
409A shall be reduced first, in reverse chronological order;
and
(ii) all
other Covered Payments consisting of cash payments, and Covered
Payments consisting of accelerated vesting of equity based awards
to which Treas. Reg. § 1.280G-1 Q/A-24(c) does not apply, and
that in either case do not constitute nonqualified deferred
compensation subject to Section 409A, shall be reduced second, in
reverse chronological order;
(iii) all
Covered Payments consisting of cash payments that constitute
nonqualified deferred compensation subject to Section 409A shall be
reduced third, in reverse chronological order; and
(iv) all
Covered Payments consisting of accelerated vesting of equity-based
awards to which Treas. Reg. § 1.280G-1 Q/A-24(c) applies shall
be the last Covered Payments to be reduced.
Any
determination required under this Section 5.9
shall be made in writing in good faith by an independent accounting
firm selected by the Company (the “Accountants”).
The Company and Executive shall provide the Accountants with such
information and documents as the Accountants may reasonably request
in order to make a determination under this Section 5.9.
For purposes of making the calculations and determinations required
by this Section 5.9,
the Accountants may rely on reasonable, good-faith assumptions and
approximations concerning the application of Section 280G and
Section 4999 of the Code. The Accountants’ determinations
shall be final and binding on the Company and Executive. The
Company shall be responsible for all fees and expenses incurred by
the Accountants in connection with the calculations required by
this Section
5.9.
(v) It is possible that
after the determinations and selections made pursuant to this
Section
5.9 Executive will receive Covered Payments that are in the
aggregate more than the amount intended or required to be provided
after application of this Section 5.9
(“Overpayment”)
or less than the amount intended or required to be provided after
application of this Section 5.9
(“Underpayment”).
(vi) In
the event that: (A) the Accountants determine, based upon the
assertion of a deficiency by the Internal Revenue Service against
either the Company or Executive that the Accountants believe has a
high probability of success, that an Overpayment has been made or
(B) it is established pursuant to a final determination of a court
or an Internal Revenue Service proceeding that has been finally and
conclusively resolved that an Overpayment has been made, then
Executive shall pay any such Overpayment to the Company together
with interest at the applicable federal rate (as defined in Section
7872(f)(2)(A) of the Code) from the date of Executive’s
receipt of the Overpayment until the date of
repayment.
-15-
(vii) In
the event that: (A) the Accountants, based upon controlling
precedent or substantial authority, determine that an Underpayment
has occurred or (B) a court of competent jurisdiction determines
that an Underpayment has occurred, any such Underpayment will be
paid promptly by the Company to or for the benefit of Executive
together with interest at the applicable federal rate (as defined
in Section 7872(f)(2)(A) of the Code) from the date the amount
should have otherwise been paid to Executive until the payment
date.
5.10 Reimbursement
of Legal Expenses. The Company shall promptly reimburse
Executive for all reasonable legal and tax advisor fees incurred by
Executive in calendar year 2018 in connection with the preparation,
negotiation and execution of this Agreement and ancillary
documents.
5.11 Post-Employment
Cooperation. Executive agrees to reasonably cooperate with
and provide assistance to the Companies and their legal counsel in
connection with any litigation (including arbitration or
administrative hearings) or investigation affecting the Companies,
in which, in the reasonable judgment of the Companies counsel,
Executive’s assistance or cooperation is needed; provided, however, that in no event shall
Executive be required to cooperate pursuant to this Section 5.11
with respect to any matter that could reasonably be expected to be
materially adverse to Executive’s interests. Executive shall,
when reasonably requested by the Companies, provide truthful
testimony or other assistance and shall travel at the
Companies’ request in order to fulfill this obligation;
provided,
however, that, in
connection with such litigation or investigation, any such requests
of Executive’s time shall take into account Executive’s
then existing employment or other obligations and not place an
undue or unreasonable burden on Executive. The Companies shall
provide Executive with reasonable notice in advance of the times in
which Executive’s cooperation or assistance is needed and
shall advance or reimburse (as requested by Executive) reasonable
expenses (including for professional advisors) incurred by
Executive in connection with such matters, as well as for any
actual lost wages suffered as a result of absence from
employment.
5.12 Entire
Agreement; Amendments.
(a) This Agreement
contains the entire agreement between the parties with respect to
the subject matter hereof, and supersedes and replaces in its
entirety the 2015 Agreement and all prior agreements and
understandings, oral or written, among the parties hereto with
respect to Executive’s employment with the
Companies.
(b) Notwithstanding any
legal principle to the contrary, the parties expressly agree that
any oral amendment to or modification of this Agreement, including
any oral modification to this Section 5.12,
shall be ineffective, and that this Agreement, including this
Section 5.12,
may be amended only by an agreement in writing signed by the
parties hereto, it being the express intent of the parties that
such amendment in writing shall be the exclusive means of effecting
any amendment or modification of any provision of this Agreement
whatsoever.
-16-
5.13 Tax
Withholding. The Companies may withhold from any amounts
payable under this Agreement such federal, state, local or foreign
taxes as shall be required to be with-held pursuant to any
applicable law or regulation. Executive is solely responsible for
all taxes imposed on him as a result of his receipt of any payment
or benefit arising under this Agreement, other than such taxes that
are, by their nature, obligations of the Company (for example, and
without limitation, the employer portion of the Federal Insurance
Contributions Act (FICA) taxes, and any corporate taxes incurred by
the Company as a result of the disallowance of any tax deduction
for compensation paid to Executive, and the Company does not
guarantee the tax treatment or tax consequences associated with any
payment or benefit arising under this Agreement.
5.14 Section
Headings; Construction. The headings of Sections in this
Agreement are provided for convenience only and shall not affect
its construction or interpretation. All references to
“Sections” or “Articles” refer to the
corresponding Sections or Articles of this Agreement unless
otherwise specified. All words used in this Agreement shall be
construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word
“including” does not limit the preceding words or
terms.
5.15 Counterparts.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original copy of this Agreement and
all of which, when taken together, shall be deemed to constitute
one and the same agreement. Signatures transmitted by facsimile or
electronic copies of e-mailed documents (e.g., in .pdf format)
shall be deemed originals for this purpose.
5.16 Survival.
The terms, conditions, rights and obligations of the parties shall
survive any termination or expiration of this Agreement to the
extent necessary to the intended preservation of such terms,
conditions, rights, and obligations, including, without limitation,
Articles
II, III,
and IV and
Section
5.11 of this Agreement.
[remainder of page intentionally left blank]
-17-
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first above written.
|
|
FUSION
CONNECT, INC.
By:
/s/ Xxxxx X. Xxxxxxxx,
Xx.
Name:
Xxxxx X. Xxxxxxxx, Xx.
Title:
Executive Vice President and General Counsel
EXECUTIVE:
/s/ Xxxxxxx X. Xxxxx
Xxxxxxx
X. Xxxxx
|
-18-
