Exhibit 10.1
EMPLOYMENT AGREEMENT
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EMPLOYMENT AGREEMENT made as of the __________ day of March 2000 by
and between DIGITAL ISLAND, INC. a Delaware corporation (the "Corporation"), and
Xxxxxx Xxxxx ("Executive").
WHEREAS, the Corporation and Executive wish to enter into a formal
employment contract which will govern the terms and conditions applicable to
Executive's employment with the Corporation and will provide certain severance
benefits for Executive in the event his employment should be involuntarily
terminated.
NOW, THEREFORE, the parties hereto agree as follows:
PART ONE - DEFINITIONS
For purposes of this Agreement, the following definitions shall be in
effect:
Change in Control means a change in the ownership or control of the
Corporation effected through any of the following transactions:
(i) a merger, consolidation or reorganization approved by the
Corporation's stockholders, unless securities representing more than
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fifty percent (50%) of the total combined voting power of the
outstanding voting securities of the successor corporation are
immediately thereafter beneficially owned, directly or indirectly and
in substantially the same proportion, by the persons who beneficially
owned the Corporation's outstanding voting securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation
or dissolution of the Corporation;
(iii) the acquisition, directly or indirectly, by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by or is under common
control with, the Corporation) of beneficial ownership (within the
meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as
amended) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Corporation's outstanding
securities pursuant to a tender or exchange offer made directly to the
Corporation's stockholders; or
(iv) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for
Board membership, to be comprised of individuals who either (A) have
been Board members continuously since the beginning of such period or
(B) have been elected or nominated for election as Board members
during such period by at least a majority of the Board members
described in clause (A) who were still in office at the time the Board
approved such election or nomination.
Disability means the Executive's inability, by reason of any physical
or mental injury or illness, to substantially perform the services required of
him under this Agreement for a period in excess of ninety (90) consecutive
days. In such event, Executive shall be deemed to have terminated employment by
reason of such Disability on the last day of such ninety (90)-day period.
Involuntary Termination means (i) the Corporation's termination of
Executive's employment for any reason other than a Termination for Cause or (ii)
Executive's voluntary resignation within ninety (90) days following (A) a
reduction in his level of base salary by more than fifteen percent (15%), (B) a
relocation of his principal place of employment by more than fifty (50) miles or
(C) a material reduction in the scope of his duties and responsibilities or the
level of management to which he reports. Involuntary Termination shall not
include the termination of Executive's employment by reason of death or
Disability.
Option means any option granted to the Executive under the
Corporation's Stock Option/Stock Issuance Plan which is outstanding either at
the time of a Change in Control or upon the Executive's subsequent Involuntary
Termination.
Termination for Cause means the termination of the Executive's
employment for any of the following reasons: (i) Executive's conviction of a
felony or embezzlement of the Corporation's funds, (ii) a material breach by
Executive of one or more of his obligations under Paragraph 6 or 10 of this
Agreement, (iii) any intentional misconduct by Executive which has a materially
adverse effect upon the Corporation's business or reputation, (iv) Executive's
continued failure to perform the duties, functions and responsibilities of his
executive position after written warning from the Corporation or (v) an
intentional material breach by Executive of any of Executive's fiduciary
obligations as an officer of the Corporation.
PART TWO -- TERMS AND CONDITIONS OF EMPLOYMENT
1. Duties and Responsibilities.
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(a) Executive's employment with the Corporation shall be governed
by the provisions of this Agreement for the period commencing March ___, 2000
and continuing until this Agreement is terminated in accordance with the
applicable provisions of Paragraph 7. The period during which Executive's
employment continues in effect shall be hereafter referred to as the "Employment
Period."
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(b) Executive shall serve as the Vice President, and General
Counsel and shall in such capacity report to the Corporation's Chief Financial
Officer or CEO. Executive shall perform in good faith and to the best of his
ability all services which may be required of Executive hereunder and to be
available to render services at all reasonable times and places in accordance
with reasonable directions and requests made by the Corporation. Executive
shall, during the Employment Period, devote his full time, ability, energy and
skill to the performance of his duties and responsibilities hereunder.
2. Cash Compensation.
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(a) Effective March __, 2000 Executive shall be paid a base
salary at the annual rate of One Hundred Seventy-Five Thousand Dollars
($175,000). Base salary shall be paid at periodic intervals in accordance with
the Corporation's payroll practices for salaried employees.
(b) For the first twelve (12) months of the Employment Period,
Executive shall be entitled to incentive compensation, payable in quarterly
installments following the close of each fiscal quarter (other than the fiscal
quarter ending March 31, 2000) within that period, in an annualized amount of at
least Thirty-Five Thousand Dollars ($35,000) upon (i) the Corporation's
achievement of the financial objectives and performance milestones established
by the Board for such twelve (12)-month period, (ii) Executive's achievement of
his individual performance objectives as agreed by Executive and the Chief
Financial Officer for that twelve (12)-month period and (iii) Executive's
continuation in employment through the close of each fiscal quarter within that
period for which quarterly incentive compensation is paid by the Corporation.
However, (i) the payment of incentive compensation in the first two (2) full
fiscal quarters of the Employment Period shall be guaranteed, provided Executive
remains in the Corporation's employ through the close of each of those fiscal
quarters, and (ii) no incentive compensation shall be payable for the fiscal
quarter ending March 31, 2000.
(c) For each subsequent twelve (12)-month period during the
Employment Period, beginning with the twelve (12)-month period commencing April
1, 2001, Executive shall be entitled to incentive compensation, payable
currently in quarterly installments following the close of each fiscal quarter
within such period, in a targeted annualized amount of Thirty Percent (30%) of
Executive's base salary upon (i) the Corporation's achievement of the financial
objectives and performance milestones established by the Board for each such
twelve (12)-month period, (ii) Executive's achievement of his individual
performance objectives as agreed by Executive and the Chief Financial Officer
for that twelve (12)-month period and (iii) Executive's continuation in
employment through the close of each fiscal quarter within that twelve (12)-
month period for which quarterly incentive compensation is paid by the
Corporation.
(d) As a special retention incentive, Executive shall, upon the
completion of the first twelve (12) months of the Employment Period, become
entitled to a one-time special bonus in the dollar amount of Twenty Thousand
Dollars ($20,000) payable on April 1, 2001.
(e) The Corporation shall deduct and withhold from the
compensation payable to Executive hereunder any and all applicable Federal,
State and local income and employment withholding taxes and any other amounts
required to be deducted or withheld by the
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Corporation under applicable statutes, regulations, ordinances or orders
governing or requiring the withholding or deduction of amounts otherwise payable
as compensation or wages to employees.
3. Equity Compensation. As soon as possible following Executive's
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commencement of employment with the Corporation, Executive will be granted a
stock option to purchase Two Hundred Thousand (200,000) shares of the
Corporation's Common Stock. The option will have an exercise price per share
equal to the fair market value per share of the Corporation's common stock on
the grant date. The option will be an incentive stock option under the federal
tax laws, to the maximum extent allowable, and the balance will be a non-
statutory option. The option will have a maximum term of ten (10) years, subject
to earlier termination as set forth herein. The option will become exercisable
for twenty-four percent (24%) of the option shares upon Executive's completion
of one year of employment with the Corporation and will become exercisable for
the balance of the option shares in a series of thirty-eight (38) successive
monthly installments, each equal to two percent (2%) of the total number of
option shares, upon your completion of each of the next thirty eight (38) months
of employment with the Corporation following the first anniversary of
Executive's start date. The remaining terms of Executive's option will be
governed by the provisions of the Corporation's 1999 Stock Incentive Plan. No
additional vesting will occur after Executive's termination of employment.
4. Fringe Benefits. Executive shall, throughout the Employment Period,
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be eligible to participate in all group term life insurance plans, group health
plans, accidental death and dismemberment plans and short-term disability
programs and other executive perquisites which are made available to the
Corporation's executives and for which Executive qualifies. Executive shall
accrue paid vacation benefits during the Employment Period at the rate of one
(1) week per calendar quarter.
5. Expense Reimbursement. In addition to the compensation specified in
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Paragraph 2, Executive shall be entitled, in accordance with the reimbursement
policies in effect from time to time, to receive reimbursement from the
Corporation for all business expenses incurred by Executive in the performance
of his duties hereunder, provided Executive furnishes the Corporation with
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vouchers, receipts and other details of such expenses in the form required by
the Corporation sufficient to substantiate a deduction for such business
expenses under all applicable rules and regulations of federal and state taxing
authorities.
6. Death or Disability. Upon Executive's death or Disability during
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the Employment Period, the employment relationship created pursuant to this
Agreement shall immediately terminate, and no further compensation shall become
payable to Executive pursuant to Paragraph 2 of this Agreement. In connection
with such termination, the Corporation shall only be required to pay Executive
or his estate (i) any unpaid base salary earned under Paragraph 2 for services
rendered through the date of his death or Disability and (ii) the dollar value
of all accrued and unused vacation benefits based upon Executive's most recent
level of base salary.
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7.Proprietary Information.
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(a) Executive hereby acknowledges that the Corporation may, from
time to time during the Employment Period, disclose to Executive confidential
information pertaining to the Corporation's business and affairs, technology,
research and development projects and customer base, including (without
limitation) financial information concerning customers and prospective business
opportunities. All information and data, whether or not in writing, of a private
or confidential nature concerning the business, technology or financial affairs
of the Corporation and its clients (collectively, "Proprietary Information") is
and shall remain the sole and exclusive property of the Corporation. By way of
illustration, but not limitation, Proprietary Information shall include all
trade secrets, research and development projects, financial records, business
plans, personnel data, computer programs and customer lists and accounts
relating to the business operations, technology or financial affairs of the
Corporation, other similar items indicating the source of the Corporation's
revenue, all information pertaining to the salaries, duties and performance
ratings of the Corporation's employees and all financial information relating to
the Corporation's clients and their proposed or contemplated business
transactions.
(b) Executive shall not, at any time during or after such
Employment Period, disclose to any third party or directly or indirectly make
use of any such Proprietary Information, other than in connection with the
Corporation's business and affairs.
(c) All files, letters, memoranda, reports, records, data or
other written, reproduced or other tangible manifestations of the Proprietary
Information,whether created by Executive or others, to which the Executive has
access during the Employment Period shall be used by Executive only in the
performance of her duties hereunder. All such materials (whether written,
printed or otherwise reproduced or recorded) shall be returned by Executive to
the Corporation immediately upon the termination of the Employment Period or
upon any earlier request by the Corporation, without Executive retaining any
copies, notes or excerpts thereof.
(d) Executive's obligation not to disclose or use Proprietary
Information shall also extend to any and all information, records, trade
secrets, data and other tangible property of the Corporation's clients or any
other third parties who may have disclosed or entrusted the same as confidential
information to the Corporation or Executive in connection with the Corporation's
business operations.
(e) Executive's obligations under this Paragraph 6 shall continue
in effect after the termination of her employment with the Corporation, whatever
the reason or reasons for such termination, and the Corporation shall have the
right to communicate with any future or prospective employer of Executive
concerning Executive's continuing obligations under this Paragraph 6.
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8. Termination of Employment.
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(a) The Corporation may terminate Executive's employment under
this Agreement at any time for any reason, with or without cause, by giving at
least thirty (30) days prior written notice of such termination to the
Executive. If such termination notice is given to Executive, the Corporation
may, if it so desires, immediately relieve Executive of some or all of his
duties. In no event shall such thirty (30)-day notice requirement be applicable
to a Termination for Cause under Paragraph (c) below.
(b) Executive may terminate his employment under this Agreement
at any time by giving the Corporation at least thirty (30) days prior written
notice of such termination.
(c) The Corporation may at any time, upon written notice,
discharge the Executive from employment with the Corporation hereunder pursuant
to a Termination for Cause. Such termination shall be effective immediately upon
such notice.
(d) Upon the termination of Executive's employment for any reason
during the Employment Period, Executive shall be paid all salary and unused
vacation earned through the date of such termination.
9. Severance Benefits. Should the Executive's employment with the
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Corporation terminate by reason of an Involuntary Termination in the absence of
a Change in Control or by reason of an Involuntary Termination more than twelve
(12) months after a Change in Control, then the Executive shall become entitled
to receive the following severance benefits:
(i) Salary Continuation. Salary continuation payments at
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the monthly rate of base salary in effect for Executive under Paragraph 2
at the time of his Involuntary Termination, for a period of six (6) months.
Such salary continuation payments shall be made at semi-monthly intervals
on the 15th and last day of each calendar month and shall be subject to all
applicable withholding requirements.
(ii) Health Care Coverage. Continued health care coverage
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under the Corporation's medical plan shall be provided, without charge, to
Executive and his eligible dependents upon his election to receive such
continued health care coverage under Internal Revenue Code Section 4980B
("COBRA"). Such Corporation-paid coverage shall continue until the earlier
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of (i) the expiration of the six (6) month period measured from the
effective date of his Involuntary Termination or (ii) the first date on
which Executive is covered under another employer's health benefit program
without exclusion for any pre-existing medical condition. Any additional
health care coverage to which Executive and his dependents may be entitled
under COBRA following the period of such Corporation-paid coverage shall be
at Executive's sole cost and expense.
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10. Change in Control Severance Benefits. Should Executive's
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employment with the Corporation terminate by reason of an Involuntary
Termination within twelve (12) months after a Change in Control, then the
Executive shall become entitled to receive the following severance benefits:
(i) Salary Continuation. Salary continuation payments, at
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the monthly rate of base salary in effect for him under Paragraph 2 at the
time of his Involuntary Termination, for a period of twelve (12) months.
Such salary continuation payments shall be made at semi-monthly intervals
on the 15th and last day of each calendar month and shall be subject to all
applicable withholding requirements.
(ii) Health Care Coverage. Continued health care coverage
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under the Corporation's medical plan shall be provided, without charge, to
Executive and his eligible dependents upon his election to receive such
continued health care coverage under Internal Revenue Code Section 4980B
("COBRA"). Such Corporation-paid coverage shall continue until the earlier
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of (i) the expiration of the twelve (12)-month period measured from the
effective date of his Involuntary Termination or (ii) the first date on
which Executive is covered under another employer's health benefit program
without exclusion for any pre-existing medical condition. Any additional
health care coverage to which Executive and his dependents may be entitled
under COBRA following the period of such Corporation-paid coverage shall be
at Executive's sole cost and expense.
(iii) Option Acceleration. To the extent the Executive's
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outstanding Options do not vest on an accelerated basis at the time of the
Change in Control because those Options are assumed by the successor entity
or are otherwise continued in effect following that Change in Control, then
Executive shall immediately, upon an Involuntary Termination of his
employment with the Corporation (or the successor entity) within twelve
(12) months after the effective date of that Change in Control, be credited
with an additional twelve (12) months of service under the vesting schedule
in effect for the shares purchased or purchasable under each of his
Options. Accordingly, Executive shall immediately vest in that number of
additional shares purchased or purchasable under each such Option equal to
the number of additional shares in which Executive would have vested under
the normal vesting schedule in effect for that Option had Executive
actually rendered an additional twelve (12) months of service with the
Corporation prior to the date of such Involuntary Termination. Executive
shall have until the earlier of (i) the expiration of the option term or
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(ii) any shorter period designated in the stock option agreement in which
to exercise each of his Options for any or all of the option shares in
which Executive is vested at the time of his Involuntary Termination,
including the option shares which vest on an accelerated basis in
accordance with the foregoing provisions.
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11. Restrictive Covenants. During the Employment Period and for an
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additional period of two (2) years following the termination of Executive's
employment for any reason other than death, Executive shall be subject to the
following restrictive covenants:
(i) Executive shall not, within the United States of
America or within a fifty (50)-mile radius of any other area in which the
Corporation is conducting business, directly or indirectly own, manage,
operate, join, control or participate in the ownership, management,
operation or control of (including, without limitation, service as member
of the board of directors or other governing entity), or be employed by any
enterprise which is engaged in any business or enterprise providing goods
or services competitive with the goods and services provided by the
Corporation either during the Employment Period or at the time Executive's
employment terminates or which the Corporation is at that time planning to
provide in accordance with business plans adopted by the Board during
Executive's period of employment with the Corporation. However, such
restriction shall not apply to any passive investment representing an
interest of less than two percent (2%) of an outstanding class of publicly-
traded securities of any corporation or other enterprise. For purposes of
this covenant, the following entities (together with their successors)
shall specifically be deemed to be enterprises engaged in businesses
competitive with the Corporation: Exodus Communications, Inc., Akamai
Technologies, Inc., and MCI WorldCom, Inc.
(ii) Executive shall not directly or indirectly encourage
or solicit any of the Corporation's employees to leave the Corporation's
employ for any reason or interfere in any other manner with employment
relationships at the time existing between the Corporation and its
employees.
(iii) Executive shall not directly or indirectly solicit
any customer, vendor, supplier, licensor, licensee or other business
affiliate of the Corporation or otherwise induce any such person to
terminate its existing business relationship with the Corporation or
interfere in any other manner with any existing business relationship
between the Corporation and any customer, vendor, supplier, licensor,
licensee or other business affiliate.
Executive hereby acknowledges that monetary damages may not be
sufficient to compensate the Corporation for any economic loss which may be
incurred by reason of his breach of this paragraph 11. Accordingly, in the event
of any such breach, the Corporation shall, in addition to the termination of
this Agreement and any remedies available to the Corporation at law, be entitled
to obtain equitable relief in the form of an injunction precluding Executive
from continuing such breach.
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12. Discontinuance of Severance Benefits. In the event Executive
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breaches any of his obligations under Paragraph 11 of this Agreement, he shall
cease to be entitled to any further severance benefits under Paragraph 9 or 10
of this Agreement, including (without limitation) any subsequent right to
exercise any outstanding Options or to receive any further salary continuation
payments or continued health care coverage at the Corporation's expense.
13. Limitation of Severance Benefits. The benefits provided Executive
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under Paragraphs 9, or 10 of this Agreement are the only severance benefits to
which Executive is entitled upon the termination of his employment with the
Corporation, and no other severance benefits shall be provided to Executive by
the Corporation pursuant to any other severance plan or program of the
Corporation.
14. Governing Document. This Agreement constitutes the entire
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agreement and understanding of the Corporation and Executive with respect to the
terms and conditions of Executive's employment with the Corporation and the
payment of severance benefits and supersedes all prior and contemporaneous
written or verbal agreements and understandings between Executive and the
Corporation relating to such subject matter. This Agreement may only be amended
by written instrument signed by Executive and an authorized officer of the
Corporation. Any and all prior agreements, understandings or representations
relating to the Executive's employment with the Corporation are hereby
terminated and cancelled in their entirety and are of no further force or
effect.
15. Governing Law. The provisions of this letter agreement will be
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construed and interpreted under the laws of the State of California applicable
to agreements executed and to be wholly performed within the State of
California. If any provision of this Agreement as applied to any party or to any
circumstance should be adjudged by a court of competent jurisdiction to be void
or unenforceable for any reason, the invalidity of that provision shall in no
way affect (to the maximum extent permissible by law) the application of such
provision under circumstances different from those adjudicated by the court, the
application of any other provision of this Agreement, or the enforceability or
invalidity of this Agreement as a whole. Should any provision of this Agreement
become or be deemed invalid, illegal or unenforceable in any jurisdiction by
reason of the scope, extent or duration of its coverage, then such provision
shall be deemed amended to the extent necessary to conform to applicable law so
as to be valid and enforceable or, if such provision cannot be so amended
without materially altering the intention of the parties, then such provision
will be stricken and the remainder of this Agreement shall continue in full
force and effect.
16. Remedies. All rights and remedies provided pursuant to this
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Agreement or by law shall be cumulative, and no such right or remedy shall be
exclusive of any other. A party may pursue any one or more rights or remedies
hereunder or may seek damages or specific performance in the event of another
party's breach hereunder or may pursue any other remedy by law or equity,
whether or not stated in this Agreement.
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17. Arbitration. Any and all disputes between Executive and the
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Corporation which arise out of Executive's employment under the terms of this
Agreement or the termination of such employment shall be resolved through final
and binding arbitration. This shall include, without limitation, disputes
relating to this Agreement, Executive's employment by the Corporation or the
termination thereof, claims for breach of contract or breach of the covenant of
good faith and fair dealing, and any claims of discrimination or other claims
under Title VII of the Civil Rights Act of 1964, the Age Discrimination in
Employment Act, the Americans With Disabilities Act, the California Fair
Employment and Housing Act, or any other federal, state or local law or
regulation now in existence or hereinafter enacted and as amended from time to
time concerning in any way the subject of Executive's employment with the
Corporation or its termination. The only claims not covered by this Agreement
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are claims for benefits under the workers' compensation or unemployment
insurance laws, which will be resolved pursuant to those laws. Binding
arbitration will be conducted in San Francisco, California in accordance with
the rules and regulations of the American Arbitration Association. Each party
will split the cost of the arbitration filing and hearing fees, and the cost of
the arbitrator; each side will bear its own attorneys' fees, that is, the
arbitrator will not have authority to award attorneys' fees, unless a statutory
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section at issue in the dispute authorizes the award of attorneys' fees to the
prevailing party, in which case the arbitrator has authority to make such award
as permitted by the statute in question. Executive understands and agrees that
the arbitration shall be instead of any civil litigation and that this means
that she is waiving his right to a jury trial as to such claims. The parties
further understand and agree that the arbitrator's decision shall be final and
binding to the fullest extent permitted by law and enforceable by any court
having jurisdiction thereof.
18. Counterparts. This Agreement may be executed in more than one
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counterpart, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Employment
Agreement as of the day and year written above.
DIGITAL ISLAND CORPORATION
By:_____________________________
Title:__________________________
________________________________
XXXXXX XXXXX, EXECUTIVE
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