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EMPLOYMENT AND STOCK OPTION AGREEMENT
THIS EMPLOYMENT AND STOCK OPTION AGREEMENT (the "Agreement") is made
and entered into as of this 1st day of March 1999, by and between HIGH SPEED NET
SOLUTIONS, INC., a corporation organized under the laws of the State of Florida,
with principal executive offices located at 000 Xxxxxxxx Xxxxxx, Xxxxx Xxxx,
Xxxxxxx 00000 (the "Company") and XXXXX XXXXXX, an individual residing at 0
Xxxxxxx Xxxxx, Xxxxxxxxxxxx, Xxx Xxxxxx 00000 (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company wishes to employ the Executive as its
Vice-President - Sales and Marketing and the Executive wishes to be so employed
by the Company in such capacity; and
WHEREAS, the Company and the Executive each believe it to be in their
respective best interest to enter into this Agreement setting forth the mutual
understandings and agreements reached between the Company and the Executive with
respect to Executive's employment with the Company and the consideration granted
to the Executive in connection therewith, all on the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
covenants contained herein and other good and valuable consideration the receipt
and sufficiency of which is hereby acknowledged, the parties hereto, intending
to be legally bound, hereby agree as follows:
Section 1. Employment; Position and Duties. Commencing as of
March 15, 1999 (the "Commencement Date"), the Company shall employ the
Executive, and the Executive shall be employed by the Company, upon the terms
and conditions hereafter provided. The Executive shall serve as the
Vice-President - Sales and Marketing for the Company, and have such duties,
responsibilities and authority customary to such position and as are reasonably
necessary for the performance of his obligations hereunder, subject at all times
to the authority of the President and the board of directors of the Company. The
Executive shall devote substantially all of his time, energy, skill and efforts
during normal business hours to the Company and shall use his best efforts in
the performance of his duties hereunder.
Section 2. Compensation - Salary and Bonus. The Company shall
pay the Executive a fixed salary at the rate of One Hundred Fifty Thousand
Dollars ($150,000.00) (the "Salary") per annum. Salary shall be payable in
accordance with the customary payroll practices of the Company (but in no event
less frequently than bi-weekly) and shall be subject to all employee payroll
deductions required by law. In addition, the Executive shall be eligible in the
same manner as similarly situated employees for an annual cash bonus, which
shall be awarded in the sole discretion of the board of directors of the
Company, based upon the performance of the
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Executive, the financial performance of the Company, and such other factors that
the board of directors deems relevant.
Section 3. Benefits and Certain Perquisites. The Executive shall
be eligible to participate in the medical, health, insurance, 401(k) and similar
plans and benefits of the Company from time to time in effect for executives of
the Company, subject to and in accordance with the terms and conditions of each
such plan or benefit. Until such time as the Company provides medical and health
insurance plans and benefits to the Executive, the Company shall, at the option
of the Company, either reimburse the Executive for or pay directly all payments,
costs and expenses associated with the Executive's continuing coverage for
himself and his family pursuant to the Comprehensive Omnibus Budget and
Reconciliation Act (COBRA) under all plans and benefits utilized by the
Executive during his employment with his most-recent employer (including without
limitation dental coverage). The Company shall provide to the Executive a
non-accountable automobile expense allowance of Five Hundred Dollars ($500.00)
per month, payable to the Executive on the first day of each month during the
term of this Agreement. The Executive will receive twenty (20) days of paid time
off per annum, which shall be available to the Executive upon the Commencement
Date and, thereafter, upon each anniversary of the Commencement Date during the
term of this Agreement. Any unused paid time off, up to a maximum of forty (40)
days, will accrue to the benefit of the Executive during the term hereof.
Section 4. Sales Commission. During the term hereof, in addition
to the Salary set forth above, the Company shall pay to the Executive a sales
commission (the "Sales Override") equal to the Determined Percentage (as defined
in this Section 4) of Gross Receipts (as defined in this Section 4) of the
Company. For the purpose of this Section 4, the term "Gross Receipts" shall mean
the total revenues actually received by the Company from (i) the sales made by
salespersons under the Executive's supervision and control and (ii) certain
sales identified by mutual agreement of the Company and the Executive which were
in progress prior to the Commencement Date (together, "Identified Sales"), less
refunds, returns, chargebacks, and bad debt, and excluding liquidation sales and
certain sales made below cost as identified by the Company and reasonably
acceptable to the Executive, as such Gross Receipts are determined by the mutual
agreement of the Company and the Executive. For the purpose of this Section 4,
the term "Determined Percentage" shall mean the percentage of sales commissions
available under the Company's commission structure which the Executive has not
granted to the salespersons and which are retained by the Executive for the
purpose of the Executive earning the Sales Override. The Company will establish
a commission structure for inside and outside Identified Sales. For inside sales
(which include sales made directly by the Company), the Company will allocate a
commission of ten percent (10%) of Gross Receipts. For outside sales (which
include sales made solely by entities other than the Company), the Company will
allocate a commission of up to sixteen percent (16%) of Gross Receipts, from
which the Executive's Determined Percentage shall be 1%. Payment of the Sales
Override shall be made monthly by the Company to the Executive not later than
the fifteenth (15th) day after the end of each month during which the Executive
is employed by the Company pursuant to the terms of this Agreement.
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Section 5. Expense Reimbursement. The Company shall reimburse
the Executive for all reasonable costs and expenses incurred by him in the
performance of his duties hereunder upon the presentation of appropriate
invoices or receipts for such costs actually incurred by the Executive. Such
reimbursements shall be made in accordance with the expense reimbursement
policies of the Company in effect from time to time. Unless circumstances render
it impractical for the Executive to do so, any single expenditure of more than
Two Thousand Dollars ($2,000.00) shall require the advance written approval of
either the Chairman of the Board or the President of the Company or any
executive officer designated by either of them for such purpose.
Section 6. Term of Employment; Termination. Except as otherwise
provided below, this Agreement shall continue in full force and effect until the
third (3rd) anniversary of the Commencement Date (the "Termination Date").
Except as otherwise set forth in this Section 6, upon the termination of the
Executive's employment, the Company shall pay to the Executive, in the normal
manner that such payments become due, but no later than thirty (30) days after
the date of termination, all Salary and Sales Override accrued but not paid
through the date of termination.
Section 6.1 Termination of Cause. Notwithstanding
anything set forth in this Agreement to the contrary, the Company shall
have the right to terminate the Executive's employment for Cause (as
defined in this Section 6.1) at any time prior to the Termination Date,
immediately upon notice to the Executive, which such notice shall state
with reasonable specificity the grounds pursuant to which the Company
has elected to terminate the Executive's employment for Cause. For the
purposes of this Agreement, "Cause" shall mean (i) the willful and
material breach or the willful and material failure by the Executive to
perform his duties and obligations under this Agreement (including if
by reason of habitual intoxication or addition to any controlled
substance or other drug) which such willful and material breach or
failure is not cured within a reasonable period of time after the
Company has provided notice of such breach or failure to the Executive,
(ii) the commission by the Executive of a material act of dishonesty in
the performance of his duties hereunder (such as, for example, the
willful misappropriation of funds or property of the Company), (iii)
the Executive being convicted of a crime involving the Company, (iv)
the Executive willfully violating any material provision of this
Agreement, which such willful and material violation is not cured
within a reasonable period of time after the Company has provided
notice of such violation to the Executive, or (v) in the event the
Executive has been convicted of any felony or any crime involving moral
turpitude or dishonesty. Notices required to be provided by the Company
to the Executive under this Section 6.1 shall state the specific nature
of the alleged "Cause".
Section 6.2 Payment of Salary in Event of Termination
Without Cause. In the event the Company terminates the employment of
the Executive for any reason other than for Cause during the first year
of the Executive's employment hereunder, the Company shall pay to the
Executive all Salary, and the Executive shall be entitled to all
benefits (other than Sales Override), that the Executive would
otherwise have been entitled to and have received pursuant to this
Agreement for a period of one year, ending on the anniversary of the
date of such termination. In the event the Company terminates the
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employment of the Executive for any reason other than for Cause prior
to Termination Date, at any time during the term of this agreement
after the completion of the first year of the Executive's employment
hereunder, the Company shall pay to the Executive all Salary, and the
Executive shall be entitled to all benefits (other than Sales
Override), that the Executive would otherwise have been entitled to and
have received pursuant to this Agreement for a period of six months,
ending on the six-month anniversary of the date of such termination.
Section 7. Certain Obligations of Executive During and After
Term of Employment.
(a) Confidential Information. The Executive recognizes
that due to his employment by the Company and the nature of the services to be
provided hereunder, he will have access to and will acquire, and may assist in
developing, Proprietary Information (as defined in this Section 7(a)). The
Executive acknowledges that the Proprietary Information has been and will
continue to be of importance to the operations of the Company and its business.
Accordingly, except as otherwise required by lawful process, the Executive shall
keep confidential any and all Proprietary Information that is now known or that
may hereafter become known by the Executive, whether or not learned during the
performance of this Agreement, and shall not, without the express prior written
consent of the Company, disclose directly or indirectly any Proprietary
Information to any other person or use directly or indirectly any such
Proprietary Information, to benefit him or any third party. Upon the termination
of this Agreement or the termination of employment with the Company, the
Executive, or his heirs or legal representatives, shall return to the Company
all Proprietary Information embodied in a tangible form. The Executive's
obligation to maintain the confidentiality of the Proprietary Information shall
survive the termination or expiration of this Agreement. For the purposes of
this Agreement, "Proprietary Information" shall mean all information relating to
the business and affairs of the Company, including, but not limited to,
technical data, specifications, designs, concepts, discoveries, copyrights,
improvements, product plans, research and development, personal information,
personnel information, financial information, customer lists, leads, and/or
marketing programs; and/or all documents marked as confidential and/or
containing such information; and/or all information the Company has acquired or
received from a third party in confidence, provided, that Proprietary
Information shall not include information which (i) is or becomes generally
available to the public, other than as a result of a disclosure by the Executive
in violation of this Agreement, (ii) becomes available to the Executive on a
non-confidential basis from a source which was not under an obligation of
confidentiality, (iii) was available to the Executive on a non-confidential
basis prior to its disclosure in the course of his employment by the Company or
was previously known to the Executive other than as a result of his employment
by the Company, (iv) is developed by the Executive independently and is not
based upon or derived from confidential information, or (v) is otherwise in the
public domain.
(b) Non-Solicitation and Non-Competition. Throughout the
term of his employment with the Company pursuant to this Agreement and for a
period of one (1) year thereafter, the Executive shall not, of himself or for
the benefit or account of any person or entity, (i) solicit or encourage any
employee or other person rendering services to the Company to terminate or
materially modify his or her relationship with the Company, or (ii) directly
engage
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in selling or providing video compression technology products or services which
are sold or provided by the Company as of the date of termination of the
Executive's employment. Notwithstanding the foregoing, the provisions of this
Section 7(b) shall not apply and shall be no force or effect in the event the
Executive's employment is terminated by the Company without Cause prior to the
Termination Date.
(c) Conflict of Interest. The parties agree that the
Executive may not, during the term of this Agreement, engage in any business
activity which would interfere with his obligations hereunder, including without
limitation management or management consulting activities; provided, however,
the Executive may invest his personal assets in businesses where the form or
manner of such investment will not require services on the part of the Executive
conflicting with the duties the Executive under this Agreement and in which his
participation is solely that of a passive investor, and the Executive may engage
in activities related to enhancement, protection or broadening the scope of
works set forth on the Schedule of Separate Works annexed hereto as Schedule 2.
The Executive agrees to abide by the rules and regulations applicable to
employees of the Company established from time to time by the President or the
board of directors of the Company.
(d) Remedies. The Executive acknowledges that, in the
event of any breach of this Section 7 by him, the Company would be harmed
irreparably and immediately and could not be made whole by monetary damages.
Accordingly, the Company, in addition to any other remedy to which it may be
entitled, shall be entitled to an injunction or injunctions to prevent breaches
of the provisions of this Section 7 and to compel specific performance of the
provisions hereof. The Company shall not be required to post a bond or other
security in connection with any action for such relief. These remedies shall not
be deemed to be exclusive remedies for a violation of this Agreement but shall
be in addition to all other remedies available to the Company at law or in
equity. The Executive's agreement as set forth in this Section 7 shall survive
termination of the Executive's employment with the Company.
(e) Covenant of the Company. Throughout the term of the
Executive's employment with the Company and thereafter, regardless of the reason
for the termination of his employment, the Company shall not make any statement
about the Executive to any person or entity which could reasonably be foreseen
to result in an adverse effect on the Executive or otherwise disparage the
Executive. Throughout the term of the Executive's employment with the Company
and thereafter, regardless of the reason for the termination of his employment,
the Executive shall not make any statement about the Company to any person or
entity which could reasonably be foreseen to result in an adverse effect on the
Company or otherwise disparage the Company, or its employees, offices, or
directors.
Section 8. Executive Representations. The Executive hereby
represents and warrants that (i) he has the legal capacity to execute and
perform this Agreement; (ii) that this Agreement (other than Section 7 for which
the Executive does not make the representation and warranty set forth in this
clause (ii)) is a valid and binding agreement enforceable against him according
to its terms; (iii) that the execution and performance of this Agreement by him
does not, and will not, violate or conflict with the terms of any existing
agreement or understanding to which the
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Executive is a party; (iv) that the execution and performance of this Agreement
(other than Section 7 for which the Executive does not make the representation
and warranty set forth in this clause (iv)) by him does not, and will not,
violate or conflict with any law, rule, regulation, judgment or order of any
court or other adjudicative entity binding on him; and (v) that the Executive
knows of no reason why he is in any way (physically, legally or otherwise)
precluded from performing his obligations under this Agreement in accordance
with its terms.
Section 9. Stock Options. The Company hereby grants to the
Executive the following options to purchase shares of the common stock of the
Company, par value $.001 per share (the "Common Stock") at an exercise price of
One Cent ($.01) per share (collectively, the "Options"). The Option shall be
governed by the terms set forth in this Section 9.
(a) Option Grants. On the Commencement Date, the
Executive shall be granted:
(i) fully-vested, immediately exercisable
Options to purchase up to One Hundred Thousand (100,000) shares of Common Stock
(the "First Options");
(ii) Options to purchase up to an additional One
Hundred Thousand (100,000) shares of Common Stock, (the "Second Options"), which
such Second Options shall fully-vest and be exercisable in five (5) equal
installments of Twenty Thousand (20,000) Second Options each, in each case based
upon the satisfaction of the milestones set forth on Schedule 1 attached hereto;
provided, however, that any exercisable Second Option may, at any time at the
option of the Executive, be surrendered to the Company in exchange for an
immediate cash payment from the Company to the Executive in an amount of Two and
50/100 Dollars ($2.50) for each Second Option so surrendered; and
(iii) Options to purchase up to an additional Four
Hundred Twenty Five Thousand (425,000) shares of Common Stock (the "Third
Options"), of which (x) Seventy Five Thousand (75,000) Third Options shall
fully-vest and be exercisable on September 1, 1999, (y) One Hundred Fifty
Thousand (150,000) Third Options shall fully-vest and be exercisable on March 1,
2000 and (z) Two Hundred Thousand (200,000) Third Options shall fully-vest and
be exercisable on March 1, 2001.
(b) Terms Governing Exercise of Option; Vesting. The
Options shall expire and cease to be exercisable ten (10) years after the
Commencement Date. The Options may be exercised from time to time as to all or
part of the shares underlying such Options (the "Option Shares"). In order to
exercise the Options, the Executive must provide written notice to the Company
of his election, setting forth the number of whole Option Shares with respect to
which the Option is being exercised, and accompanied by payment of the full
purchase price for the number of Option Shares being purchased. In addition, in
the event the employment of the Executive is terminated without Cause, any
Options not then exercisable shall become immediately exercisable.
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(c) Non-Assignability. No rights granted to the Executive
hereunder are assignable or transferable (whether by operation of law or
otherwise and whether voluntarily or involuntarily), except that the Executive
may transfer all or any portion of the Options to members of his immediate
family or to one or more trusts, partnerships or other entities for the benefit
of the Executive or members of his immediately family (the "Permitted
Transferees"), provided all such Permitted Transferees agree in writing to be
bound by the terms of this Agreement. All rights granted to the Executive
hereunder may be exercised only by the Executive, his estate, heirs or personal
representative, or a Permitted Transferee.
(d) Effect of Termination of Employment on Option and
Option Shares. The termination of the Executive's employment with the Company,
regardless of the reason therefor, shall have no effect on the Option's which
have vested at or prior to such time.
(e) Conditions of Purchase; Registration Statement. Upon
the Executive's request, the Company shall furnish copies of such financial and
other information concerning the Company and its business and prospects as may
be reasonably requested by the Executive in connection with the exercise of any
Option. Because the Company has registered the Common Stock under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the Company shall make
reasonable efforts to promptly register the Option Shares for resale by the
Executive pursuant to the Securities Act of 1933, as amended (the "Securities
Act") (whether on Form S-8 or otherwise).
(f) Withholding. The Executive agrees that the exercise
of the Option in whole or in part will not be effective, and no Option Shares
will become transferable to the Executive, until the Executive makes appropriate
arrangements with the Company for such income tax withholding as may be required
of the Company under federal, state, or local law on account of such exercise.
(g) Adjustments. The adjustments and other provisions
required by the terms set forth on Annex A shall be made in accordance with the
provisions set forth on Annex A, which are hereby incorporated herein in their
entirety.
Section 10. Consolidation, Merger, or Sale of Assets. Nothing in
this Agreement shall preclude the Company from consolidating or merging into or
with, or transferring all or substantially all of its assets to, another
business entity. In addition, in the event such successor entity assumes this
Agreement and all obligations and undertakings of the Company hereunder, upon
such a consolidation, merger or transfer of assets and assumption, the term
"Company" as used herein shall mean such other business entity and this
Agreement shall continue in full force and effect, subject to the provisions of
Annex A. In the event such successor entity does not assume this Agreement,
then, in addition to the provisions set forth in Annex A preserving for the
Executive all rights with respect to the Options and the Option Shares: (a) the
Company shall treat the event as a termination without Cause of this Agreement
and pay to the Executive (i) any accrued but unpaid Salary and any accrued but
unpaid Sales Override through the date of such transaction in accordance with
the provisions of Section 6 and (ii) his Salary and benefits as
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provided in Section 6.2 hereof, and (b) the Executive shall be relieved of his
non-competition and non-solicitation obligations pursuant to Section 7 of this
Agreement.
Section 11. Board of Directors. At all times during the term
hereof, the Executive shall be a voting member of the board of directors of the
Company.
Section 12. Invention Assignment. The Executive hereby grants,
transfers and assigns to the Company all of his right, title and interest, if
any, in any and all Developments (as defined herein), including rights to
translation and reproductions in all forms or formats and the copyrights,
patents and other intellectual property rights therein, if any, and the
Executive agrees that the Company may copyright or patent such materials in the
Company's name and secure renewals, reissues and extensions of such copyrights
or patents for such periods of time as the law may permit. For the purpose of
this Agreement, the term "Development" shall mean any idea, invention, process,
design, concept, program, documentation or work expressed, made or conceived by
the Executive during his term of employment with the Company which are directly
related to the actual business, research or development of the Company. All
Developments shall be considered works made for hire by the Executive in the
scope of the Executive's employment hereunder and shall belong to the Company.
The Executive shall promptly disclose all Developments to the Company and, upon
the request of the Company, shall execute separate written assignments to the
Company of such Developments, and shall assist the Company in obtaining any and
all intellectual property protection for such Developments as may be reasonably
requested by the Company from time to time. To the extent the Company
disseminates, distributes or otherwise makes available to any third party any
Development during the term of this Agreement, the Company shall designate the
Executive as the principal author of such Development. Notwithstanding anything
set forth in this Section 12 to the contrary, each of the items set forth on
Schedule 2 annexed to this Agreement (the "Schedule of Separate Works") are and
shall at all times remain the sole and exclusive property of the Executive,
shall not be considered Developments for the purposes hereof and the Company
shall have no right, title or interest whatsoever in any such property set forth
or described on such Schedule of Separate Works.
Section 13. Binding Agreement. This Agreement shall be binding
upon, and shall inure to the benefit of, the Executive and the Company and their
respective permitted successors, assigns, heirs, beneficiaries and
representatives. This Agreement may not be assigned by the Executive.
Section 14. Entire Agreement; Amendment and Modification; Waiver.
This Agreement constitutes the entire agreement among the parties hereto
pertaining to the subject matter hereof and supersedes all other prior and
contemporaneous agreements, understandings, negotiations and discussions,
whether oral or written, of the parties. There are no other agreements between
the parties in connection with the subject matter hereof except as specifically
set forth herein. This Agreement may only be amended or modified in a writing
signed by the party against whom enforcement of such amendment or modification
is sought. Any of the terms or conditions of this Agreement may be waived at any
time by the party entitled to the benefit thereof, but only by a writing signed
by the party waiving such terms or conditions.
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Section 15. Governing Law; Jurisdiction; Enforcement Costs. This
Agreement shall be governed by and construed in accordance with the laws of the
State of Florida without reference to choice of law principles thereof and the
parties agree to submit to the non-exclusive jurisdiction and venue of the
courts located in the State of Florida. The prevailing party in any litigation
or other legal proceeding shall be entitled to receive its reasonably attorneys'
fees and all other costs and expenses associated therewith from the
non-prevailing party, in each case if so awarded by the court having
jurisdiction thereover.
Section 16. Counterparts. This Agreement may be executed in any
number of counterparts, each of which when executed shall be deemed to be an
original and all of which together shall be deemed to be one and the same
instrument.
Section 17. Severability. In the event that any court having
jurisdiction shall determine that one or more of the restrictive covenants
contained herein shall be unreasonable in any respects, then such covenant or
covenants shall be deemed limited and restricted to the extent that such court
shall deem to be reasonable. As so limited or restricted, the covenants
contained herein shall remain in full force and effect. In the event that any
covenant or covenants shall be wholly unenforceable, the remaining covenants
shall remain in full force and effect.
Section 18. Notices. All notices or other communications
permitted or required to be given hereunder shall be delivered personally or
sent by certified, registered or express air mail, postage prepaid, and shall be
deemed given when so delivered personally or, if mailed, three days after the
date of mailing to the address of the recipient party as set forth herein, or to
such other address for such party as such party may have notified the other
parties hereto (as provided above) from time to time.
Section 19. Legal Fees. Upon the execution hereof, the Company
shall pay to counsel to the Executive one-half of the fees incurred by the
Executive in connection with the preparation of this Agreement.
Section 20. No Strict Construction. Each of the parties hereto
acknowledge that this Agreement has been prepared jointly by the parties hereto
and their respective counsel, and this Agreement shall not be strictly construed
against either party.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer and the Executive has signed this
Agreement, all as of the first date above written.
HIGH SPEED NET SOLUTIONS, INC.
By: /s/ Xxxxxxx X. Xxxxxx
-------------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: President
/s/ Xxxxx X. Xxxxxx
-------------------------------------
Xxxxx Xxxxxx
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SCHEDULE 1
MILESTONES FOR THE EXERCISABILITY OF THE SECOND OPTIONS PURSUANT TO SECTION 9
Performance Objectives:
1) HSNS receives $10M in outside investment/funding:
-- unless it is decided by the BOD to pursue a lesser amount
-- HSNS will use best efforts to pursue investment/funding
2) Signed agreements with four (4) international distributors/re-sellers
with gross revenues from international distributors/re-sellers totaling
$4M
3) Successful integration of Summus technology into adult industry
-- measured by signed agreements with at least two (2) companies
serving the adult industry
-- measured by $3M
NOTE: Objectives #2 and #3 will both be considered to be completed
if the total revenues generated between the two exceeds $7M.
4) Integration of Summus technology into at least two (2) Internet Service
Providers.
5) Successful showing at Comdex Trade Show
-- measured by at least 100 raw leads AND 20 qualified leads
-- qualified leads to be determined by meeting certain criteria to be
agreed between the parties prior to Comdex
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SCHEDULE 2
SCHEDULE OF SEPARATE WORKS
[TO BE PROVIDED BY THE EXECUTIVE CONTEMPORANEOUSLY
AS OF THE COMMENCEMENT DATE OF THIS AGREEMENT]
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ANNEX A
Adjustment and Anti-Dilution Provisions
The number of Option Shares issuable upon the exercise of each Option
are subject to adjustment from time to time upon the occurrence of any of the
events enumerated herein.
(a) Reorganization of the Company.
In the event of any capital reorganization, recapitalization
or reclassification of the capital stock of the Company, or consolidation,
merger or amalgamation of the Company with another entity, any acquisition of
capital stock of the Company by means of a share exchange, or the sale, lease,
transfer, conveyance or other disposition of all or substantially all of its
asserts to another entity, then, as a condition of such reorganization,
recapitalization, reclassification, consolidation, merger, amalgamation, share
exchange or sale, lease, transfer, conveyance or other disposition, lawful and
adequate provision shall be made whereby the Executive shall thereafter have the
right to purchase and receive, on the basis and upon the terms and conditions
specified in this Agreement and in lieu of the Option Shares immediately
theretofore purchasable and receivable upon the exercise of the rights
represented by the Options (i) such shares of stock, securities, cash or
property as may be issued or payable with respect to or in exchange for a number
of outstanding Option Shares equal to the number of Option Shares immediately
theretofore purchasable and receivable upon the exercise of the rights presented
by the Options had such reorganization, recapitalization, reclassification,
consolidation, merger, amalgamation, share exchange or sale, lease, transfer,
conveyance or other disposition not taken place, and (ii) if such consolidation,
merger, amalgamation, share exchange, sale, lease, transfer, conveyance or other
disposition is with any person or entity (or any affiliate thereof) who shall
have made a purchase, tender or exchange offer which was accepted by the holders
of not less than twenty percent (20%) of the outstanding shares of Common Stock,
the Executive shall have been given a reasonable opportunity (and, in no event,
less than 30 days) to elect to receive, either (x) the stock, securities, cash
or property it would have received pursuant to clause (i) immediately preceding
or (y) the stock, securities, cash or property issued to previous holders of the
Common Stock in accordance with such offer, or the equivalent thereof. In any
such case appropriate provision shall be made with respect to the rights and
interests of the Executive to the end that the provisions hereof (including,
without limitation, provisions for adjustment of the number and type of
securities purchasable upon the exercise of the Options) shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock, securities,
cash or property thereafter deliverable upon the exercise of the Options. The
Company shall not effect any such consolidation, merger, amalgamation, share
exchange or sale, lease, transfer, conveyance or other disposition unless prior
to or simultaneously with the consummation thereof the successor entity (if
other than the Company) resulting from such consolidation, merger or
amalgamation, share exchange or the entity purchasing or otherwise acquiring
such assets or shares (i) shall assume by a supplemental Option Agreement,
satisfactory in form, scope and substance to the Executive the obligation to
deliver to the Executive such shares of stock, securities, cash or property as,
in accordance with the foregoing provisions, the Executive may be entitled to
purchase (the
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"Substitute Securities") and (ii) shall assume all of the other obligations of
the Company set forth in this Agreement. Following such assumption such
obligations shall apply to the Substitute Securities rather than to the Options
and the Option Shares. The foregoing provisions of this paragraph shall
similarly apply to successive reorganizations, recapitalizations,
reclassifications, consolidations, mergers, amalgamations, share exchanges,
sales, leases, transfers, conveyances or other dispositions.
(b) Common Stock Issues.
If the Company issues shares of Common Stock in any one
transaction or a series of related transactions for a consideration per share
less than 67% of the Fair Market Value per Share (as defined herein) on the date
the Company fixes the offering price of such additional shares, the number of
Option Shares issuable upon the exercise of the Options shall be adjusted in
accordance with the following formula:
E' = Ex AxM
---
P+(MxO)
where:
E' = the adjusted number of Option Shares.
E = the then current number of Option Shares.
O = the number of shares of Common Stock outstanding immediately
prior to the issuance of such additional shares.
P = the aggregate consideration received for the issuance of such
additional shares.
M = the Fair Market Value per Share on the date the Company
fixes the offering price of such additional shares.
A = the number of shares of Common Stock outstanding immediately
after the issuance of such additional shares.
The adjustment shall be made successively whenever any such issuance is made,
and shall become effective immediately after such issuance.
(c) Convertible Securities Issues.
If the Company issues any securities exchangeable for or
convertible into shares of Common Stock, directly or indirectly, whether or not
the right to convert or exchange thereunder is immediately exercisable or is
conditioned upon the passage of time, the occurrence or non-occurrence of some
other event, or both ("Convertible Securities"), in any one transaction or a
series of related transactions for a consideration per share of Common Stock
initially
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deliverable upon conversion or exchange of such Convertible Securities less than
67% of the Fair Market Value per Share on the date of issuance of such
Convertible Securities, the number of Option Shares issuable upon the exercise
of the Options shall be adjusted in accordance with the following formula:
E' = Ex (O+D) x M
---------
(OxM) + (P+MP)
where:
E' = the adjusted number of Option Shares.
E = the then current number of Option Shares.
O = the number of shares of Common Stock outstanding immediately
prior to the issuance of such Convertible Securities.
P = the aggregate consideration received for the issuance of such
Convertible Securities.
M = the Fair Market Value per Share on the date of issuance of
such Convertible Securities.
MP = the Minimum Price multiplied by D.
D = the maximum number of shares of Common Stock deliverable
upon exercise, conversion or in exchange of such Convertible
Securities at the Minimum Price (as defined below).
In this paragraph (c), the term "Minimum Price" means the lowest price at which
the Convertible Securities can be converted into or exchanged for Common Stock,
regardless of whether that is the initial rate or is conditioned upon the
passage of time, the occurrence or non-occurrence of some other event, or both.
The adjustment shall be made successively whenever any such issuance is made,
and shall become effective immediately after such issuance.
(d) Rights, Options and Warrant Issues.
If the Company issues any rights, options or warrants to
subscribe for or purchase or otherwise acquire Common Stock or Convertible
Securities, whether or not the right to exercise such rights, options or
warrants or to convert or exchange such Convertible Securities is immediately
exercisable or is conditioned upon the passage of time, the occurrence or
non-occurrence of some other event, or both (the "Option Securities"), in any
one transaction or a series of related transactions for a consideration per
share of Common Stock initially deliverable upon exercise of such Option
Securities or conversion or exchange of such Convertible Securities less than
67% of the Fair Market Value per Share on the date of issuance of such
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Option Securities, except for the issuance of options to offices, directors
and/or employees of the Company in their capacities as such, the number of
Option Shares issuable upon the exercise of the Options shall be adjusted in
accordance with the following formula:
E' = Ex (O+D) x M
---------
(OxM) + (P+MP)
where:
E' = the adjusted number of Option Shares.
E = the then current number of Option Shares.
O = the number of shares of Common Stock outstanding immediately
prior to the issuance of such Option Securities.
P = the aggregate consideration received for the issuance of such
Option Securities.
M = the Fair Market Value per Share on the date of issuance of
such Option Securities.
MP = the Minimum Price multiplied by D.
D = the maximum number of shares of Common Stock deliverable
upon exercise, conversion or in exchange of such Option
Securities at the Minimum Price (as defined below).
In this subparagraph (d), the term "Minimum Price" means the lowest price at
which the Option Securities may be exercised (directly or through the conversion
or exchange of Convertible Securities which may be acquired upon exercise of the
Option Securities) to purchase or otherwise acquire Common Stock, regardless of
whether that is the initial price or is conditioned upon the passage of time,
the occurrence or non-occurrence of some other event, or both. The adjustment
shall be made successively whenever any such issuance is made, and shall become
effective immediately after such issuance.
(e) Consideration Received.
For purposes of any computation respecting consideration
received pursuant to any provisions hereof, the following shall apply:
(i) in the case of the issuance of shares of Common Stock
for cash, the consideration received shall be the amount of cash received by the
Company therefor, without deduction therefrom of any reasonable expenses
incurred by the Company in connection therewith or any reasonable underwriters'
discounts, fees and commissions paid or allowed by the Company in connection
therewith;
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17
(ii) in the case of the issuance of shares of Common
Stock for a consideration consisting in whole or in part of other than case, the
consideration other than cash shall be initially determined by the board of
directors of the Company in good faith, such good faith determination by the
board of directors of the Company shall be binding, absent manifest error; and
(iii) in the case of the issuance of Convertible Securities
or securities issuable upon the exercise of Option Securities, the aggregate
consideration received therefor shall be deemed to be the consideration received
by the Company for the issuance of such Convertible Securities, plus the
consideration, if any, received by the Company for the issuance of such Option
Securities, plus the additional minimum consideration, if any, to be received by
the Company upon the conversion, exchange or exercise thereof (the consideration
in each case to be determined in the same manner as provided in paragraphs (i)
and (ii) of this subparagraph (e)).
(f) Notices to Executive.
Upon any adjustment of the number of Option Shares purchasable
upon exercise of the Options, the Company shall promptly thereafter prepare a
statement setting forth the number and type of securities or other property
constituting Option Shares after such adjustment and setting forth in reasonable
detail the method of calculation and the facts upon which such calculations are
based and provide to the Executive written notice of such adjustments, together
with a copy of such statement. Where appropriate, such notice may be given in
advance and included as a part of the notice required to be given under the
other provisions of this Annex A.
In the event:
(i) the Company shall authorize the issuance to holders
(although upon necessarily to all such holders) of shares of Common Stock or
rights, options or warrants to subscribe for or purchase or otherwise acquire
shares of Common Stock or of any other securities or property (including
securities of any other issuer) or of any other subscription rights, options or
warrants: or
(ii) the Company shall authorize the payment of any
dividend or distribution to holders of shares of Common Stock of cash, capital
stock or other securities or property (including securities of any other issuer)
of the Company; or
(iii) of any other capital reorganization, reclassification
or recapitalization of the capital stock of the Company, or any amalgamation,
consolidation or merger to which the Company is a party, or any acquisition of
capital stock of the Company through a share exchange, or of the sale, lease,
conveyance, transfer or other disposition of the properties and assets of the
Company substantially as an entirety, or a purchase, tender or exchange offer
for shares of Common Stock or other securities constituting part of the Option
Shares (whether by the Company or some other party); or
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(iv) of the voluntary or involuntary dissolution,
liquidation or winding up of the Company; or
(v) the Company proposes to take action which would
require an adjustment of the number of Option Shares purchasable upon exercise
of the Options pursuant hereto;
then the Company shall cause to be given to the Executive, at least twenty (20)
days prior to the applicable record date hereinafter specified (or promptly in
the case of events for which there is no record date), a written notice stating
(as applicable) (i) the date as of which the holders of record of shares of
Common Stock entitled to receive any such rights, options, warrants or dividends
or distribution are to be determined, (ii) the date on which any such
reclassification, recapitalization or reorganization, consolidation, merger,
amalgamation, share exchange, sale, lease, conveyance, transfer, disposition,
dissolution, liquidation or winding up is expected to become effective or be
consummated, or (iii) the initial expiration date set forth in any purchase,
tender or exchange offer for shares of Common Stock, and the date as of which it
is expected that holders of record of shares of Common Stock or other securities
constituting a part of the Option Shares (or securities into which the Option
Shares may be converted) shall be entitled to exchange such shares or securities
for securities or other property, if any, deliverable upon such
reclassification, recapitalization, reorganization, consolidation, merger,
amalgamation, share exchange, sale, lease, conveyance, transfer, disposition,
dissolution, liquidation or winding up.
(g) Cash Distributions and Dividends.
If the Company pays a dividend or makes a distribution to the
holders of its Common Stock of any securities (other than capital stock for
which an adjustment is otherwise made hereunder) or property (including cash and
securities of other companies) of the Company, or any rights, options or
warrants to subscribe for or purchase securities (other than Common Stock) or
property (including securities of other companies) of the Company, then,
simultaneously with the payment of such dividend or the making of such
distribution, and as a condition precedent to its right to do so, it will pay or
distribute to the Executive an amount of property (including, without
limitation, cash) and/or securities (including, without limitation, securities
of other companies) of the Company as would have been received by the Executive
had he exercised all of the Options exercisable by him, in each case immediately
prior to the record date (or other applicable date) used for determining
stockholders of the Company entitled to receive such dividend or distribution.
(h) Fair Market Value per Share.
For the purpose hereof, the term "Fair Market Value per Share"
means the average of the closing sale price (or, if no such closing sale price
exists, the average of the closing bid and asked prices) of the Common Stock for
the thirty (30) consecutive trading days commencing forty-five (45) trading days
before the date of determination. However, if (but only if) the Company is not a
public company, the Fair Market Value per Share determined pursuant to this
paragraph shall be the quotient of (A) the fair machete value of the Company and
its subsidiaries taken as a whole on the date of determination, taking into
account all the factors
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relevant thereto, including, without limitation, the highest price that could be
obtained from an arms' length sale without time constraints of (i) all or
substantially all of the assets of the Company and the subsidiaries subject to
or after satisfaction of all liabilities of the Company and the subsidiaries,
excluding any tax or other liabilities incurred in connection with such sale or
(ii) all of the stock of the Company, whether by stock sale, merger,
consolidation or otherwise, divided by the sum of (1) the number of outstanding
shares of Common Stock on a fully diluted basis on the date of determination. In
no event shall the Fair Market Value per Share determined pursuant to this
paragraph be reduced or discounted on the basis that any securities to be valued
on the basis of such Fair Market Value per Share may represent the right to
acquire a minority interest in the Company or may not be freely transferable
under federal or state securities laws, or for any other reason.
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