Exhibit 10.12
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of the
1ST, DAY OF FEBRUARY, 2003, by and between TELKONET COMMUNICATIONS, INC., a
Delaware corporation (the "Company"), and E. XXXXX XXXXX (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to employ the Executive, and the Executive
desires to be employed by the Company, on the terms and subject to the
conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties hereby agree as follows:
1. EMPLOYMENT. The Company hereby employs the Executive as its Chief
Financial Officer and the Executive hereby accepts such employment, on the terms
and subject to the conditions hereinafter set forth.
2. TERM. Subject to the provisions for the termination of this
Agreement as provided for herein, the term of this Employment Agreement shall
commence on the date hereof and shall continue through January 31st 2004 (the
"Base Term") and shall automatically be extended for an additional one year
(each a "Renewal Term") at the end of the Base Term and each Renewal Term unless
on or before the sixtieth (60th) day prior to the end of the Base Term or a
Renewal Term or termination occurs pursuant to Section 6.(a) (iii) of this
Agreement either party gives to the other party written notice of termination of
this Employment Agreement, in which case this Employment Agreement shall
terminate upon the completion of the then applicable employment period.
3. POSITION AND DUTIES
(a) The Executive shall serve as Chief Financial Officer of
the Company. Without limiting the general scope of the Executive's position: (i)
the Executive shall not be required to report to any single individual other
than the CEO, President and Chairman of the Board of Directors, (ii) no other
individual shall be elected or appointed as Chief Financial Officer of the
Company, and (iii) no individual or group of individuals (including a committee
established or other designee appointed by the Board) shall have any authority
over or equal to the authority of the Executive in his role as Chief Financial
Officer or could have the effect of, or appear to have the effect of, giving
such authority to any such individual or group. The Executive shall be entitled
to the full protection of applicable indemnification provisions of the
certificate of incorporation and bylaws of the Company, as the same may be
amended from time to time, for his service as a director, officer and employee
of the Company.
(b) If:
(i) the Company materially changes the Executive's
duties and responsibilities as set forth in Paragraph 3 (a) without his consent
(including, without limitation, violation of any of the provisions of clause
(i), (ii) or (iii) of Paragraph 3 (a));
(ii) the Executive's place of employment is moved to
a location more than fifty (50) miles from the geographical center of Xxxxx,
Pennsylvania;
(iii) there occurs a material breach by the Company of
any of its obligations under this Employment Agreement (other than those
specified in this Section 3(b)) that has not been cured in all material respects
within ten (10) days after the Executive gives notice thereof to the Company;
(iv) the Executive has not been paid for a cumulative
sixty (60) day period without Executive's consent in excess of the period of
non-payment for similar Executives.
Then the Executive shall have the right to terminate his employment with the
Company, but such termination shall not be considered a voluntary resignation or
termination of such employment or of this Employment Agreement by the Executive
but rather a discharge of the Executive by the Company without "cause" (as
defined in Paragraph 6 (a)(ii)).
4. COMPENSATION.
During the term of this Employment Agreement the Company shall pay or provide,
as the case may be, to the Executive the compensation and other benefits and
rights set forth in this Paragraph 4.
(a) The Company shall pay to the Executive a base salary payable in accordance
with the Company's usual pay practices (and in any event no less frequently than
monthly) at the rate of One Hundred Thirty Thousand Dollars ($130,000) per
annum, which may be increased (but not decreased) from time to time (based upon
the performance of the Company and the Executive). Currently this amount is
payable bi-weekly.
(b) The Executive shall receive options to purchase Three Hundred and Fifty
Thousand (350,000) shares of common stock from the Employee Stock Incentive Plan
at the exercise price of $1.00 per share. The terms of the options and vesting
schedule are incorporated herein by reference under section 4.(i) below.
(c) The Company may pay to the Executive bonus compensation for each calendar or
fiscal year of the Company, not later than sixty (60) days following the end of
each year or the termination of his employment, as the case may be, prorated on
a per diem basis for partial calendar of fiscal years. It is acknowledged that
these bonuses may be based in part on the Executive's performance and in part on
the Company's performance.
(d) During the Base Term of this Agreement and any Renewal Term, the Company
shall maintain in full force and effect, and the Executive shall be entitled to
participate in, all of the Company's employee benefit plan and arrangements in
effect on the date hereof in at least the same manner and capacity as the
officers and key management employees of the Company. The Company shall not make
any changes in such plans and arrangements which would adversely affect the
Executive's rights or benefits thereunder, unless such change occurs pursuant to
a program applicable to all officers and key management employees of the Company
and does not result in a proportionately greater reduction in the rights of or
benefits to the Executive as compared with any other officers of the Company.
The Executive shall be entitled to participate in or receive benefits under any
employee benefit plan or arrangement made available by the Company in the future
to its officers and key management employees, subject to and on a basis
consistent with the terms, conditions and overall administration of such plans
and arrangements. Nothing paid to the Executive under any plan or arrangement
presently in effect or made available to the Executive in the future shall be
deemed to be in lieu of any amounts payable to the Executive pursuant to this
Section 4.
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(e) The Company shall reimburse the Executive or provide him with an expense
allowance during the term of this Employment Agreement for travel, entertainment
and other expenses reasonably and necessarily incurred by the Executive in
connection with the Company's business. The Executive shall furnish such
documentation with respect to reimbursements to be made hereunder as the Company
shall reasonably request. Depending on the individuals exact duties, a Company
owned vehicle may be provided.
(f) Upon dissolution or liquidation of the Company, or upon a merger or
consolidation in which the Company is not the surviving corporation, all Options
awarded to the Executive under the ESOP and not previously exercised and vested
shall become fully exercisable and vested no later than the date of such
dissolution, merger or consolidation, and the Executive shall have the right to
exercise such Executive's Options in whole or in part at any time within the
next four (4) years.
(g) The Company shall pay the full cost of providing health and group life
insurance for the Executive, his spouse and eligible dependent children and any
other such benefits as the Company may choose to offer the employees of the
Company.
(h) The Company will reimburse the Executive for the monthly cost of his
cellular phone service.
(i) The Executive has previously served the Company under the terms of an
Interim Consulting Agreement, which is incorporated herein by reference and
attached hereto.
PAYMENT IN THE EVENT OF DISABILITY.
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(a) In the event of the Executive's "permanent disability" (as
hereinafter defined) during the term of this Employment Agreement, for a period
of 6 months after determination of a permanent disability the Company shall pay
to the Executive an annual amount equal to the Executive's then effective per
annum rate of salary, as determined under Paragraph 4(a). The Company to the
extent prudent, shall insure against disability through an insurance company.
Such coverage shall contain a benefit for total, as well as partial and residual
disabilities, and shall be in addition to the payment obligation contained in
this Paragraph (5a). If such insurance is obtained, the premiums shall be added
to the employees W-2 as other compensation. The Company shall review and revise
the amount of coverage not less than annually in accordance with the prior
year's total cash compensation as soon as the amount of cash compensation,
including all cash bonuses, can be calculated.
(b) For purposes of this Employment Agreement, the
Executive's "permanent disability" shall be deemed to have occurred after one
hundred twenty (120) days in the aggregate during any consecutive twelve (12)
month period, or after ninety (90) consecutive days, during which one hundred
twenty (120) or ninety (90) days, as the case may be, the Executive, by reason
of his physical or mental disability or illness, shall have been unable to
discharge his duties under this Employment Agreement. The date of permanent
disability shall be such one hundred twentieth (120th) or ninetieth (90th) day,
as the case may be. In the event either the Company or the Executive, after
receipt of notice of the Executive's permanent disability from the other,
dispute that the Executive's permanent disability shall have occurred, the
Executive shall promptly submit to a physical examination by the chief of
medicine of any major accredited hospital in the State of Maryland, and, unless
such physician shall issue his written statement to the effect that in his
opinion, based on his diagnosis, the Executive is capable of resuming his
employment and devoting his full time and energy to discharging his duties
within thirty (30) days after the date of such statement, such permanent
disability shall be deemed to have occurred. In lieu of any such examination, a
determination by the disability carrier for the Company shall suffice.
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6. TERMINATION.
(a) The employment of the Executive under this Employment Agreement,
and the terms hereof, may be terminated by the Company:
(i) on the death or permanent disability of the Executive (as
defined in Paragraph 5(b), or
(ii) for cause at any time by action of the Board. For
purposes hereof, the term "cause" shall mean:
(A) The Executive's fraud, commission of a felony or of an act or series of acts
which result in material injury to the business reputation of the Company,
commission of an act or series of repeated acts of dishonesty which are
materially inimical to the best interests of the Company, or the Executive's
willful and repeated failure to perform his lawful duties under this Employment
Agreement, which failure has not been cured within fifteen (15) days after the
Company gives notice thereof to the Executive, provided, however, that shall not
be entitled to any more than two notice cure opportunities during each fiscal
year of the Company; or
(B) The Executive's material breach of any material provision of this Employment
Agreement not involving performance of his duties, which breach has not been
cured in all substantial respects within ten (10) days after the Company gives
notice thereof to the Executive. Provided, however that Executive shall not be
entitled to any more than 2 week notice cure opportunities during each fiscal
year of the Company.
The exercise by the Company of its rights of termination under this Paragraph 6
shall be the Company's sole remedy in the event of the occurrence of an event as
a result of which such right to terminate arises. Upon any termination of this
Employment Agreement, the Executive shall be deemed to have resigned from all
offices held by the Executive in the Company.
In the event of a termination claimed by the Company to be for "cause" pursuant
to Paragraph 6(a)(ii), the Executive shall have the right to have the
justification for said termination determined by arbitration. In order to
exercise such right, the Executive shall serve on the Company within thirty (30)
days after termination a written request for arbitration. The Company
immediately shall request the appointment of an arbitrator by the American
Arbitration Association and thereafter the question of "cause" shall be
determined under the rules of the American Arbitration Association, and the
decision of the arbitrator shall be final and binding on both parties. The
parties shall use all reasonable efforts to facilitate and expedite the
arbitration and shall act to cause the arbitration to be completed as promptly
as possible. Expenses of the arbitration shall be borne equally by the parties,
unless apportioned otherwise by the arbitrators.
(C)In the event of termination for any of the reasons set forth in subparagraph
(a)(i) or (a)(ii) of this Paragraph 6, or if the Executive terminates his
employment, unless as under subparagraph 3b, the Executive shall be entitled to
no further compensation or other benefits under this Employment Agreement,
except as to that portion of any unpaid salary and other benefits accrued and
earned by him hereunder up to and including the effective date of such
termination. If the Company terminates the Executive's employment other than
pursuant to subparagraph 6(a)(i) or 6(a)(ii) or 6(a)(ii) or if the Executive
terminates his employment pursuant to subparagraph 3(b), all of the compensation
and benefits payable to the Executive pursuant to this Employment Agreement
shall be paid to the Executive for a period of six (6) months following the date
of such termination (the "Severance Period"). For purposes of this Paragraph
6(C), with respect to any benefits payable to the Executive following
termination, the Company may elect to pay to the Executive in cash an amount
equivalent to the value of the benefits to be paid for the duration of the
Severance Period; or continue to provide benefits to the Executive for the
duration of the Severance Period. If there occurs a change of control, or take
over, of the Company and the acquiring or controlling entity terminates the
Executive, then the Executive shall be paid for the balance of the present
contract term or a period not less than Six (6) months following the date of
such termination (the "Severance Period"), including all of the compensation and
other benefits payable to the Executive pursuant to this Employment Agreement.
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(iii) if both the President and the Chairman of the
Board of Directors request the resignation of the Executive at any time within
the Base Term and the first six (6) months of the first Renewal Term of this
Agreement in which case all of the compensation and benefits payable to the
Executive pursuant to this Employment Agreement shall be paid to the Executive
for a period of six (6) months following the date of such termination (the
"Severance Period").
(D) NON-COMPETITION AND CONFIDENTIALITY AGREEMENT The Executive acknowledges the
Company's reliance and expectation of the Executive's continued commitment to
performance of his duties and responsibilities during the term of this
Employment Agreement. In light of such reliance and expectation on the part of
the Company, the Executive hereby agrees to be bound by the terms of the
Noncompetition and Confidentiality Agreement, and is acknowledged by the
Executive's signature on this Employment Agreement.
To induce Telkonet Communications, Inc., a Delaware corporation ("Telkonet") to
employ the Employee pursuant to this Employment Agreement, the Employee agrees
that for the term of the Employment Agreement and a period of One (1) year
following termination of the Employment Agreement (the "Noncompetition Period"),
he will not (a) Participate In (as hereinafter defined) any other business or
organization which at any time during the Noncompetition Period is engaged in
the same business as or in competition with Telkonet within the geographic
confines of the markets where Telkonet's products are sold or targeted; (b)
directly or indirectly solicit for business any person or enterprise that at any
time during the two (2) year period preceding the date of termination of the
Employment Agreement was a customer of Telkonet; or (c) directly or indirectly
employ any person who, at any time during the two (2) year period preceding the
date of termination of the Employment Agreement was, or during the
Noncompetition Period is, an employee of Telkonet. As used in this Agreement,
"Participate In" shall mean "directly or indirectly, for his own benefit or for,
with, or through any other person or entity, own, manage, operate, control, loan
money to, or participate in the ownership, management, operation, or control of,
or be connected as a director, officer, employee, partner, consultant, agent,
independent contractor, or otherwise with, or acquiesce in the use of his name
in;" provided, nothing contained herein shall prohibit the Employee from owning,
directly or indirectly up to 5.0% of the outstanding voting securities of any
company, the securities of which are traded on a national securities exchange or
listed for quotation on an automated system of quotation.
In consideration of the execution, delivery and performance of this
Noncompetition Agreement by the Employee, Telkonet has executed the Employment
Agreement, which confers a substantial economic benefit upon the Employee.
Notwithstanding anything in this Noncompetition Agreement to the contrary, if at
any time the Employment Agreement is terminated by either Telkonet or the
Employee for any reason (whether or not constituting cause) or for no reason,
the provisions of this Noncompetition Agreement shall remain binding upon the
Employee. Nothing in this Noncompetition Agreement shall be deemed to entitle or
confer upon the Employee the right to be employed by Telkonet for a term or
otherwise alter the employment status of the Employee with Telkonet.
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A material breach of this Noncompetition Agreement by the Employee could not
adequately be compensated by money damages and will constitute irreparable harm
and injury to Telkonet. In the event of any such material breach or threatened
or anticipated breach, Telkonet shall be entitled, in addition to any other
right and remedy available, to an injunction restraining such breach or a
threatened breach, and no bond or other security shall be required in connection
therewith provided Telkonet satisfies the applicable burden of proof with
respect to all legal requirements applicable to the issuance of an injunction
other than with respect to the inadequacy of money damages and /or irreparable
harm or injury.
The Employee agrees that the provisions of this Noncompetition Agreement are
necessary and reasonable to protect Telkonet in the conduct of its business. If
any restriction contained in this Noncompetition Agreement shall be deemed to be
invalid, illegal, or unenforceable by reason of the extent, duration, or
geographical scope thereof, or otherwise, then the court making such
determination shall have the right to reduce such extent, duration, geographical
scope, or other provisions hereof, to the minimal extent necessary to comply
with applicable law or equitable considerations, and in its reduced form such
restriction shall then be enforceable in the manner contemplated hereby.
This Noncompetition Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, without giving effect to conflict of
laws principles.
7. MISCELLANEOUS.
(a) The Executive represents and warrants that he is not a
party to any agreement, contract or understanding, whether employment or
otherwise, which would restrict or prohibit him from undertaking or performing
employment in accordance with the terms and conditions of this Employment
Agreement.
(b) The provisions of this Employment Agreement are severable
and if any one or more provisions may be determined to be illegal or otherwise
unenforceable, in whole or in part, the remaining provisions and any partially
unenforceable provision, to the extent enforceable in any jurisdiction,
nevertheless shall be binding and enforceable.
(c) The rights and obligations of the Company under this
Employment Agreement shall inure to the benefit of, and shall be binding on, the
Company and its successors and assigns, and the rights and obligations (other
than obligations to perform services) of the Executive under this Employment
Agreement shall inure to the benefit of, and shall be binding upon, the
Executive and his heirs, personal representatives and assigns.
(d) Any notice to be given under this Employment Agreement
shall be personally delivered in writing or shall have been deemed duly given
when received after it is posted in the United States mail, postage prepaid,
registered or certified, return receipt requested, and if mailed to the Company,
shall be addressed to its principal place of business and if mailed to the
Executive, shall be addressed to him at his home address last known on the
records of the Company, or at such other address or addresses as either the
Company or the Executive may hereafter designate in writing to the other.
(e) The failure of either party to enforce any provision or
provisions of this Employment Agreement shall not in any way be construed as a
waiver of any such provision or provisions as to any future violations thereof,
or prevent that party thereafter from enforcing each and every other provision
of this Employment Agreement. The rights granted the parties herein are
cumulative and the waiver of any single remedy shall not constitute a waiver of
such party's right to assert all other legal remedies available to it under the
circumstances.
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(f) This Employment Agreement supersedes all prior agreements
and understandings between the parties and may not be modified or terminated
orally. No modification, termination or attempted waiver shall be valid unless
in writing and signed by the party against whom the same is sought to be
enforced.
(g) This Employment Agreement shall be governed by and
construed according to the laws of the State of Maryland without giving effect
to applicable conflicts of law provisions.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
TELKONET COMMUNICATIONS, INC.
By:_____________________
Name: Xxxxxx X. Xxxxxxx
Title: President
_______________________________________
E. Xxxxx Xxxxx, Chief Financial Officer
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