EXHIBIT 10.9
EMPLOYMENT AGREEMENT
This Agreement is made and entered into as of February 20, 2000, by and
between Xxxx X. Xxxxx ("Executive") and XCEL Management, Inc. (the "Company").
RECITALS
A. Executive desires employment as an employee of the Company and the
Company desires to retain the full-time services of Executive.
B. The parties hereto desire to enter into this Agreement in order to set
forth the respective rights, limitations and obligations of both the Company and
Executive with respect to the employment of Executive by the Company.
NOW, THEREFORE, in consideration of the employment of Executive by the
Company, the compensation paid to Executive, and the other mutual promises
hereinafter contained, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. EMPLOYMENT. The Company agrees to employ Executive and Executive hereby
accepts such employment from the Company upon the terms and conditions set forth
in this Agreement for the period beginning on the date hereof and continuing for
a period of three years ("Initial Term"), unless earlier terminated as provided
in this Agreement. This Agreement shall be automatically renewed for a one-year
period ("Renewal Term"), unless this Agreement is terminated by either party at
least 30 days prior to the end of the Initial Term (the Initial Term and any
Renewal Term shall be referred to as the "Employment Period"). The Renewal Term
will continue from year-to-year unless either party terminates the Agreement at
least 30 days prior to the expiration of any Renewal Term.
2. SERVICES. Executive shall serve the Company in the role of Chief
Executive Officer. During the Employment Period, Executive shall devote his best
efforts and all of his business time and attention to the business and affairs
of the Company. Executive shall perform his duties and responsibilities to the
best of his abilities in a diligent, trustworthy, businesslike and efficient
manner. Executive shall also perform such other duties, and may have job
responsibilities and titles modified from time to time as may be requested by
resolution of the Company, provided such duties and job titles shall be
consistent with the level of responsibility currently held by Executive.
3. EXPENSES. Executive shall be entitled to reimbursement for his ordinary
and necessary business expenses incurred in the performance of his duties under
this Agreement, including office, travel and business development expenses, if
supported by reasonable documentation as required by the Company in accordance
with its usual practices.
4. COMPENSATION.
a. Salary. During the Employment Period, the Company will pay
Executive the compensation set forth in Exhibit 1 hereto. Executive's
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compensation shall be reviewed annually by the Board of Directors and/or
their designees. Executive's base
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Company terminates Executive's employment for (v) or (vi) above, the Company
shall provide Executive with severance payments equal to the Executive's
annually salary as of the date of his termination. Such severance payments shall
be paid within sixty (60) days of the termination date and shall be subject to
the Gross-up provisions contained in Paragraph 6(c)(iii) and Appendix A of this
Agreement.
b. Termination by the Company without Cause. The Company shall have
the right to terminate Executive for any reason upon sixty- (60) day's notice.
If the Company terminates the Executive for any reason other than "Cause" as
addressed above, the Company shall provide Executive with severance payments
equal to twice the Executive's annual salary as of the date of his termination.
Such severance payments shall be paid within sixty (60) days of the termination
date and shall be subject to the Gross-up provisions contained in Paragraph
6(c)(iii) and Appendix A of this Agreement. The Company shall also provide
Executive with fully paid medical benefits, of the type Executive maintained as
of the termination date, for a period of eighteen (18) months after the
termination date.
c. Voluntary Termination by Executive. Except as provided in Section 6, in
the event that Executive's employment with the Company is terminated by
Executive prior to the end of the Employment Period, the Company shall have no
further obligations hereunder from and after the date of such termination.
d. Termination Upon Death or Disability. Except as set forth in the last
sentence of this paragraph, in the event that Executive shall die or become
disabled during the Employment Period, Executive's employment hereunder shall
terminate (such termination being treated for purposes of this Agreement as if
Executive had not been terminated for "Cause" pursuant to subsection a (above)
and the Company shall pay to Executive or his estate, as applicable, any
compensation due that would otherwise have been payable through the date of
death [or the term of this Agreement if Executive becomes disabled]. For
purposes of this Agreement, Executive shall become "disabled" if he shall
become, because of illness or incapacity, unable to perform the essential
functions of his job under the Agreement with or without reasonable
accommodation for a continuous period of 90 days during the Employment Period.
If Executive shall become disabled, the Company agrees that for a period of one
year from the date Executive becomes disabled, Executive shall have the right to
return to the employ of the Company on the same terms and conditions as set
forth in this Agreement.
6. CHANGE IN CONTROL.
a. For purposes of the Agreement, "Change of Control" means the occurrence
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of any of the following events:
i. any "person" or "group" as such terms are used under Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), other than the Company, any trustee or any other
fiduciary holding securities under an employee benefit plan of the
Company, or any
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corporation owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of
Common Stock of the Company, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), of securities of the
Company representing thirty percent (30%) or more of the combined
voting power of Company's voting securities then-outstanding;
ii. during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of the
Company cease for any reason to constitute a majority thereof (unless
the election, or nomination for election by the Company's
stockholders, of such director was approved by a vote of at least two-
thirds (2/3) of the directors then still in office who either were
directors at the beginning of such period or whose election or
nomination for election was previously so approved);
iii. The Company completes a merger or consolidation of the Company with
another corporation, other than (A) a merger or consolidation which
would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the
surviving entity) more than eighty percent (80%) of the combined
voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation, or
(B) a merger or consolidation affected to implement a recapitalization
of the Company (or similar transaction) in which no "person" (as
herein above defined) acquires more than thirty percent (30%) of the
combined voting power of the Company's then-outstanding voting
securities; or
iv. the stockholders of the Company approve a plan of complete liquidation
of the Company or any agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets.
b. For purposes of this Agreement, "Good Reason" means the occurrence of any
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of the following events:
i. the reduction of the Executive's job title, position or
responsibilities without the Executive's prior written consent;
ii. the change of the location where the Executive is based to a location
which is more than fifty (50) miles from his present location without
the Executive's prior written consent; or
iii. the reduction of the Executive's annual compensation by more than ten
percent (10%) from the sum of the higher rate of the Executive's
actual annual compensation in effect within two years immediately
preceding the
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Change of Control.
Executive shall give the Company fifteen (15) business days notice of an
intent terminate this Agreement for "Good Reason" as defined in this
Section 6, and provide the Company with ten (10) business days after
receipt of such notice from Executive to remedy the alleged violation of
subparagraphs 6(b)(i)(ii), or (iii).
c. Benefits Upon Change in Control
x. Xxxxxxxxx Benefits. If the Executive's employment with Employer is
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terminated (i) by the Company (or by the acquiring or successor
business entity following a Change of Control) other than for Cause or
death, or (ii) by the Executive for Good Reason, in either event
within a period beginning one hundred and eighty (180) days before,
and ending two (2) years after, the date of a Change of Control (the
"Change Period"), the Executive shall receive a severance benefit in
an amount equal to two (2) times the sum of:
(1) the Executive's highest annual cash base salary in effect within
two (2) years immediately preceding the Change of Control; plus
(2) the average of the Executive's annual bonuses paid for the two
(2) calendar years immediately preceding the Change of Control.
In addition, for eighteen months following the date of termination of
the Executive's employment in circumstances in which a severance
payment is due hereunder, the Company shall provide the Executive
health and other welfare benefits that are not less favorable to the
Executive than those to which he was entitled immediately prior to the
Change in Control. Provided however, the Company shall have no
obligation to provide Executive with any compensation under this
Section 6 if Executive is in breach or violation of any of the
covenants contained in Sections 7, 9, 10, and 12.
ii. Form of Payment. The amount of the severance benefit provided in
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Paragraph 6(c)(i) hereof shall be paid to Executive in two (2) equal
installments, the first installment payable as soon as practicable
after the occurrence of the event giving rise to the payment of the
severance benefit by the Company hereunder, but in no event more than
thirty (30) days thereafter, and the second installment payable one
(1) year following the occurrence of such event, provided, however,
that the severance benefit payable by the Company pursuant to
Paragraph 6(c)(i) hereof will be reduced by any other cash payments
made to the Executive under a written employment agreement between the
Executive and the Company for periods after the date on which the
Executive's employment was
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terminated.
iii. Gross-Up Payments. Anything in this Agreement to the contrary
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notwithstanding, in the event that a severance payment is made under
this Agreement and it shall be determined (as hereafter provided) that
any payment (other than the Gross-Up Payments provided for herein) or
distribution by the Company or any of its affiliates to or for the
benefit of the Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise
pursuant to or by reason of any other agreement, policy, plan, program
or arrangement, or the lapse or termination of any restriction on, or
the vesting or exercisability of any of the foregoing (a "Payment"),
excluding, however, any stock option or right in respect of restricted
stock, would be subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code") (or any
successor provision thereto), by reason of being considered
"contingent on a change in ownership or control" of the Company,
within the meaning of Section 280G of the Code (or any successor
provision thereto) or to any similar tax imposed by state or local
law, or any interest or penalties with respect to such tax (such tax
or taxes, together with any such interest and penalties, being
hereafter collectively referred to as the "Excise Tax"), then the
Executive shall be entitled to receive an additional payment or
payments (collectively, a "Gross-Up Payment"). The Gross-Up Payment
shall be in an amount such that, after payment by the Executive of all
taxes (including any interest or penalties imposed with respect to
such taxes), including an Excise Tax imposed upon the Gross-Up
Payment, the Executive retains an amount of the Gross-Up Payment equal
to the Excise Tax imposed upon the Payment. The procedural provisions
relating to Gross-Up Payments that are set forth in Appendix A hereto
are hereby incorporated herein by this reference.
d. Mitigation. The Executive shall not be required to mitigate the
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amount of any payment provided for in this Section 6 of this Agreement by
seeking other employment or otherwise.
7. NONDISCLOSURE. Executive acknowledges that during the course of his
employment by the Company, the Company will provide, and the Executive will
acquire, knowledge of special and unique value with respect to the Company's
business operations, including, by way of illustration, the Company's existing
and contemplated product line, trade secrets, compilations, business and
financial methods or practices, plans, hardware and software technology
products, systems, programs, projects and know-how, pricing, cost of providing
service and equipment, operating and maintenance costs, marketing and selling
techniques and information, customer data, customer names and addresses,
customer service requirements, supplier lists, and confidential information
relating to the Company's policies, employees, and/or business strategy (all of
such information herein referenced to as the "Confidential Information").
Executive recognizes that the business of the Company is dependent upon
Confidential
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Information and that the protection of the Confidential Information against
unauthorized disclosure or use is of critical importance to the Company.
Executive agrees that, without prior written authorization of the Chairman of
the Board of the Company, Executive will not, during his employment, divulge to
any person, directly or indirectly, except to the Company or its officers and
agents or as reasonably required in connection with Executive's duties on behalf
of the Company, or make any independent use of, except on behalf of the Company,
any of the Company's Confidential Information, whether acquired by the Executive
during his employment or not. Executive further agrees that Executive will not,
at any time after his employment has ended, use or divulge to any person
directly or indirectly any Confidential Information, or use any Confidential
Information in subsequent employment of any nature. If Executive is subpoenaed,
or is otherwise required by law to testify concerning Confidential Information,
Executive agrees to notify the Company upon receipt of a subpoena, or upon
belief that such testimony shall be required. This nondisclosure provision shall
survive the termination of this Agreement for any reason. Executive acknowledges
that the Company would not employ Executive but for his covenants and promises
contained in this Section 7.
8. RETURN OF DOCUMENTS. Executive Agrees that if Executive's Relationship
with the Company is terminated (for whatever reason), Executive shall not remove
or take with Executive, but will leave with the Company or return to Company,
all Confidential Information, Work Product (as defined in Section 12), records,
files, data, memoranda, reports, customer lists, customer information, product
information, price lists, documents and other information, in whatever form
(including on computer disk), and any and all copies thereof, or if such items
are not on the premises of the Company, Executive agrees to return such items
immediately upon Executive's termination or the request of the Company.
Executive acknowledges that all such items are and remain the property of the
Company.
9. NON-INTERFERENCE OR SOLICITATION. Executive agrees that during
his employment, and for a period of six (6) months following the termination of
his employment (for whatever reason), that neither he nor any individual,
partner(s), limited partnership, corporation or other entity or business with
which he is in any way affiliated, including, without limitation, any partner,
limited partner, director, officer, shareholder, employee, or agent of any such
entity or business, will (i) request, induce or attempt to influence, directly
or indirectly, any employee of the Company to terminate their employment with
the Company or (ii) employ any person who as of the date of this Agreement was,
or after such date is or was, an employee of the Company. Executive further
agrees that during the period beginning with the commencement of Executive's
employment with the Company and ending six (6) months after the termination of
Executive's employment with the Company (for whatever reason), he shall not,
directly or indirectly, as an employee, agent, consultant, stockholder,
director, partner or in any other individual or representative capacity of the
Company or of any other person, entity or business, solicit or encourage any
present or future customer, supplier, contractor, partner or investor of the
Company to terminate or otherwise alter his, her or its relationship with the
Company. This provision shall survive the termination of this Agreement for any
reason.
10. NON-COMPETITION. In consideration of the numerous mutual promises
contained in the Agreement between the Company and the Executive, including,
without limitation, those involving Confidential Information, and in order to
protect the Company's Confidential Information and to reduce the likelihood of
irreparable damage which would occur
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in the event such information is provided to or used by a competitor of the
Company, Executive agrees that during his employment and for an additional
period of six (6) months immediately following the termination of his
employment, whether voluntary or involuntary (the "Noncompetition Term"), not
to, directly or indirectly, either through any form of ownership or as a
director, officer, principal, agent, employee, employer, adviser, consultant,
shareholder, partner, or in any individual or representative capacity
whatsoever, without the prior written consent of the Company (which consent may
be withheld in its sole discretion), (i) compete for or solicit business related
to Internet Utility Services for or on behalf of any person or business entity
with a place of business in the United States or Canada; (ii) own, operate,
participate in, undertake any employment with or have any interest in any entity
with a place of business in the United States or Canada in the business of
marketing and selling of Internet Utility Services to persons or business
entities, except owning publicly traded stock for investment purposes only in
which Executive owns less than 5%, (iii) compete for or solicit Internet Utility
Services business from any customer of the Company (or its successors by
merger); or (iv) use in any competition, solicitation, or marketing effort any
Confidential Information, any proprietary list, any information concerning
customers of the Company, or any Work Product (as defined in Section
12).
If, during any period within the Noncompetition Term, Executive is not in
compliance with the terms of this Section 10, the Company shall be entitled to,
among other remedies, compliance by Executive with the terms of this Section 10
for an additional period equal to the period of such noncompliance. For purposes
of this Agreement, the term "Noncompetition Term" shall also include this
additional period. Executive hereby acknowledges that the geographic boundaries,
scope of prohibited activities and the time duration of the provisions of this
Section 10 are reasonable and are no broader than are necessary to protect the
legitimate business interests of the Company.
This noncompetition provision shall survive the termination of Executive's
employment and can only be revoked or modified by a writing signed by the
parties which specifically states an intent to revoke or modify this provision.
Any writing modifying this provision may only be signed on behalf of the Company
by its General Counsel or Chairman of the Board. Executive acknowledges that the
Company would not employ him but for his covenants or promises contained in this
Section 10.
11. REFORMATION OF SECTION 10. The Company and Executive agree and
stipulate that the agreements and covenants not to compete contained in Section
10 hereof are fair and reasonable in light of all of the facts and circumstances
of the relationship between Executive and the Company; however, Executive and
the Company are aware that in certain circumstances courts have refused to
enforce certain agreements not to compete. Therefore, in furtherance of, and not
in derogation of the provisions of Section 10, the Company and Executive agree
that in the event a court should decline to enforce the provisions of Section
10, that Section 10 shall be deemed to be modified or reformed to restrict
Executive's competition with the Company or its affiliates to the maximum
extent, as to time, geography and business scope, which the court shall find
enforceable; provided, however, in no event shall the provisions of Section
10 be deemed to be more restrictive to Executive than those contained herein.
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12. ACKNOWLEDGMENT OF EMPLOYER'S RIGHT IN WORK PRODUCT. For purposes of
this Section 12, "Work Product" shall mean all intellectual property rights,
including all trade secrets, U.S. and international copyrights, patentable
inventions, discoveries and other intellectual property rights in any
programming, design, documentation, technology, or other work product that is
created in connection with Executive's work. In addition, all rights in any
preexisting programming, design, documentation, technology, or other Work
Product provided to the Company during Executive's employment shall
automatically become part of the Work Product hereunder, whether or not it
arises specifically out of Executive's "Work." For purposes of this Agreement,
"Work" shall mean (1) any direct assignments and required performance by or for
the Company, and (2) any other productive output that relates to the business of
the Company and is produced during the course of Executive's employment or
engagement by the Company. For this purpose, Work may be considered present even
after normal working hours, away from the Company's premises, on an unsupervised
basis, alone or with others. Unless otherwise provided in a subsequent writing
signed by the Chairman of the Board of Directors of the Company, this Agreement
shall apply to all Work Product created in connection with all Work conducted
before or after the date of this Agreement.
The Company shall own all rights in the Work Product. To this end, all Work
Product shall be considered work made for hire for the Company. If any of the
Work Product may not, by operation of law or agreement, be considered Work made
by Executive for hire for the Company (or if ownership of all rights therein do
not otherwise vest exclusively in the Company immediately), Executive agrees to
assign, and upon creation thereof does hereby automatically assign, with further
consideration, the ownership thereof to the Company. Executive hereby
irrevocably relinquishes for the benefit of the Company and its assigns any
moral rights in the Work Product recognized by applicable law. The Company shall
have the right to obtain and hold, in whatever name or capacity it selects,
copyrights, registrations, and any other protection available in the Work
Product.
Executive agrees to perform upon the request of the Company, during or
after Executive's Work or employment, such further acts as may be necessary or
desirable to transfer, perfect, and defend the Company's ownership of the Work
Product, including by (1) executing, acknowledging, and delivering any requested
affidavits and documents of assignment and conveyance, (2) obtaining and/or
aiding in the enforcement of copyrights, trade secrets, and (if applicable)
patents with respect to the Work Product in any countries, and (3) providing
testimony in connection with any proceeding affecting the rights of the Company
in any Work Product.
Executive warrants that Executive's Work for the Company does not and will
not in any way conflict with any remaining obligations Executive may have with
any prior employer or contractor. Executive also agrees to develop all Work
Product in a manner that avoids even the appearance of infringement of any third
party's intellectual property rights. This provision shall survive the
termination of this Agreement for any reason.
13. INJUNCTIVE RELIEF. Executive acknowledges and agrees that the
agreements and covenants contained in this Agreement are essential to protect
the Confidential
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Information, business, and goodwill of the Company. Executive further
acknowledges that the breach of any of the agreements contained herein,
including, without limitation, the confidentiality covenants specified in
Section 7, the non-solicitation covenants specified in Section 9, the non-
competition covenants contained in Section 10, and the covenants with respect to
Work Product contained in Section 12, will give rise to irreparable injury to
the Company, inadequately compensable in damages. Accordingly, the Company shall
be entitled to injunctive relief to prevent or cure breaches or threatened
breaches of the provisions of this Agreement and to enforce specific performance
of the terms and provisions hereof in any court of competent jurisdiction, in
addition to any other legal or equitable remedies which may be available.
Executive further acknowledges and agrees that in the event of the termination
of Executive's employment with the Company, whether voluntary or involuntary,
that the enforcement of a remedy hereunder by way of injunction shall not
prevent Executive from earning a reasonable livelihood. Executive further
acknowledges and agrees that the covenants contained herein are necessary for
the protection of the Company's legitimate business interests and are reasonable
in scope and content.
14. SEVERABILITY AND REFORMATION. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under any present or
future law, and if the rights or obligations of Executive or the
Company under this Agreement would not be materially and adversely
affected thereby, such provision shall be fully severable, and this
Agreement shall be construed and enforced as if such illegal, invalid
or unenforceable provision had never comprised a part thereof, the
remaining provisions of this Agreement shall remain in full force and
effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom, and in lieu of
such illegal, invalid or unenforceable provision, there shall be added
automatically as a part of this Agreement a legal, valid and
enforceable provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible, and the Company and
Executive hereby request the court to whom disputes relating to this
Agreement are submitted to reform the otherwise unenforceable covenant
in accordance with this Section 14.
15. ARBITRATION. The Employee and the Company shall submit to mandatory
binding arbitration in any controversy or claim arising out of, or
relating to, this agreement or any breach hereof. Such arbitration
shall be conducted in accordance with the commercial arbitration rules
of the American Arbitration Association in effect at that time, and
judgment upon the determination or award rendered by the arbitrator
may be entered in any court having jurisdiction thereof. The
arbitrator is hereby authorized to award to the prevailing party the
costs (including reasonable attorneys' fees and expenses) of any such
arbitration.
16. GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF WASHINGTON WITHOUT GIVING EFFECT TO
ANY PRINCIPLE OF CONFLICT-OF-LAWS THAT WOULD REQUIRE THE APPLICATION OF THE LAW
OF ANY OTHER JURISDICTION.
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17. SURVIVAL. Executive's termination from employment, for whatever reason,
shall not reduce or terminate Executive's covenants and agreements set forth
herein.
18. ENTIRE AGREEMENT. This Agreement, including the Recitals and
introductions, embodies the entire agreement and understanding of the parties
hereto with respect to the subject matter contained herein and supersedes any
and all prior conflicting or inconsistent agreements, consents and
understandings relating to such subject matter. Executive acknowledges and
agrees that there is no oral or other agreement between the Company and
Executive which has not been incorporated in this Agreement. This Agreement may
only be modified pursuant to Section 19.
19. NO WAIVER. The forebearance or failure of one of the parties hereto to
insist upon strict compliance by the other with any provision of this Agreement,
whether continuing or not, shall not be construed as a waiver of any rights or
privileges hereunder. No waiver of any right or privilege of a party arising
from any default or failure hereunder of performance by the other shall affect
such party's rights or privileges in the event of a further default or failure
of performance.
20. MODIFICATION. This Agreement may be modified only by a written
agreement signed by both parties. Any such written modification may only be
signed on behalf of the Company by the General Counsel or Chairman of the Board
of the Company.
21. KNOWLEDGE. Executive acknowledges that Executive has had the
opportunity to read and review this Agreement and that Executive understands all
of the terms of this Agreement and its importance. Executive further
acknowledges that the Company would not employ or disclose Confidential
Information to Executive without this Agreement and his promises concerning
nondisclosure, non-solicitation, non-competition, and Work Product. Executive
acknowledges that the Company encourages Executive to consider consulting with
an attorney prior to execution of this Agreement by Executive.
22. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original instrument, and
all of which together shall constitute one and the same Agreement.
IN WiTNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the day and year designated above.
EXECUTIVE
/s/ Xxxx X. Xxxxx
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XCEL MANAGEMENT, INC.
By: /s/ M. Xxxxxxx Xxxxxx
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Name: M. XXXXXXX XXXXXX
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Title: Sec/ Tres.
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Exhibit 1
Salary and Benefits
Reference Section 4, part a.
A. Salary to be $225,000 per annum for year one of the Employment Period.
B. Salary to be $250,000 per annum for year two of the Employment Period.
C. Salary to be $275,000 per annum for year three of the Employment
Period.
Reference Section 4, part b.
A. Executive eligible to participate in an incentive bonus program.
B. Executive to receive 6 weeks paid vacation each calendar year.
C. Executive to receive 7 days per calendar year as sick leave.
D. Executive to receive subsidized health, life, disability, and dental
insurance through the Company.
E. Executive to receive use of a Company owned/leased vehicle.
Exhibit 2 -- Stock Options
During a meeting of the Company's Board of Directors on __________, 2000
(the "Grant Date"), the Board approved the award of stock options to Executive
pursuant to the terms outlined in this Exhibit 2. The options described in this
Exhibit 2 will be documented through a stock option plan, to be adopted
effective as of the Grant Date, and two option agreements. The stock option plan
and option agreements will contain additional terms and conditions concerning
the options; provided, however, that the options issued to Executive will
terminate on the tenth (10/th/) anniversary of the Grant Date. In the case of a
conflict between this Exhibit 2 and the option agreements entered into between
the Company and Executive or the Company's stock option plan, the language of
the option agreements and/or the relevant stock option plan shall control.
1. Preferred Stock Option Award. The Board of Directors has awarded
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Executive an option to acquire three million shares of the Company's Preferred
Stock, with an initial exercise price of $.20, which is equal to 100% of the
fair market value of the Company's preferred stock on the Grant Date. The option
will become vested after the eighth anniversary of the Grant Date. The
Executive's ability to exercise the option will accelerate, however, based on
the Company's attainment of the following milestones:
A. 500,000 shares will become immediately exercisable on the date
that the Company's common stock is traded on the NASD Bulletin Board.
B. 500,000 shares will become immediately exercisable on the date
that the Executive raises $5 million in outside investment capital for the
Company (following the date of the Company's incorporation).
C. 500,000 shares will become immediately exercisable on the first
business day following the date that the Company's common stock has traded
on the NASD Bulletin Board at $5.00 per share for a period of ten (10)
consecutive business days.
In the event of a split in the number of shares of the Company's common or
preferred stock, the targets listed in B and C above shall remain
$5,000,000 and $5.00, respectively.
2. Common Stock Option Award. The Board of Directors has awarded Executive
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an option to acquire three million shares of the Company's common stock, with an
initial exercise price which is not less than 100% of the fair market value of
the Company's common stock on the Grant Date. The options will become vested on
the dates listed below.
1 . 250,000 options become exercisable on the one-year anniversary of
the Grant Date. The options shall have an exercise price of $.50 per share.
2. 500,000 options become exercisable on the two-year anniversary of
the Grant Date. The options shall have an exercise price of $1.00 per
share.
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3. 2,250,000 options become exercisable on the three-year anniversary
of the Grant Date. The options' exercise price shall be as follows: (i)
750,000 options shall have an exercise price of $1.50 per share; (ii)
1,000,000 options shall have an exercise price of $3.00 per share; and
(iii) 500,000 options shall have an exercise price of $4.00 per share.
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Appendix A
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GROSS-UP PAYMENT PROCEDURAL PROVISIONS
(a) Subject to the provision of Paragraph (e) hereof, all
determinations required to be made under Paragraph 6(c)(iii) of the Agreement,
including whether an Excise Tax is payable by the Executive and the amount of
such Excise Tax and whether a Gross-Up Payment is required to be paid by the
Company to the Executive and the amount of such Gross-Up Payment, if any, shall
be made by a Top 5 accounting firm (the "Accounting Firm") selected by the
Executive in his sole discretion. The Executive shall direct the Accounting Firm
to submit its determination and detailed supporting calculations to both the
Company and the Executive within thirty (30) calendar days after the Termination
Date, if applicable, and any such other time or times as may be requested by the
Company or the Executive. If the Accounting Firm determines that any Excise Tax
is payable by the Executive, the Company shall pay the required Gross-Up Payment
to the Executive within fifteen (15) business days after receipt of such
determination and calculations with respect to any Payment to the Executive. If
the Accounting Firm determines that no Excise Tax is payable by the Executive,
it shall, at the same time as it makes such determination, furnish the Company
and the Executive an opinion that the Executive has substantial authority not to
report any Excise Tax on his federal, state or local income or other tax return.
As a result of the uncertainty in the application of Section 4999 of the Code
(or any successor provision thereto) and the possibility of similar uncertainty
regarding applicable state or local tax law at the time of any determination by
the Accounting Firm hereunder, it is possible that Gross-Up Payments which shall
not have been made by the Company should have been made (an "Underpayment"),
consistent with the calculations required to be made hereunder. In the event
that the Company exhausts or fails to pursue its remedies pursuant to Paragraph
(e) hereof and the Executive thereafter is required to make a payment of any
Excise Tax, the Executive shall direct the Accounting Firm to determine the
amount of the Underpayment that has occurred and to submit its determination and
detailed supporting calculations to both the Company and the Executive as
promptly as possible. Any such Underpayment shall be promptly paid by the
Company to, or for the benefit of, the Executive within fifteen (15) business
days after receipt of such determination and calculations.
(b) The Company and the Executive shall each provide the Accounting
Firm access to and copies of any books, records and documents in the possession
of the Company or the Executive, as the case may be, reasonably requested by the
Accounting Firm, and otherwise cooperate with the Accounting Firm in connection
with the preparation and issuance of the determinations and calculations
contemplated by Paragraph (a) hereof. Any determination by the Accounting Firm
as to the amount of the Gross-Up Payment shall be binding upon the Company and
the Executive.
(c) The federal, state and local income or other tax returns filed by
the Executive shall be prepared and filed on a consistent basis with the
determination of the Accounting Firm with respect to the Excise Tax payable by
the Executive. The Executive shall make proper payment of the amount of any
Excise Payment, and at the request of the Company, provide to the Company true
and correct copies (with any amendments) of his federal income tax return as
filed
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with the Internal Revenue Service and corresponding state and local tax returns,
if relevant, as filed with the applicable taxing authority, and such other
documents reasonable requested by the Company, evidencing such payment. If prior
to the filing of the Executive's federal income tax return, or corresponding
state or local tax return, if relevant, the Accounting Firm determines that the
amount of the Gross-Up Payment should be reduced, the Executive shall within
fifteen (15) business days pay to the Company the amount of such deduction.
(d) The fees and expenses of the Accounting Firm for its services in
connection with the determinations and calculations contemplated by Paragraph
(a) hereof shall be borne by the Company. If such fees and expenses are
initially paid by the Executive, the Company shall reimburse the Executive the
full amount of such fees and expenses within fifteen (15) business days after
receipt from the Executive of a statement therefor and reasonable evidence of
his payment thereof.
(e) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service or any other taxing authority that, if successful,
would require the payment by the Executive of a Gross-Up Payment. Such
notification shall be given as promptly as practicable but no later than ten
(10) business days after the Executive actually receives notice of such claim
and the Executive shall further apprise the Company of the nature of such claim
and the date on which such claim is requested to be paid (in each case, to the
extent known by the Executive). The Executive shall not pay such claim prior to
the earlier of (i) the expiration of the thirty (30) calendar-day period
following the date on which he gives such notice to the Company and (ii) the
date that any payment of amount with respect to such claim is due. If the
Company notifies the Executive in writing prior to the expiration of such period
that it desires to contest such claim, the Executive shall:
(i) provide the Company with any written records or documents in his
possession relating to such claim reasonably requested by the Company;
(ii) take such action in connection with contesting such claim as the
Company shall reasonable request in writing from time to time, including
without limitation accepting legal representation with respect to such
claim by an attorney competent in respect of the subject matter and
reasonably selected by the Company;
(iii) cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to
such claim;
provided, however, that the Company shall bear and pay directly all costs and
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expenses (including interest and penalties) incurred in connection with such
contest and shall indemnity and hold harmless the Executive, on an after-tax
basis, for and against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such representation and
payment of costs and expenses. Without limiting the foregoing provisions of this
Paragraph (e), the Company shall control all proceedings taken in connection
with the contest of any claim contemplated by this Paragraph (e) and, at its
sole option, may pursue or
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forego any and all administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such claim (provided, however, that the
Executive may participate therein at his own cost and expense) and may, at its
option, either direct the Executive to pay the tax claimed and xxx for a refund
or contest the claim in any permissible manner, and the Employee agrees to
prosecute such contest to a determination before any administrative tribunal,
in a count of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company directs the
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Executive to pay the tax claimed and xxx for a refund, the Company shall advance
the amount of such payment to the Executive on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income or other tax, including interest or penalties with respect
thereto, imposed with respect to such advance; and provided further, however,
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that any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which the contested amount
is claimed to be due is limited solely to such contested amount. Furthermore,
the Company's control of any such contested claim shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.
(f) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Paragraph (e) hereof, the Executive receives any refund
with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Paragraph (e) hereof) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after any taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Paragraph (e) hereof,
a determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial or refund prior to the expiration
of thirty (30) calendar days after such determination, then such advance shall
be forgiven and shall not be required to be repaid and the amount of any such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid by the Company to the Executive pursuant to this Paragraph
6(c)(iii) of the Agreement.
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Amendment #1 to
Employment Agreement
Adjustment of Compensation
Employee agrees to a reduction in compensation for a period of three (3) months,
or until such funding has been received by the Company in the amount of
$1,000,000 or more. The adjustment of compensation shall equal $3,750.00 per
payroll period (40%) and shall terminate upon the earliest of the above events.
Employee Insynq, Inc.
/s/ Xxxx X. Xxxxx /s/ M. Xxxxxxx Xxxxxx
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By: By:
Xxxx X. Xxxxx M. Xxxxxxx Xxxxxx
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Xxxx X. Xxxxx Print Name
September 27, 2000 September 27, 2000
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Date Date
