EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered into as
of this 2nd day of September, 1997 between eSoft, Inc., a Colorado corporation
(the "Company"), and Xxxxxx X. Xxxxxx, an individual person (the "Executive").
RECITAL
A. The Company desires to employ the Executive as Chief Technology
Officer, and the Executive desires to be employed by the Company in such
position upon the terms and conditions set forth in this Agreement.
B. The Executive acknowledges that during the course of the
Executive's employment the Executive will receive or be exposed to certain
confidential information and trade secrets (collectively referred to as
"Confidential Information") of the Company. The Executive also acknowledges that
this Confidential Information is among the Company's most important assets and
that the value of this Confidential Information would be diminished or
extinguished by disclosure.
AGREEMENT
In consideration of the mutual promises contained herein, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. Employment; Position; Term. The Company hereby employs the
Executive and the Executive hereby accepts employment with the Company in the
capacity of Chief Technology Officer. Subject to Section 4, the term of
Executive's employment under this Agreement (the "Term") shall be for 36 months,
beginning September 1, 1997 and ending August 31, 2002.
2. Duties, Responsibilities and Authority. In his capacity as Chief
Technology Officer of the Company, the Executive shall have primary
responsibility for the development and exploitation of personal computer
communications software. In his capacity as Chief Technology Officer, the
Executive shall report to and be subject to the direction and control of the
President of the Company. The Executive shall devote his full professional and
managerial time and effort to the performance of his duties as Chief Technology
Officer and he shall not engage in any other business activity or activities
which, in the judgment of the President of the Company, conflict with the
performance of his duties under this Agreement.
3. Compensation.
(a) Salary. For services rendered under this Agreement, the
Company shall pay the Executive a salary at the rate of $8,333 per month,
payable in equal bi-weekly installments, until such time as the Company
completes an Initial Public Offering of its common stock. After the successful
completion of the Initial Public Offering, the Executive shall be paid a salary
at the rate of
$10,000 per month, payable in equal bi-weekly installments, the first of which
such adjusted payment will be pro-rated for the month in which the Initial
Public Offering occurs.
(b) Bonuses. The Executive shall be eligible to receive a
performance bonus for each fiscal quarter of the Company completed during the
term of this Agreement beginning with the fiscal quarter commencing October 1,
1997. The aggregate amount of the bonuses shall be equal to the sum of ten
percent (10%) of the earnings net of adjustments for interest and taxes of the
Company for said fiscal quarter ("EBIT"). In the event the bonus exceeds fifty
percent (50%) of the Executive's gross annual salary, prorated for the
equivalent months in said fiscal quarter (the "Quarterly Salary"), the Executive
shall receive a bonus in the amount that equals the Quarterly Salary. The
payment of the Executive's performance bonus shall be made as soon as
practicable after the determination by the Company of its EBIT. The Executive
shall not be entitled to a minimum performance bonus.
(c) Annual Review. The Executive's salary and terms of the
severance in Section 7 of this Agreement shall be reviewed annually beginning
September 1, 1998 and may be increased as the Board deems appropriate.
(d) Stock Options. Concurrently with the effectiveness of this
Agreement and pursuant to action of the Board, the Executive shall be granted
incentive stock options pursuant to the Company's Equity Compensation Plan to
purchase up to 200,000 shares of the Company's common stock at an exercise price
equal to the offering price of the Company's common stock in the Initial Public
Offering scheduled for early 1998. The option shall vest over a 36 month period
with no vesting until the end of the seventh month. Seven-thirty-sixths (7/36)
of the options shall vest at the end of the seventh month or at such later date
as the Initial Public Offering is consummated and one-thirty-sixths (1/36) after
the end of each month thereafter. Vesting shall occur as long as the Executive
remains an employee of the Company. The options, once vested shall have an
expiration date of 5 years from the date of the consummation of the Initial
Public Offering. In addition, the Executive may participate in stock option
programs of the Company upon such terms as the administrators of such programs
in their discretion determine.
(e) Benefits and Vacation. The Executive shall be eligible to
participate in such insurance programs (health, disability or life) or such
other health, dental, retirement or similar employee benefits programs as the
Board may approve, on a basis comparable to that available to other officers and
executive employees of the Company. The Executive shall be entitled to four (4)
weeks of paid vacation. Vacation time may be accumulated for up to one year
beyond the year for which it is accrued and may be used any time during such
year. Any vacation time not used during such additional year shall be forfeited.
The value of any accrued but unused and unforfeited vacation time shall be paid
in cash to the Executive upon termination of his employment for any reason.
(f) Reimbursement of Expenses. The Company shall reimburse the
Executive for all reasonable out-of-pocket expenses incurred by the Executive in
connection with the
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performance of his duties under this Agreement; provided that the Executive
presents to the Company an itemized accounting of such expenses including
reasonable supporting data.
4. Termination.
(a) Termination by the Company without Cause. Notwithstanding
anything to the contrary contained herein but subject to Section 7 hereof, the
Company may, by delivering thirty (30) days' prior written notice to the
Executive, terminate the Executive's employment at any time without Cause (as
hereinafter defined).
(b) Termination by the Executive without Cause.
Notwithstanding anything to the contrary contained herein but subject to Section
7 hereof, the Executive may, by delivering thirty (30) days' prior written
notice to the Company, terminate the Executive's employment hereunder.
(c) Termination by the Company for Cause. The Company may
terminate the Executive's employment for Cause immediately upon written notice
stating the basis for such termination. "Cause" for termination of the
Executive's employment shall only be deemed to exist if the Executive has (i)
breached this Agreement and if such breach continues or recurs more than thirty
(30) days after notice from the Company specifying the action which constitutes
the breach and demanding its discontinuance, (ii) exhibited willful disobedience
of directions of the President or of the Board, or (iii) committed gross
malfeasance in performance of his duties hereunder or acts resulting in an
indictment charging the Executive with the commission of a felony; provided that
the commission of acts resulting in such an indictment shall constitute Cause
only if a majority of the directors who are not also subject to any such
indictment determine that the Executive's conduct has substantially adversely
affected the Company or its reputation. A material failure to perform his duties
hereunder that results from the disability of the Executive shall not be
considered Cause for his termination.
5. Disability. In the event of disability of the Executive during
the term hereof, the Company shall, during the continuance of his disability but
only for a maximum of 90 days, pay the Executive his then current salary, as
provided for in Section 3(a), and adjusted pursuant to Section 3(b), and
continue to provide the Executive all other benefits provided hereunder. As used
herein, the term "disability" shall mean the complete and total inability of the
Executive, due to illness, physical or comprehensive mental impairment, to
substantially perform all of his duties as described herein for a consecutive
period of thirty (30) days or more.
6. Death. In the event of the death of the Executive, except with
respect to any benefits which have accrued and have not been paid to the
Executive hereunder, the provisions of this Agreement shall terminate
immediately. The Executive's estate shall have the right to receive compensation
due to the Executive as of and to the date of his death and shall have the right
to
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receive an additional amount equal to one-twelfth (1/12th) of the Executive's
annual compensation then in effect.
7. Severance. In the event that the Executive's employment is
terminated by the Company other than for Cause or death of the Executive, or in
the event there is either a material change in the responsibilities of the
Executive or a loss of position within three months after a Change of Control
(as defined in Section 12 of this Agreement), the Executive shall be entitled to
receive his then current salary, as provided for in Section 3(a), and adjusted
pursuant to Section 3(b), payable in bi-weekly installments, for that number of
months which equals the number of years that have elapsed from January 1, 1992
until the date of the Executive's termination by the Company; provided, however,
that if any of such payments would (i) constitute a "parachute payment" within
the meaning of Section 280G of the Internal Revenue Code of 1986 (the "Code")
and (ii) but for this provision, be subject to the excise tax imposed by Section
4999 of the Code (the "Excise Tax"); the amount payable hereunder shall be
reduced to the largest amount which the Executive determines would not result in
any portion of the payments hereunder being subject to the Excise Tax. If the
Executive voluntarily resigns his employment hereunder or if his employment is
terminated for Cause, the Executive shall not be entitled to any severance pay
or other compensation beyond the date of termination of his employment.
8. Covenant Not to Compete.
(a) During the continuance of the Executive's employment
hereunder and for a period of twelve (12) months after termination of the
Executive's employment hereunder, the Executive shall not engage in any business
which competes with the Company or its affiliates anywhere in the United States
or Canada during the Executive's employment hereunder or at the time of
termination.
(b) The Executive shall not, for a period of twelve (12)
months after termination of the Executive's employment hereunder, employ, engage
or seek to employ or engage for himself or any other person or entities, any
individual who is or was employed or engaged by the Company or any of its
affiliates until the expiration of six (6) months following the termination of
such person's or entity's employment or engagement with the Company or any of
its affiliates.
9. Trade Secrets and Confidential Information. During his employment
by the Company and for a period of five (5) years thereafter, the Executive
shall not, directly or indirectly, use, disseminate, or disclose for any purpose
other than for the purposes of the Company's business, any Confidential
Information of the Company or its affiliates, unless such disclosure is
compelled in a judicial proceeding. Upon termination of his employment, all
documents, records, notebooks, and similar repositories of records containing
information relating to any Confidential Information then in the Executive's
possession or control, whether prepared by him or by others, shall be left with
the Company or, if requested, returned to the Company.
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10. Severability. It is the desire and intent of the undersigned
parties that the provisions of Sections 8 and 9 shall be enforced to the fullest
extent permissible under the laws in each jurisdiction in which enforcement is
sought. Accordingly, if any particular sentence or portion of either Section 8
or 9 shall be adjudicated to be invalid or unenforceable, the remaining portions
of such section nevertheless shall continue to be valid and enforceable as
though the invalid portions were not a part thereof. In the event that any of
the provisions of Section 8 relating to the geographic areas of restriction or
the provisions of Sections 8 or 9 relating to the duration of such Sections
shall be deemed to exceed the maximum area or period of time which a court of
competent jurisdiction would deem enforceable, the geographic areas and times
shall, for the purposes of this Agreement, be deemed to be the maximum areas or
time periods which a court of competent jurisdiction would deem valid and
enforceable in any state in which such court of competent jurisdiction shall be
convened.
11. Injunctive Relief. The Executive agrees that any violation by
him of the provisions contained in Sections 8 and 9 are likely to cause
irreparable damage to the Company, and therefore he agrees that if there is a
breach or threatened breach by the Executive of the provisions of said sections,
the Company shall be entitled to an injunction restraining the Executive from
such breach. Nothing herein shall be construed as prohibiting the Company from
pursuing any other available remedies for such breach or threatened breach.
12. Miscellaneous.
(a) Notices. Any notice required or permitted to be given
under this Agreement shall be directed to the appropriate party in writing and
mailed or delivered, if to the Company, to eSoft, Inc., to the attention of the
President, at 00000 Xxxx Xxxxxx Xxxxxx, Xxxxx 0000, Xxxxxx, Xxxxxxxx 00000, and
if to the Executive, to 00000 Xxxx Xxxxxx Xxxxxx, Xxxxx 0000, Xxxxxx, Xxxxxxxx
00000.
(b) Binding Effect. This Agreement is a personal service
agreement and may not be assigned by the Company or the Executive, except that
the Company may assign this Agreement to a successor of the Company by merger,
consolidation, sale of substantially all of the Company's assets or other
reorganization (a "Change of Control"). Subject to the foregoing, this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors, assigns, and legal representatives.
(c) Amendment. This Agreement may not be amended except by an
instrument in writing executed by each of the undersigned parties.
(d) Applicable Law. This Agreement is entered into in the
State of Colorado and for all purposes shall be governed by the laws of the
State of Colorado.
(e) Entire Agreement. This Agreement supersedes and replaces
all prior agreements between the parties related to the employment of the
Executive by the Company.
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SIGNATURES
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the first date mentioned above.
THE COMPANY:
eSOFT, INC.
By: /s/Xxxxx Xxxxxx
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Xxxxx Xxxxxx, President and Chief
Executive Officer
THE EXECUTIVE:
/s/Xxxxxx X. Xxxxxx
----------------------------------------------
Xxxxxx X. Xxxxxx
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