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EXHIBIT 10.6
XXXXXXX.XXX CORPORATION
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made, entered into and
effective as of October 1, 1999 by and between Xxxxxxx.xxx Corporation, a
Washington corporation (the "Company" or "Sunhawk"), and Xxxxxx Xxxxx, a
resident of Washington (the "Employee").
Whereas, the Company desires to hire the Employee as the Chief Executive
Officer and President of the Company and to vest the Employee with all the
duties and responsibilities associated therewith; and
Whereas, the Employee desires to serve as the Chief Executive Officer
and President of the Company and to assume all of the duties and
responsibilities associated therewith; and
Whereas, the parties wish to enter into this Agreement to memorialize
the terms upon which the Employee will provide services to the Company.
Now, therefore, good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. TERM OF AGREEMENT. The Company and the Employee agree that the
Employee will be employed by the Company commencing on October 1, 1999 (the
"Effective Time") for an initial term of three (3) years, unless employment is
sooner terminated as provided herein. This Agreement shall be automatically
renewed for succeeding terms of one (1) year, unless at least ninety (90) days
prior to the expiration of any term, either party gives written notice to the
other of that party's intention not to renew this Agreement.
2. POSITION AND DUTIES
2.1 The Company and the Employee agree that the Employee
will be employed as the Chief Executive Officer and President of the Company and
that, in this capacity, the Employee's responsibilities will include, subject to
the approval and oversight of the Board of Directors, providing overall
leadership and operational control of the Company consistent with the Employee's
oversight and reporting duties set forth in the Company's organizational chart.
The Employee shall be located, and the operational activities of the divisions
set forth below shall take place, in Seattle, Washington. In this regard, the
Employee shall analyze, oversee and assist in operating, directing and
developing, and assume responsibility for the profitability and/or operational
integrity of, the following divisions of the Company: (i) Customer Support and
Corporate Affairs; (ii) Technology, Software Development and Internet/Network
Administration; (iii) Business Development; (iv) Sales and Marketing; and (v)
Operational Finance and Accounting.
3. SUNHAWK'S COVENANTS
3.1 The Company agrees to furnish the Employee with such
equipment, employees and services as are necessary to perform the Employee's
obligations under this Agreement. The Company shall also pay for the reasonable
costs of any seminar attendance of the Employee and the Employee's subscriptions
to a reasonable number of professional journals.
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3.2 The Company agrees to reimburse the Employee for all
reasonable business expenses incurred by the Employee while on the Company's
business. The Employee shall maintain such records as will be necessary to
enable the Company to properly deduct such items as business expenses when
computing the Company's federal income tax.
4. COMPENSATION
4.1 For all services rendered by the Employee under this
Agreement (exclusive of directors' fees, if any), the Company shall pay the
Employee a base salary of Ninety-Five Thousand Dollars ($95,000) per year (the
"Salary"). The Employee shall be paid this salary on a bi-weekly basis, minus
all lawful and agreed upon payroll deductions.
4.2 The base salary set forth in Section 4.1 above shall be
reviewed annually by the Company's Compensation Committee and will be increased
by such amount as the Company's Compensation Committee shall, in its sole
discretion, determine; provided, however, that such base salary shall, at a
minimum, be increased annually on each anniversary of the Effective Time by an
amount equal to three percent (3%) of the Salary, compounded annually.
5. BONUS AND OPTIONS
5.1 Discretionary Bonuses. The Company shall periodically,
but not less frequently than annually, review the Employee's service rendered
and may award bonuses in an amount which will recognize the Employee's
contributions to profits during that period. At a minimum, the Employee shall be
entitled to participate in all bonuses and other fringe benefits available to
the other executive officers of the Company, including, without limitation: cash
bonuses, sick leave, insurance and three (3) weeks of vacation as set forth in
Section 6 herein.
5.2 Options.
a. As of October 1, 1999, the Company shall grant to
the Employee options (the "Options") to purchase an aggregate of thirty thousand
(30,000) shares of common stock of the Company ("Common Stock") (provided,
however, that such number shall be appropriately adjusted to take into account
any stock splits, stock dividends, recapitalizations (including any conversion
of debt to equity) and similar events in respect of the Common Stock), under and
subject to the terms of any stock option plan then in effect (the "Option
Plan"), at an exercise price equal to one hundred and ten percent (110%) of the
greater of (i) the fair market value of the Company's Common Stock or (ii) the
initial offering price of the Company's Common Stock as established in
accordance with the terms of the Company's contemplated initial public offering
on the NASDAQ SmallCap Market.
The option shall vest and be exercisable according to the following
schedule:
Months of Continuous Employment, from Base Date Portion of Total Option That is Exercisable
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Less than 24Months None
24 Months or More 25%
30 Months or More 37.5%
36 Months or More 50%
42 Months or More 62.5%
48 Months or More 75%
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54 Months or More 87.5%
60 Months or More 100%
The Employee shall be entitled to exercise any or all of the Options by
means of "cashless exercise" by delivering shares of Common Stock having fair
market value equal to the exercise price or by exercising and immediately
selling shares of Common Stock on the market to pay the exercise price and any
tax consequences associated with such exercise. It is understood and agreed by
the Employee and the Company that the Options shall otherwise be in all respects
subject to the terms and conditions of the Option Plan, if any, and the
certificate representing such options, which terms and conditions shall include
acceleration of exercisability and vesting of the Options upon the occurrence of
certain change of control events.
b. In addition to the Options described in Section
5.2(a) above, the Employee shall be eligible to participate in the Option Plan
and to receive additional stock options under the Option Plan, in such amounts
and with such other terms and conditions as determined from time to time by the
Company's Board of Directors.
In the event the Employee is terminated for cause,
as hereinafter defined, the Employee must exercise all vested options within
ninety (90) days of such termination. If any vested options have not been
exercised within ninety (90) days after termination for cause, such options
shall expire and be immediately cancelled by the Company.
6. FRINGE BENEFITS
6.1 Benefit Plans. The Company and the Employee agree that,
during the term of this Agreement, the Employee shall be entitled to participate
in all fringe benefits and incentive compensation plans as may be authorized and
adopted from time to time by the Company and for which the Employee is eligible,
including, for example, any pension plan, profit sharing plan, disability plan,
medical plan, group life insurance plan, or other employee benefit plans.
6.2 Sick Leave. The Employee shall be entitled to (i) 80
hours of paid sick leave during each calendar year of employment or (ii) such
sick leave as set forth under the Company's sick leave policy. A maximum of 160
hours of unused sick leave can roll over from the current calendar year to the
next. Therefore, the maximum total hours of sick leave that can be available at
the beginning of any calendar year is 240 hours (160 hours carried-over leave
plus 80 hours projected for the current year). Once the limit of 240 hours is
reached, sick leave must be taken before any more sick leave hours can be
earned.
6.3 Insurance. In the event this Agreement is terminated,
the Company, upon the request of the Employee, shall assign to the Employee any
insurance policy owned by the Company under which the Employee is the insured
and which is assignable by the policy terms; provided, however, that if any such
policy has a cash surrender value, the Employee shall pay the then cash
surrender value of such policy to the Company in exchange for its assignment to
the Employee under this section. Any conversion rights which the Employee may
have under the terms of any such insurance policy shall survive any termination
of this Agreement.
6.4 Vacation. The Employee shall be entitled to the greater
of either (i) three (3) weeks paid vacation per calendar year or (ii) such
vacation as set forth under the Company's vacation policy.
7. TERMINATION. This Agreement shall be terminated upon the
occurrence of any one of the following events:
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7.1 Death of Employee. In the event of the Employee's death, the
Employee's spouse, or if there is no spouse then the Employee's estate, shall be
entitled to: (a) all benefits due the Employee under any life insurance policy
held by the Company then in effect; and (b) any compensation then due and owing
the Employee under this Agreement.
7.2 Incapacity and Illness. If the Employee shall have been
incapacitated from illness, accident or other disability and unable to perform
his normal duties hereunder for a cumulative period of six (6) months in any
period of twelve (12) consecutive months, upon the Company or the Employee
giving the other party not less than thirty (30) days' written notice. In the
event of such termination, the Employee shall be entitled to: (a) all benefits
due the Employee under any accident, sickness, disability, health or
hospitalization plan or insurance policy of the Company then in effect; and (b)
any compensation then due and owing the Employee under this Agreement.
7.3 Termination by the Company for Cause. For purposes of
this subsection, "cause" includes, but is not necessarily limited to, the
following: (a) breach by the Employee of any material provision of this
Agreement; (b) material violation by either party of any statutory or common law
duty of loyalty to the Company; or (c) personal or professional conduct of the
Employee, which, in the reasonable and good faith judgment of the Board of
Directors of the Company injures or tends to injure the reputation of the
Company or otherwise adversely affects the interests of the Company. Such
conduct may include, but is not limited to, dishonesty, chronic absenteeism,
alcoholism, drug addiction, and conviction of a felony or misdemeanor involving
moral turpitude.
7.4 Termination by the Company without Cause. If the
Company terminates the Employee's employment with the Company, or the Employee's
employment otherwise terminates, for any reason other than those set forth in
subsection 7.1, 7.2, 7.3, 7.6, 7.7, 7.8 or 7.9 of this Agreement, then such
termination shall be deemed to be termination without cause.
7.5 Termination by Employee for Good Reason. "Good Reason"
means (i) reduction in duties or position as set forth herein or (ii) a change
in control of the Company that results in unacceptable changes in the Employee's
duties or position or (iii) material, uncured breach by the Company of any of
the terms of this Agreement or any other terms and conditions set forth herein
or otherwise agreed to between the Company and the Employee. In order for the
Employee to terminate the Employee's employment for good reason, the Employee
shall first give Company thirty (30) days' written notice of the circumstances
constituting good reason and an opportunity to cure, unless the circumstances
are not subject to being cured. Following the notice and opportunity to cure (if
cure is not made), or immediately if notice and opportunity to cure are not
required, the Employee may terminate employment for good reason by giving
written notice of termination. The notice may take effect immediately or at such
later date as the Employee may designate, provided that Company may accelerate
the termination date by giving five (5) business days' written notice of the
acceleration.
7.6 Termination by Employee without Good Reason. The
Employee may terminate the Employee's employment at any time, with or without
good reason, by giving ninety (90) days' advance written notice of termination.
7.7 Expiration of this Agreement or expiration of any
renewal or extension thereof.
7.8 Upon the cessation of business by the Company.
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7.9 Upon the retirement or resignation of the Employee.
8. EFFECT OF TERMINATION
a. Upon termination of the Employee's employment as
Chief Executive Officer or President with the Company pursuant to subsections
7.1, 7.2, 7.3, 7.6, 7.7, 7.8 or 7.9, the Company agrees to pay the Employee all
salary, fringe benefits, bonuses or other remuneration which are due and owing
to the Employee as of the date of termination, less deductions or offsets the
Employee may owe to the Company for such items as salary advances or loans. The
Employee agrees that his signature on this Agreement constitutes his
authorization for all such deductions upon termination of the Employee's
employment with the Company. Upon the termination of the Employee's employment
with the Company, the Employee agrees to return to the Company all of the
Company's property of any kind which may be in the Employee's possession.
b. Upon termination of the Employee's employment as
Chief Executive Officer or President with the Company pursuant to either
subsection 7.4 or subsection 7.5, (i) the Company shall pay the Employee, within
thirty (30) days of such termination, a dollar amount equal to the lesser of
either (i) nine (9) months of the Employee's Salary or (ii) the remaining Salary
owed under this Agreement (the "Severance"); provided, however, that if the
remaining Salary owed under the Agreement is less than nine (9) months, then the
Employee shall be entitled to a maximum of nine (9) months of Severance pay.
Additionally, (i) the Employee shall be entitled to accelerate the vesting of
all of his remaining Options to the date of termination and (ii) the lock-up
agreement or any commitment to "lock-up" the common stock of the Employee shall
terminate as of the date of termination, if the Employee is either terminated or
terminates his employment pursuant to subsections 7.4 or 7.5.
c. In the event the Employee (i) hires, promotes or
places any other individual(s) in the role of Chief Executive Officer or
President, or (ii) transfers responsibility for or assigns the duties and
obligations associated with the office of Chief Executive Officer or President
then no termination of employment shall be deemed to have taken place pursuant
to Section 7 herein and the Employee shall retain all rights set forth herein,
except for those duties, rights and obligations otherwise assigned to the new
Chief Executive Officer or President and as revised pursuant to an agreement
between the Employee and the Company; provided, however, that Employee must
remain employed as either Chief Executive Officer or President; and; provided,
further, that in the event Employee transfers responsibility for or promotes
another individual(s) in the role of President and Chief Executive Officer, this
Agreement shall terminate or if terminated under Section 7.9.
9. LOCK-UP AGREEMENT. Simultaneous with the execution of this
Agreement, the Employee shall execute the "Lock Up" Agreement attached hereto as
Exhibit A.
10. NON-COMPETITION/NON-SOLICITATION. While the Employee is employed
by the Company and upon termination of the Employee's employment with the
Company (other than as set forth in subsections 7.4 and 7.5 above), the Employee
shall not compete with the Company or otherwise own or be engaged in any
business that sells, delivers, develops or transmits music, music catalogues,
sheet music or any other form of music, in printed, digital, or any other
format, over the Internet for a period of two (2) years after termination of
this Agreement. Further, the Employee shall not solicit or seek to hire any of
the Company's employees for a period of two (2) years after termination. This
Agreement not to either compete with the Company or solicit the Company's
employees for hire shall only be effective if and to the extent the Company
satisfies its obligations, if any, to pay the Employee the Severance, as defined
above.
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11. CONSTRUCTION OF AGREEMENT
11.1 Essential Terms and Modification of Agreement. It is
understood and agreed that the terms and conditions described in this Agreement
constitute the essential terms and conditions of the employment arrangement
between the Company and the Employee, all of which have been voluntarily agreed
upon. The Company and the Employee agree that there are no other essential terms
or conditions of the employment relationship that are not described within this
Agreement, and that any change in the essential terms and conditions of this
Agreement will be written down in a supplemental agreement which shall be signed
by both the Company and the Employee before it is effective.
11.2 Severability. The invalidity of all or any part of any
section of this Agreement shall not render invalid the remainder of this
Agreement or the remainder of such section. In the event a court of competent
jurisdiction should decline to enforce any provision of any section of this
Agreement, such section shall be reformed to the extent necessary in the
judgment of such court to make such provision of such section enforceable to the
maximum extent which the court shall find enforceable.
11.3 Notices. Any notice hereunder shall be sufficient if in
writing and telefaxed to the party or sent by certified mail, return receipt
requested and addressed as follows:
a. If to the Company:
Xxxxxxx.xxx Corporation
000 Xxxxxx Xxxxxx X., Xxxxx 000
Xxxxxxx, XX 00000
Attn: Xxx Xxxxxxxxx
b. If to the Employee:
Xxxxxx Xxxxx
000 00xx Xxxxxx Xxxx
Xxxxxxx, XX 00000
Either party may change the address herein specified by giving to the other
written notice of such change.
11.4 Governing Law. This Agreement is made and shall be
construed and performed under the laws of the State of Washington.
11.5 Arbitration. A breach of any of the terms of the
Agreement shall entitle the aggrieved party to arbitrate the matter before the
American Arbitration Association, located in King County, Washington. The
Company and the Employee must agree upon an arbitrator prior to initiating any
arbitration proceedings. If the Company and the Employee cannot agree upon an
arbitrator, an arbitrator shall be appointed by the independent members of the
board of directors.
11.6 Waiver of Agreement. The waiver by the Company of a
breach of any provision of this Agreement by the Employee shall not operate or
be construed as a waiver by the Company of any subsequent breach by the
Employee.
11.7 Captions. The captions and headings of the sections of
this Agreement are for convenience and reference only and are not to be used to
interpret or define the provisions hereof.
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11.8 Assignment and Successors. The rights and obligations of
the Company under this Agreement shall inure to the benefit of and be binding
upon the successors and assigns of the Company. The rights and obligations of
the Employee hereunder are nonassignable, except for termination payments due
under subsections 7.1 and 7.2. The Company may assign its rights and obligations
to any entity in which the Company, or a company affiliated to the Company, has
a majority ownership interest.
11.9 Integration. This Agreement, together with the attached
exhibit, reflects the entire understanding of the parties with respect to the
transactions contemplated hereby or as otherwise set forth in any prior
documentation, and shall supercede and not otherwise contradict or be qualified
by any other agreement of any kind whatsoever, oral or written, before the date
hereof. Accordingly, the Employee waives and relinquishes any right or title to,
or interest in , any of the Company's technology, tangible or intangible
property or any other assets except as set forth in this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above and commencing at the Effective Time.
EMPLOYEE: Xxxxxxx.xxx Corporation:
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By: Xxxxxx Xxxxx By: Xxxxxx Xxxxx-Xxxxxxxx
Its: Chief Executive Officer and President Its: Chief Financial Officer
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