EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") by and between Smart Online,
Inc. a Delaware corporation (the "Company"), and Xxxx Xxxxxxx (the "Employee"),
dated as of the 1st day of May, 2004.
WITNESSETH THAT
WHEREAS, the Company and the Employee wish to contract for the
employment by the Company of the Employee, and the Employee wishes to serve the
Company, in the capacities and on the terms and conditions set forth in this
Agreement;
WHEREAS, the Company is an enterprise whose success is attributable
largely to the creation and maintenance of certain Confidential Data (as defined
below) and during the period of employment the Employee will be situated to have
access to and be knowledgeable with respect to the Confidential Data as well as
the customers of the Company; and
WHEREAS, Company has a legitimate protectible business interest in the
creation and maintenance of its Confidential Data and the protection of the
identity of, and related information concerning, its customers and the Company's
customer lists; and
WHEREAS, the Company wishes to protect its Confidential Data from
disclosure by the Employee by means of the restrictive covenants contained in
this Agreement and the Employee agrees to such covenants in exchange for the
Company's commitment to continue to employ the Employee and for other additional
consideration agreed to between the parties;
NOW, THEREFORE, it is hereby agreed as follows:
1. EMPLOYMENT PERIOD. The Company shall employ the Employee, and
the Employee shall serve the Company, on the terms and conditions set forth in
this Agreement. Such employment pursuant to this Agreement shall commence on the
date hereof and, unless earlier terminated as hereinafter provided, shall
continue for an initial period through December 31, 2005. The Company may extend
the period of employment of the Employee pursuant to this Agreement for
additional periods of up to one (1) year for each extension by written notice to
the Employee given not less than ninety (90) days prior to the expiration of the
initial period or any renewal period. The period of employment of Employee
hereunder shall be hereinafter referred to as the Employment Period.
2. POSITION AND DUTIES.
(a) During the Employment Period, the Employee shall serve
as a full-time employee of the Company as Vice President, Internet Development,
with such duties and responsibilities as are customarily assigned to such
position and such other duties and responsibilities not inconsistent therewith
as may from time to time be assigned to him by the President, Chief Executive
Officer or Board of Directors.
(b) During the Employment Period, the Employee shall devote
his loyalty, attention, and time to the business and affairs of the Company and,
to the extent necessary to discharge the responsibilities assigned to the
Employee under this Agreement, use the Employee's best efforts to carry out such
responsibilities faithfully and efficiently.
(c) The Employee's services shall be performed primarily at
the Company's headquarters in Durham, North Carolina.
3. COMPENSATION.
(a) Base Salary. The Employee's base salary shall be
$100,000 per annum, payable monthly, which salary shall be reevaluated annually
and is subject to such increases as the Board of Directors approves. Effective
June 1, 2004 Employee's base salary shall be $120,000 per annum. The term
"Annual Base Salary" shall refer to the base salary prevailing during the
applicable period until such time of any increase in base salary whereupon it
shall thereafter refer to such increased amount.
(b) Stock Options. The Company and the Employee shall
execute a Stock Option Agreement dated as of May 1, 2004 whereby the Company
grants options to purchase an aggregate of 75,000 shares of the Company's Class
Common Stock pursuant to the Company's 2004 Equity Compensation Plan.
(c) Other Benefits. In addition, during the Employment
Period the Employee shall be entitled to participate, in accordance with the
relevant provisions thereof, in all applicable incentive, savings, and
retirement plans, practices, policies, and programs of the Company for which
senior management employees are eligible generally.
(d) All compensation hereunder shall be subject to all
applicable federal and state withholding, payroll and other taxes.
4. TERMINATION OF EMPLOYMENT.
(a) Death or Disability. The Employee's employment shall
terminate automatically upon the Employee's death during the Employment Period.
The Company shall be entitled to terminate the Employee's employment because of
the Employee's Disability during the Employment Period. "Disability" means that
the Employee has been unable, for a period of thirty (30) consecutive calendar
days, to perform the Employee's duties under this Agreement, as a result of
physical or mental illness or injury. A termination of the Employee's employment
by the Company for Disability shall be communicated to the Employee by written
notice, and shall be effective on the date of receipt of such notice by the
Employee (the "Disability Effective Date").
(b) By the Company.
(i) The Company may terminate the Employee's
employment at any time during the Employment Period for Cause or
without Cause. A termination of
2
the Employee's employment with Cause shall be effective when
communicated to the Employee by verbal or written notice.
"Cause" means unacceptable conduct, including:
A. participation in a fraud or act of
dishonesty against the Company;
B. any chemical dependence which affects
the performance of his duties and responsibilities to
the Company;
C. breach of Employee's fiduciary
obligations to the Company;
D. Employee willfully fails to perform his
duties;
E. breach of the Company's policies or any
material provision of this Agreement;
F. misconduct resulting in loss to the
Company or damage to the reputation of the Company; or
G. conduct by the Employee which, in the
determination of the Company's Board of Directors,
demonstrates unfitness to serve.
(ii) "Without cause" means termination of Employee's
employment for some reason other than that listed in Paragraph
4(b)(i) above. A termination of the Employee's employment
Without Cause shall be effective when communicated to the
Employee by verbal or written notice.
(c) By the Employee. The Employee may signify his intention
to terminate his employment at any time upon the giving of ninety (90) days'
notice ("Notice Period") to the Company of his intent to do so. Upon the
expiration of the Notice Period the termination will be effective and the Date
of Termination will be effective as referred to below. The Company reserves the
right to accelerate the effective "Date of Termination" in its discretion after
the inception of the Notice Period.
(d) Date of Termination. The "Date of Termination" means the
date of the Employee's death, the Disability Effective Date, the date on which
the termination of the Employee's employment by the Company for Cause or without
Cause is effective, or the date on which the termination of the Employee's
employment by the Employee is effective, as the case may be.
5. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) Termination by the Company Without Cause or by the
Employee for Good Reason. If the Company terminates the employment of the
Employee without Cause (as
3
defined in Section 4(b) above) or if the Employee terminates her employment for
Good Reason (as defined below):
(i) the Company shall pay the Employee the portion
of his base salary in termination as he may be entitled to
receive for services rendered prior to the date of such
termination;
(ii) for a period of three (3) months following the
date on which the Employee's employment with the Company
terminates, the Company shall continue to pay the Employee her
base salary in effect at the time of her termination of
employment and shall continue to provide the Employee with all
benefits specified in this Agreement, with no adverse tax
consequences to the Employee, as if she had remained employed by
the Company pursuant to this Agreement during the entire such
three (3) month period; and
For purposes of this Agreement, the Employee shall be deemed to
have terminated her employment for "Good Reason" if she voluntarily terminates
his employment with the Company under any of the following circumstances:
(i) any demotion or diminution in the Employee's
position, title, reporting position or duties;
(ii) relocation of the Employee's office to a
location more than thirty (30) miles outside of Research
Triangle Park, North Carolina; or
(iii) any material breach of this Agreement by the
Company.
(b) By the Company for Cause; By the Employee; Death or
Disability. If the Employee's employment is terminated by the Company for Cause
during the Employment Period, if Employee terminates employment during the
Employment Period or if the Employee's employment is terminated by reason of the
Employee's death or disability during the Employment Period, the Company shall
pay the Employee the Annual Base Salary (then in effect) through the Date of
Termination and the Company shall have no further obligations under this
Agreement.
6. EXPENSES. The Company agrees to reimburse the Employee for
reasonable and necessary expenses incurred by the Employee in the furtherance of
the Company's business in accordance with such procedures as the Company may
from time to time establish.
7. REPRESENTATIONS AND WARRANTIES OF THE EMPLOYEE. The Employee
represents and warrants that:
(a) the Employee is under no contractual or other
restriction or obligation which is inconsistent with the execution of this
Agreement, the performance of duties hereunder or other rights of the Company
hereunder; and
4
(b) to the best of the Employee's knowledge, the Employee is
under no physical or mental disability which will render him incapable of
performing the essential functions involved in his anticipated duties or that
would otherwise hinder the performance of duties under this Agreement.
8. COVENANT NOT TO COMPETE. The Employee covenants that during the
"Noncompetition Period," as defined in paragraph 14, and within the
"Noncompetition Area," as defined in paragraph 15, he shall not, directly or
indirectly, as principal, agent, consultant, trustee or through the agency of
any corporation, partnership, association, or agency engage in the "Business,"
as defined in paragraph 16. Specifically, but without limiting the foregoing,
the Employee agrees that during such period and within such area, he shall not
do any of the following: (a) be the owner of the outstanding capital stock of
any corporation which conducts a business of a like or similar nature to the
"Business" (other than stock of a corporation traded on a national securities
exchange or automated quotation system); (b) be an officer or director of any
corporation which conducts a business of a like or similar nature to the
"Business"; (c) be a member of any partnership which conducts a business of a
like or similar nature to the "Business"; or (d) be a consultant to, an owner of
or an employee of any other business which conducts a business of a like or
similar nature to the Business.
9. NONDISCLOSURE COVENANT.
(a) The parties acknowledge that the Company is an
enterprise whose success is attributable largely to the ownership, use and
development of certain valuable confidential and proprietary information (the
"Confidential Data"), and that the Employee's employment with the Company will
involve the Employee's access to and work with such information. The Employee
acknowledges that his relationship with the Company is a confidential
relationship. The Employee covenants and agrees that (i) he shall keep and
maintain the Confidential Data in strictest confidence, and (ii) he shall not,
either directly or indirectly, use any Confidential Data for his own benefit, or
divulge, disclose, or communicate any Confidential Data in any manner whatsoever
to any person or entity other than the employees or agents of the Company having
a need to know such Confidential Data, and only to the extent necessary to
perform their responsibilities on behalf of the Company, and other than in the
performance of the Employee's duties in the employment by the Company. The
Employee's agreement not to disclose Confidential Data shall apply to all
Confidential Data, whether or not the Employee participated in the development
thereof. Upon termination of employment for any reason, the Employee will return
to the Company all documents, notes, programs, data and any other materials
(including any copies thereof) in his/her possession.
(b) For purposes of this Agreement, the term "Confidential
Data" shall include any and all information related to the business of the
Company, or to its products, sales or businesses which is not general public
knowledge, specifically including (but without limiting the generality of the
foregoing) all financial and accounting data; computer software; processes;
formulae; inventions; methods; trade secrets; computer programs; engineering or
technical data, drawings, or designs; manufacturing techniques; patents, patent
applications, copyrights and copyright applications (in any such case, whether
registered or to be registered in the United
5
States of America or elsewhere) applied for, issued to or owned by the Company;
information concerning pricing and pricing policies; marketing techniques;
suppliers; methods and manner of operations; and information relating to the
identity, needs and location of all past, present and prospective customers. The
parties stipulate that as between them the above-described matters are important
and confidential and gravely affect the successful conduct of the business of
the Company and that any breach of the terms of this paragraph shall be a
material breach of this Agreement.
10. NONSOLICITATION COVENANT. The Employee covenants that during the
Noncompetition Period he shall not directly or indirectly, on behalf of himself
or on behalf of any other person, firm, partnership, corporation, association or
other entity, call upon any of the customers or clients of the Company for the
purpose of soliciting or providing any product or service similar to that
provided by the Company nor will he, in any way, directly or indirectly, for
himself, or on behalf of any other person, firm, partnership, corporation,
association, or other entity, solicit, divert or take away, or attempt to
solicit, divert, or take away any of the customers, clients, business, or
patrons of the Company. The Employee further covenants that during the
Noncompetition Period he shall not induce or attempt to induce any person to
leave the employ of the Company.
11. INVENTIONS. All inventions, designs, improvements and
developments made by the Employee, either solely or in collaboration with
others, during his employment with the Company, whether or not during working
hours, and relating to any methods, apparatus or products which are
manufactured, sold, leased, used or developed by the Company or which pertain to
the Business (the "Developments"), shall become and remain the property of the
Company. The Employee shall disclose promptly in writing to the Company all such
Developments. The Employee acknowledges and agrees that all Developments shall
be deemed "works made for hire" within the meaning of the United States
Copyright Act, as amended. If, for any reason, such Developments are not deemed
works made for hire, the Employee shall assign, and hereby assigns, to the
Company, all of the Employee's right, title and interest (including, but not
limited to, copyright and all rights of inventorship) in and to such
Developments. At the request and expense of the Company, whether during or after
employment hereunder, the Employee shall make, execute and deliver all
application papers, assignments or instruments, and perform or cause to be
performed such other lawful acts as the Company may deem necessary or desirable
in making or prosecuting applications, domestic or foreign, for patents
(including reissues, continuations and extensions thereof) and copyrights
related to such Developments or in vesting in the Company full legal title to
such Developments. The Employee shall assist and cooperate with the Company or
its representatives in any controversy or legal proceeding relating to such
Developments, or to any patents, copyrights or trade secrets with respect
thereto. If for any reason the Employee refuses or is unable to assist the
Company in obtaining or enforcing its rights with respect to such Developments,
the Employee hereby irrevocably designates and appoints the Company and its duly
authorized agents as the Employee's agents and attorneys-in-fact to execute and
file any documents and to do all other lawful acts necessary to protect the
Company's rights in the Developments. The Employee expressly acknowledges that
the special foregoing power of attorney is coupled with an interest and is
therefore irrevocable and shall survive (i) the Employee's death or incompetency
and (ii) any termination of this Agreement.
6
12. INDEPENDENT COVENANTS. Each of the covenants on the part of the
Employee contained in paragraphs 8, 9, 10, and 11 of this Agreement shall be
construed as an agreement independent of each other such covenant. The existence
of any claim or cause of action of the Employee against the Company, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by the Company of any such covenant.
13. REASONABLENESS; INJUNCTION. The Employee acknowledges that the
covenants contained in this agreement are reasonably necessary and designed for
the protection of the Company and its business, and that such covenants are
reasonably limited with respect to the activities prohibited, the duration
thereof, the geographic area thereof, the scope thereof and the effect thereof
on the Employee and the general public. The Employee further acknowledges that
violation of the covenants would immeasurably and irreparably damage the
Company, and by reason thereof the Employee agrees that for violation or
threatened violation of any of the provisions of this Agreement, the Company
shall, in addition to any other rights and remedies available to it, at law or
otherwise, by entitled to any injunction to be issued by any court of competent
jurisdiction enjoining and restraining the Employee from committing any
violation or threatened violation of this Agreement. The Employee consents to
the issuance of such injunction.
14. NONCOMPETITION PERIOD. This Agreement shall remain enforceable
during the Employee's employment with the Company and for a period of two years
after termination of the Employee's employment for any reason (such period not
to include any period(s) of violation or period(s) of time required for
litigation to enforce the covenants set forth herein).
15. NONCOMPETITION AREA.
(a) The Employee acknowledges and agrees that the Company
does business on an international basis and that the Employee will assist
Company in developing Company's business in both the United States and Europe,
with customers throughout the United States and additionally existing in Europe,
particularly servicing France, Spain, the United Kingdon and Germany, and that
any breach of the Employee's covenants contained herein would materially damage
the Company, regardless of the area of the world in which the activities
constituting such breach were to occur. Accordingly, the terms and provisions of
this Agreement shall apply in the following Noncompetition Area:
(i) The State of North Carolina;
(ii) Any state other than North Carolina where
Company conducts the "Business" and in or for which the Employee
assists or performs services assisting Company;
(iii) Any political subdivision of foreign countries
where Company does "Business" or will do "Business" during the
period of employment; and
7
(iv) Any other state, country, or political
subdivision where Company does "Business" and in or for which
the Employee assists or performs services assisting Company.
16. BUSINESS. For the purposes of this Agreement, the "Business"
shall include any business, service, or product engaged in, provided, or
produced by the Company from the date of this Agreement to the date of the
termination of the employment, including, but not limited to: (i) the business
of development, production, marketing, design, manufacturing, leasing or selling
software related to business plans, legal services, whether for use by
professionals or consumers; (ii) providing web-hosted applications and
technology infrastructure syndication and/or (iii) any other business conducted
by the Company immediately prior to the date of termination of Employee's
employment or in which the Company shall at the time of termination of
Employee's employment with the Company be actively preparing to enter.
17. MISCELLANEOUS.
(a) This Agreement shall be subject to and governed by the
substantive laws of the State of North Carolina, without giving effect to the
conflicts of laws provisions thereof. The Employee hereby submits to the
jurisdiction and venue of the state and federal courts of North Carolina.
(b) The Company's failure to insist upon strict compliance
with any provision of this Agreement shall not be deemed a waiver of such
provision or any other provision.
(c) This Agreement may not be modified except by an
agreement in writing executed by the parties. The parties expressly waive their
right to orally modify this provision.
(d) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision.
(e) This Agreement shall not be assignable without the
written consent of the Company and the Employee.
(f) This Agreement shall inure to the benefit of and be
binding upon the Company and it successors and assigns.
(g) This Agreement expresses the whole and entire Employment
Agreement between the parties and supersedes and replaces any prior employment
Agreement, understanding or arrangement between Company and the Employee.
18. This Agreement terminates the Employment Agreement dated August
1, 2000, as amended to date. Except for that agreement, all other agreements
between the Company and Employee remain in full force and effect.
8
IN WITNESS WHEREOF, the parties executed this Agreement as of the day
and year first above written.
SMART ONLINE, INC.
By:/s/ Xxxxxx Xxxxxxx Xxxxx
------------------------------------
Xxxxxx Xxxxxxx Xxxxx
Title: Chief Executive Officer
WITNESS: /s/ Xxxxx Xxxxxxx EMPLOYEE: /s/ Xxxx Xxxxxxx
------------------ ------------------
9
