NONCOMPETITION AND NONDISCLOSURE AGREEMENT
THIS NONCOMPETITION AND NONDISCLOSURE AGREEMENT (this "AGREEMENT") is
made as of the 7th day of May, 1998, by and between FlashNet Communications,
Inc., a Texas corporation (the "COMPANY"), and M. Xxxxx Xxxxxx, an individual
("EMPLOYEE").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Stock Purchase Agreement dated as of
the date hereof between the Company and ISP Investors, L.P., Fourteen Hill
Capital, LP, Xxxxx X. Xxxxxxx, J. Xxxxxx Xxxx, Xx., Xxxx X. Xxxxxxxx, Apogee
Fund LP, and Xxxxxx X. Xxxxxx (the "INVESTORS"), the Investors have agreed to
make an equity investment in the Company on the terms and conditions
specified in such Stock Purchase Agreement (the "INVESTMENT");
WHEREAS, in connection with the Investment and as a condition precedent
to the effectiveness of the Stock Purchase Agreement, the Investors are
requiring Employee to enter into this Agreement with the Company;
WHEREAS, the protections afforded by this Agreement are necessary in
order for the Company to protect its goodwill and other business interests,
in which the Investors are making a substantial investment pursuant to the
terms of the Stock Purchase Agreement;
WHEREAS, as a result of such investment by the Investors, the Company
directly and the Employee indirectly are reaping substantial benefits and,
therefore, are willing to enter into this Agreement; and
WHEREAS, Employee acknowledges and agrees that this Agreement places on
him limitations as to the business or investment activities he may pursue as
well as the time during which and the geographic area over which such
limitations will remain in effect, which limitations are deemed by him to be
reasonable and no greater than are necessary under the circumstances to
protect the goodwill and other business interests of the Company and the
investment of the Investors therein;
NOW, THEREFORE, in consideration of the premises, the mutual promises
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the Company and Employee,
intending to be legally bound, agree as follows:
1. NONCOMPETITION AND PROTECTION OF CONFIDENTIAL INFORMATION.
(a) Employee agrees that during his employment by the Company and the
one (1) year period thereafter (the "RESTRICTED PERIOD"), Employee shall not,
directly or indirectly, and regardless of the reason for his engaging in any
such activities:
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(i) within the United States of America, own, manage, operate,
control, invest or acquire an interest in, or otherwise engage or
participate in (whether as a proprietor, owner, member, partner,
stockholder, director, officer, employee, consultant, joint venturer,
investor, sales representative or other participant) any business or entity
that manages or operates any business or for-profit entity that is engaged
primarily in the provision of Internet access connectivity to consumers and
the small office/home office market offering delivery of the service via
the Public Switched Telephone Network; PROVIDED, HOWEVER, that: (i) unless
the Company timely pays the Payment (as defined below), the foregoing
restriction on the activities of Employee shall not apply following the
involuntary termination of Employee's employment without Cause (as defined
below) or following Employee's resignation for Good Reason (as defined
below), and (ii) the foregoing provisions shall not prohibit Employee from
being a passive investor in any publicly traded entity, as long as any such
investment does not exceed 1% of the outstanding equity securities of such
entity;
(ii) attempt in any manner to solicit from any customer or other
party the business of the type performed by the Company or its affiliates
for such party or to persuade any such party to cease to do business or to
reduce the amount of business which any such party has customarily done or
contemplates doing with the Company or its affiliates, whether or not the
relationship between the Company and any such party was originally
established in whole or in part through the efforts of Employee; PROVIDED,
HOWEVER, that unless the Company timely pays the Payment (as defined
below), the foregoing restriction on the activities of Employee shall not
apply following the involuntary termination of Employee's employment
without Cause (as defined below) or following Employee's resignation for
Good Reason (as defined below);
(iii) employ or attempt to employ (or assist anyone else to employ)
any person who is an employee of or exclusive consultant to the Company or
its affiliates; PROVIDED, HOWEVER, that unless the Company timely pays the
Payment (as defined below), the foregoing restriction on the activities of
Employee shall not apply following the involuntary termination of
Employee's employment without Cause (as defined below) or following
Employee's resignation for Good Reason (as defined below); or
(iv) render to or for any customer or other party to a business
relationship of the Company or its affiliates any services of the type
rendered by the Company or its affiliates; PROVIDED, HOWEVER, that unless
the Company timely pays the Payment (as defined below), the foregoing
restriction on the activities of Employee shall not apply following the
involuntary termination of Employee's employment without Cause (as defined
below) or following Employee's resignation for Good Reason (as defined
below).
(b) Employee further agrees that, he will not at any time (whether
during the Restricted Period or thereafter) disclose to anyone any
confidential information or trade secrets of the Company or any proprietary
information of a customer or other party to a business relationship
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of the Company, or utilize such confidential information or trade secrets for
his own benefit, or for the benefit of third parties and all memoranda,
notes, records or other documents compiled by him or made available to him
prior to the date hereof pertaining to the Company and/or its customers or
other business relationships shall be the property of the Company and shall
be delivered to the Company at any time upon request by the Company.
(c) If Employee commits a breach or is about to commit a breach of any
of the provisions of Sections 1(a) or (b) above, the Company shall have the
right to have the provisions of this Agreement specifically enforced by any
court having equity jurisdiction without being required to post bond or other
security and without having to prove the inadequacy of any other available
remedies, it being acknowledged and agreed that any such breach will cause
irreparable injury to the Company and that money damages will not provide an
adequate remedy to the Company. In addition, the Company may take all such
other actions and remedies available to it in law or in equity and shall be
entitled to such damages as it or they can show it or they have sustained by
reason of such breach.
(d) The parties acknowledge that the type and periods of restriction
imposed in the provisions of clauses Sections 1(a) and (b) above, are fair
and reasonable and are reasonably required for the protection of the Company,
its business and goodwill, and the substantial investment by the Investors
therein. Further, the time, scope, geographic area and other provisions of
this Section 1 have been specifically negotiated by sophisticated parties,
each of whom have been represented by competent legal counsel, and are given
as an integral part of the Investment. If any of the covenants in Sections 1(a)
or (b) above, or any part thereof, is hereafter construed to be invalid or
unenforceable, it is the intention of the parties that the same shall not
affect the remainder of the covenant or covenants, which shall be given full
effect, without regard to the invalid portions. If any of the covenants
contained in Sections 1(a) or (b), or any part thereof, is held to be
unenforceable because of the duration of such provision or the area covered
thereby, the parties agree that the court making such determination shall
reduce the duration and/or areas of such provision such that, in its reduced
form, said provision shall then be enforceable.
(e) In the event the Company terminates Employee without Cause or
Employee resigns from the Company for Good Reason, then in order for the
covenants contained in Section 1(a) hereof to remain in effect, the Company
must, within five (5) business days following such termination or
resignation, pay to Employee a lump sum cash payment equal to the greater of
(i) Employee's actual aggregate cash salary and bonus received during the
twelve (12) months preceding termination or resignation, as applicable, and
(ii) the sum of Employee's annualized salary as in effect immediately
preceding such termination or resignation, as applicable, and the cash bonus
for the fiscal year earned by Employee through the date of termination or
resignation (the "PAYMENT").
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2. CONSIDERATION. In partial consideration of Employee's performance
of his obligations hereunder, concurrently with his execution and delivery of
this Agreement: (i) the Company is executing and delivering the Stock
Purchase Agreement to facilitate the Investment, (ii) the Investors are
paying to the Company the cash sum specified under the Stock Purchase
Agreement, to which this Agreement is ancillary, and (ii) the parties to the
Stock Purchase Agreement are making their respective covenants,
representations and warranties thereunder.
3. NOTICES. Any notice or communication required or permitted
hereunder shall be given in writing and shall be (a) sent by first class
registered or certified United States mail, postage prepaid, (b) sent by
overnight or express mail or expedited delivery service, (c) delivered by
hand or (d) transmitted by wire or telefax, to the proper address provided in
the Stock Purchase Agreement or to such other address or to the attention of
such other person as hereafter shall be designated in writing by the
applicable party sent in accordance herewith. Any such notice or
communication shall be deemed to have been given as of the date received.
4. SEVERABILITY. Every provision in this Agreement is intended to be
severable. In the event that any provisions of this Agreement shall be held
to be invalid, the same shall not affect in any respect whatsoever the
validity of the remaining provisions of this Agreement.
5. HEADINGS. The headings of the this Agreement are for convenience
and shall not by themselves determine the interpretation of this Agreement.
6. NO WAIVER. The failure of any party to insist upon strict
performance of a covenant hereunder or of any obligation hereunder,
irrespective of the length of time for which such failure continues, shall
not be a waiver of such party's right to demand strict compliance in the
future. No consent or waiver, express or implied, to or of any breach or
default in the performance of any obligation hereunder shall constitute a
consent or waiver to or of any other breach or default in the performance of
the same or any obligation hereunder.
7. AMENDMENT. This Agreement may be changed, modified or amended only
by an instrument in writing duly executed by all of the parties hereto. Any
such amendment shall be effective as of such date as may be determined by the
parties hereto.
8. CHOICE OF LAW. This Agreement and the rights and obligations of the
parties hereunder shall be governed by the laws of the State of Texas,
without regard to the principles of conflicts of laws thereof.
9. DEFINED TERMS. As used herein:
(a) "CAUSE" shall mean by reason of any of the following: (A) Employee's
conviction of, or plea of NOLO CONTENDERE to, any felony, or to any crime or
offense causing substantial harm to the Company or any of its affiliates
(whether or not for personal gain) or involving acts of theft, fraud,
embezzlement, moral turpitude or similar conduct, (B) Employee's violation of
the
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Company's substance abuse policy, if any, as such may apply from time to
time, (C) malfeasance in the conduct of Employee's duties, including, but not
limited to, (1) willful and intentional misuse or diversion of the Company's
or any of its affiliate's funds, (2) embezzlement, and/or (3) fraudulent,
willful or material misrepresentations or concealments on any written reports
submitted to the Company or any of its affiliates, (D) material failure to
follow or comply with the reasonable and lawful directives of the chief
executive officer or Board of Directors of the Company, (E) a material breach
by Employee of this Agreement, (F) mental or physical incapacity or inability
of Employee to perform his duties for a consecutive period of ninety (90) days
or a non-consecutive period of one hundred twenty (120) days during any
twelve month period, or (G) the death of Employee.
(b) "GOOD REASON" shall mean a significant and material change in the
nature or scope of Employee's duties to duties that are, taken as a whole,
inconsistent with the position in the Company then occupied by Employee or
inconsistent with Employee's range and duration of experience.
10. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which shall constitute one
and the same instrument
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
on its behalf by its duly authorized officer, and Employee has executed this
Agreement, as of the date first above written.
FLASHNET COMMUNICATIONS, INC.
By: /s/ X. Xxx Thurburn
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Name: X. Xxx Thurburn
--------------------------------
Title: CEO
-------------------------------
/s/ M. Xxxxx Xxxxxx
-----------------------------------------
M. Xxxxx Xxxxxx
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