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EXHIBIT 10.12
EXECUTION COPY
[USINTERNETWORKING LOGO] CONFIDENTIAL
USINTERNETWORKING, INC.
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (the "AGREEMENT") dated as of
November 10, 2000 (the "Effective Date"), is made by and between
USinternetworking, Inc., a Delaware corporation (together with any successor
thereto, the "COMPANY") and ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ (the "EXECUTIVE").
This Agreement supercedes and replaces the Employment Agreement
dated May 29th, 1998, between the Executive and the Company, and the amendments
thereto, but is exclusive of the existing option agreements between the
Executive and the Company which shall remain in full force and effect.
In consideration of the mutual promises made below, the Company
and Executive agree as follows:
1. POSITION AND DUTIES
The Executive shall, for a period of three (3) years from
July 21, 2000 ("TERM"), serve as Chairman of the Board of Directors of the
Company and Chairman of the Executive Committee of the Board of Directors,
reporting to the Board of Directors of the Company. The Executive shall have the
duties which are commensurate and consistent with those of a chairman and board
member, including, but not limited to, creating the vision and strategic
direction of the Company. The Executive hereby confirms that by accepting this
new position and these duties, the Executive is not violating, and will not
violate, any agreements the Executive may have with any third parties, including
former employers.
2. COMPENSATION AND OTHER RELATED BENEFITS
(a) Annual Base Salary. During the Term the Executive
shall receive a base salary at a rate of three hundred seventy-five thousand
dollars ($ 375,000) per annum, subject to increase as determined by the
Compensation Committee ("ANNUAL BASE SALARY"). The Executive's salary shall be
payable in accordance with the Company's normal payroll procedures.
(b) Stock Options. The Executive shall be granted, as
of the Effective Date:
(i) a non-qualified stock option (the "First Option") to purchase two
hundred fifty thousand (250,000) shares of the Company's common
stock (subject to adjustment for stock splits and stock
dividends), with an exercise price equal to the closing price of
the Company's common stock, as reported on the Nasdaq National
Market, on July 21, 2000 ($19.3125/share). The term of the First
Option
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[CONFIDENTIAL TREATMENT] means that certain information has been deleted from
this document and filed separately with the Securities and Exchange Commission.
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shall be ten (10) years. The First Option shall vest as to 1/12th
(rounded to four decimal places) of the underlying shares on
September 30, 2000, and shall vest as to 1/12th (rounded to four
decimal places) of the underlying shares on the last day of each
calendar quarter thereafter during the Term until fully vested;
and
(ii) a non-qualified stock option (the "Performance Option") to
purchase two hundred fifty thousand (250,000) shares of the
Company's common stock (subject to adjustment for stock splits
and stock dividends), with an exercise price equal to the closing
price of the Company's common stock, as reported on the Nasdaq
National Market, on July 21, 2000 ($19.3125/share). The term of
the Performance Option shall be ten (10) years. The Performance
Option shall vest in full on July 20, 2003; provided, however,
that, in addition to the vesting described above, vesting shall
accelerate as follows: 1) upon the Executive's death or
"Disability" (as defined below), the Performance Option shall
vest as to 1/12th (rounded to four decimal places) of the
underlying shares for each of the calendar quarters the Executive
was employed during the Term of the Agreement until his death or
Disability; or 2) the achievement by the Company of the following
milestones during the Term while Executive is employed with the
Company:
(A) The Performance Option shall vest as to 1/6th of the
underlying shares on September 30, 2000, if the Company
achieves EBITDA of [CONFIDENTIAL TREATMENT] or better, and
has revenues of [CONFIDENTIAL TREATMENT] or better, in
each case determined as of the Company's fiscal quarter
ending September 30, 2000 and determined in accordance
with generally accepted accounting principles ("GAAP");
(B) The Performance Option shall vest as to 1/6th of the
underlying shares on December 31, 2000, if the Company
achieves EBITDA of [CONFIDENTIAL TREATMENT] or better, and
has revenues of [CONFIDENTIAL TREATMENT] or better, in
each case determined as of the Company's fiscal quarter
ending December 31, 2000 and determined in accordance with
GAAP;
(C) The Performance Option shall vest as to 1/6th of the
underlying shares on March 31, 2001, if the Company
achieves EBITDA of [CONFIDENTIAL TREATMENT] or better, and
has revenues of [CONFIDENTIAL TREATMENT] or better, in
each case determined as of the Company's fiscal quarter
ending March 31, 2001 and determined in accordance with
GAAP;
(D) The Performance Option shall vest as to 1/6th of the
underlying shares on June 30, 2001, if the Company
achieves EBITDA of [CONFIDENTIAL TREATMENT] or better, and
has revenues of [CONFIDENTIAL TREATMENT] or better, in
each case determined as of the Company's fiscal quarter
ending June 30, 2001 and determined in accordance with
GAAP;
(E) The Performance Option shall vest as to 1/6th of the
underlying shares on September 30, 2001, if the Company
achieves EBITDA of [CONFIDENTIAL TREATMENT] or
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better, and has revenues of [CONFIDENTIAL TREATMENT] or
better, in each case determined as of the Company's fiscal
quarter ending September 30, 2001 and determined in
accordance with GAAP;
(F) The Performance Option shall vest as to 1/6th of the
underlying shares on December 31, 2001, if the Company
achieves EBITDA of [CONFIDENTIAL TREATMENT] or better, and
has revenues of [CONFIDENTIAL TREATMENT] or better, in
each case determined as of the Company's fiscal quarter
ending December 31, 2001 and determined in accordance with
GAAP; and
(iii) a non-qualified stock option (the "Share Appreciation Option") to
purchase 500,000 shares of the Company's common stock (subject to
adjustment for stock splits and stock dividends), with an
exercise price equal to the closing price of the Company's common
stock, as reported on the Nasdaq National Market, on July 21,
2000 ($19.3125/share). The term of the Share Appreciation Option
shall be ten (10) years. The Share Appreciation Option shall vest
in full on July 20, 2005; provided, however, that such vesting
shall accelerate as follows:
(A) The Share Appreciation Option shall vest as to 1/3rd
(rounded to four decimal places) of the underlying shares
on the first day that the closing price of the Company's
common stock, as reported on the Nasdaq National Market,
is equal to or greater than an average of [CONFIDENTIAL
TREATMENT] per share (split adjusted) for [CONFIDENTIAL
TREATMENT] consecutive calendar days;
(B) The Share Appreciation Option shall vest as to 1/3rd
(rounded to four decimal places) of the underlying shares
on the first day that the closing price of the Company's
common stock, as reported on the Nasdaq National Market,
is equal to or greater than an average of [CONFIDENTIAL
TREATMENT] per share (split adjusted) for [CONFIDENTIAL
TREATMENT] consecutive calendar days; and
(C) The Share Appreciation Option shall vest as to 1/3rd
(rounded to four decimal places) of the underlying shares
on the first day that the closing price of the Company's
common stock, as reported on the Nasdaq National Market,
is equal to or greater than an average of [CONFIDENTIAL
TREATMENT] per share (split adjusted) for [CONFIDENTIAL
TREATMENT] consecutive calendar days.
The options will be delivered pursuant to mutually agreed to
Non-Qualified Stock Option Agreements, pursuant to the Company's Amended and
Restated 1998 Stock Option Plan (the "SOP"), to be executed by the Executive and
Company within two (2) weeks of the Effective Date. Notwithstanding anything in
the SOP to the contrary, the Company and the Executive agree that the
pooling-of-interest preservation provisions of Section 9.3(e) of the SOP shall
not apply to the stock options granted pursuant to this Paragraph 2(c). Future
option grants may be made to the Executive at the discretion of the Compensation
Committee of the Company's Board of Directors.
"DISABILITY" is defined as the failure of Executive to perform
the duties set forth in Paragraph 1 for a cumulative total of sixty percent
(60%) or more of the normal working days
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during any two (2) consecutive months of the Term, or failure to perform his
duties for ninety (90) or more consecutive days of the Term. Nothing herein
shall be construed to violate any Federal or State law including the Family and
Medical Leave Act of 1993, 29 U.S.C.S. Sections 2601 et seq., and the Americans
with Disabilities Act of 1990, 42 U.S.C.S. Sections 12101 et seq.
(d) Other Benefits. The Executive shall be entitled to
participate in any welfare benefit plans maintained by the Company for similarly
situated executives, which may include medical, dental, vision, disability and
life insurance benefits, and to receive such other fringe benefits and
perquisites as may be granted to senior management of the Company from time to
time. The Company shall provide, at no cost to the Executive, an additional life
insurance policy on the Executive's life with the beneficiary specified by the
Executive and the face amount of which shall be equal to twice the Executive's
Annual Base Salary as of the Effective Date, less any group insurance otherwise
provided pursuant to this Paragraph 2(d). The Executive shall also be entitled
to participate in the Company's 401(k) plan and any other retirement, deferred
compensation or long-term incentive compensation program that the Company may
establish for senior management from time to time. Additionally, the Executive
will be eligible for a reasonable number of days of paid vacation each year of
the Term., at the Executive's discretion.
(e) Other Expenses: In addition to the compensation
provided for above, the Company agrees to pay or to reimburse the Executive
during his employment for all reasonable travel, entertainment and other
expenses which the Executive may incur in regard to the business of the Company
in accordance with and subject to (i) the limitations of the Company's standard
practices and policies and (ii) the Executive's presentation of such documents
and records as the Company shall require from time to time to substantiate such
expenses.
3. TERMINATION WITHOUT CAUSE
If the Company terminates the Executive's employment
without "Cause" (as defined in Paragraphs 4 (a) - (f) below), the Company will
compensate the Executive as follows:
(a) Continue to pay the Annual Base Salary and
provide the welfare benefits under Paragraph
2(d) for one year or until the end of the
Term, whichever occurs sooner;
(b) Accelerate vesting of all of the Executive's
outstanding options, including options not
granted pursuant to Paragraph 2(c) of this
Agreement, which are unvested as of the date
of termination without Cause.
4. TERMINATION FOR CAUSE
Executive's employment may be terminated for "Cause" by the
Company upon thirty (30) days written notice, provided that the Executive shall
have the opportunity to cure the events constituting Cause during such thirty
(30) day notice period. If the Cause has not been
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cured by the Executive at the end of the thirty (30) day notice period,
Executive's Annual Base Salary, benefits and vesting of all options shall cease
as of the conclusion of the thirty day notice period of termination for Cause.
At the conclusion of the thirty (30) day notice period, a special session of the
full Board of Directors, excluding Executive, will be convened to consider the
alleged conduct or events constituting "Cause." In the event the Board of
Directors, after considering the alleged conduct or events and rebuttal by the
Executive, vote with a 2/3 majority of all the directors of the Board, excluding
Executive, that "Cause" exists under the terms of this Agreement, the
Executive's termination for "Cause" will be confirmed. However, if less than a
2/3 majority votes for "Cause", Executive's Annual Base Salary, benefits and
vesting of all options shall recommence as of the date they ceased. "CAUSE" is
defined as any one of the following:
(a) Executive's substantial failure to perform the
material duties under the Agreement;
(b) Willful or gross neglect of assigned duties so as to
cause material harm to the Company;
(c) Willful misconduct or gross negligence that materially
and adversely impacts the reputation of the Company;
or
(d) Executive's material breach of any provision of this
Agreement.
In addition, the Executive may, at the Company's option, be
terminated without notice and for "Cause" if any one of the following events
occur:
(e) Conviction of a felony or a crime involving moral
turpitude; or
(f) Material fraud or personal dishonesty involving
Company assets.
If the Executive is terminated for Cause, Executive's Annual Base
Salary, benefits, and vesting of all options shall cease as of the date of the
Executive's termination for Cause, and the Executive shall not receive any
severance pay or other benefits following such termination except as required by
applicable law; provided, however, that the Executive shall receive any portion
of the Annual Base Salary and bonus earned but unpaid as of the date of such
termination for Cause.
5. TERMINATION WITHOUT GOOD REASON
If Executive terminates his employment with the Company without
"Good Reason" (as defined below in Paragraph 6) prior to the expiration of the
Term, Executive's Annual Base Salary, benefits, and vesting of all options shall
cease as of the date of the Executive's termination without Good Reason, the
Executive shall voluntarily resign from the Company's Board of Directors and
Executive Committee, and the Executive shall not receive any severance pay or
other benefits following such termination except as required by applicable law;
provided, however, that the Executive shall receive any portion of the Annual
Base Salary earned but unpaid as of the date of such termination without Good
Reason.
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6. TERMINATION WITH GOOD REASON
If Executive terminates his employment with the Company
with "Good Reason" prior to the expiration of the Term, the Company will
compensate the Executive as follows:
(a) Continue to pay the Annual Base Salary and
provide the welfare benefits under Paragraph
2(d) for one year or until the end of the
Term, whichever occurs sooner; and
(b) Accelerate vesting of all of the Executive's
outstanding options, including options not
granted pursuant to Paragraph 2(c) of this
Agreement, which are unvested as of the date
of termination with Good Reason.
"GOOD REASON" is defined as any one of the following:
(i) Company's material breach of any provision of this Agreement;
(ii) Any material adverse change in Executive's position (including
status, offices, titles and reporting requirements), authority,
duties or responsibilities, or any other action by the Company or
the Board of Directors which results in: (A) a diminution in any
material respect in the Executive's position, authority, duties,
responsibilities or compensation; or (B) a material diversion
from the Executive's performance of the functions of his
position, excluding for this purpose material adverse changes
made with the Executive's written consent or due to Executive's
termination for Cause or termination without Good Reason;
(iii) Involuntary relocation of the Executive's regular work address to
a location which requires Executive to travel more than fifty
(50) miles from his residence;
provided, however, that it shall not constitute Good Reason unless Executive has
given the Company written notice of its alleged actions constituting Good Reason
and the Company has not cured any such alleged Good Reason within thirty (30)
days of the Company's receipt of such written notice. For purposes of clause
(ii), a material diminution of title, position, duties or responsibilities shall
be deemed to occur if the Company becomes a subsidiary of another corporation
unless, immediately after the Company becomes a subsidiary, persons who hold a
majority of the outstanding voting securities entitled to vote generally in the
election of directors of the parent company are persons who, immediately prior
to the Company becoming a subsidiary, held the Company Voting Stock (as defined
in Paragraph 9 below) and the Executive remains as Chairman of the Board of
Directors (with the same duties as set forth above in Paragraph 1) of the public
entity.
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7. POST-TERMINATION ACTIVITIES
(a) The Executive agrees that during his employment
with the Company and for 12 months thereafter, the Executive will not, and will
not cause others to:
(i) solicit or induce or attempt to solicit or
induce any employee or full time consultant of the Company (whether such
person is presently employed by the Company or may later be employed),
to leave the Company's employ or otherwise interfere with the employment
relationship between any such person and the Company;
(ii) solicit for competitive purposes, or attempt
to divert, take away, any exclusive suppliers or customers of the
Company or potential customers of the Company to whom the Company has
made presentations seeking to establish business relationships during
the Term, of which the Executive knew or should have known; or
(iii) publicly disparage the Company, its
operations, business, Board, directors, officers, management or
employees; or
(iv) compete with the Company or its subsidiaries
in the ASP market anywhere in the United States; provided, however, that
this clause (iv) shall not apply upon the Executive's termination by the
Company without Cause or termination by the Executive for Good Reason.
(b) In the event the terms of this Paragraph 7 shall be
determined by any court of competent jurisdiction to be unenforceable by reason
of its time period or geographic scope, the terms will be interpreted to extend
only over the maximum period of time and geographic scope which the court
determines are enforceable.
8. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
The Executive shall not improperly disclose any
confidential information or trade secrets of the Company during the course of
his employment and in perpetuity thereafter.
9. CHANGE IN CONTROL
If during the Term, and while the Executive is still employed, a
"Change in Control" (as defined below) occurs, then all of the Executive's
options then outstanding shall vest immediately before the Change in Control. A
"CHANGE IN CONTROL" is defined as:
(i) the acquisition by any Person, as defined in this
Paragraph 9, in a single transaction or a series of transactions (other than
through the distribution of shares of the securities of the Company from the
Company's Series A or B venture investors pursuant to partnership or
distribution agreements) of the beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Securities Exchange Act of 1934, as amended) of 50%
or more of (A) the then outstanding shares of the securities of the Company, or
(B) the combined voting power of the then outstanding securities of the Company
entitled to vote generally in the election of directors (the "Company Voting
Stock");
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(ii) the closing of a sale or other conveyance of all or
substantially all of the assets of the Company; or
(iii) the effective time of any merger, share exchange,
consolidation, or other business combination of the Company if
immediately after such transaction persons who hold a majority of
the outstanding voting securities entitled to vote generally in
the election of directors of the surviving entity (or the entity
owning 100% of such surviving entity) are not persons who,
immediately prior to such transaction, held the Company Voting
Stock.
For purposes of this Paragraph 9, a "Person" means any
individual, entity or group within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other
than: employee benefit plans sponsored or maintained by the Company or entities
controlled by the Company.
10. EXCISE TAX ON PARACHUTE PAYMENTS
The Executive shall bear all expense of, and be solely
responsible for, all federal, state, local or foreign taxes due with respect to
any payment received hereunder, including, without limitation, any excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"); provided, however, that any payment or benefit received or to be
received by the Executive in connection with a Change in Control or the
termination of the Executive's employment (whether payable pursuant to the terms
of this Agreement ("Contract Payments") or any other plan, arrangements or
agreement with the Company or any affiliate (collectively with the Contract
Payments, the "Total Payments") shall be reduced to the extent necessary so that
no portion thereof shall be subject to the excise tax imposed by Section 4999 of
the Code but only if, by reason of such reduction, the net after-tax benefit
received by the Executive shall exceed the net after-tax benefit received by the
Executive if no such reduction was made. For purposes of this Paragraph 10, "net
after-tax benefit" shall mean (i) the total of all payments and the value of all
benefits which the Executive receives or is then entitled to receive from the
Company that would constitute "parachute payments" within the meaning of Section
280G of the Code, less (ii) the amount of all federal, state and local income
taxes payable with respect to the foregoing calculated at the maximum marginal
income tax rate for each year in which the foregoing shall be paid to the
Executive (based on the rate in effect for such year as set forth in the Code as
in effect at the time of the first payment of the foregoing), less (iii) the
amount of excise taxes imposed with respect to the payments and benefits
described in (i) above by Section 4999 of the Code. The foregoing determination
shall be made by a nationally recognized accounting firm (the "Accounting Firm")
selected by the Company and reasonably acceptable to the Executive (which may
be, but will not be required to be, the Company's independent auditors). The
Accounting Firm shall submit its determination and detailed supporting
calculations to both the Executive and the Company within fifteen (15) days
after receipt of a notice from either the Company or the Executive that the
Executive may receive payments which may be "parachute payments." If the
Accounting Firm determines that such reduction is required by this Paragraph 10,
the Executive, in the Executive's sole and absolute discretion, may determine
which Total Payments shall be reduced to the extent necessary so that no portion
thereof shall be subject to the excise tax imposed by Section 4999 of the Code,
and
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the Company shall pay such reduced amount to the Executive. If the Accounting
Firm determines that no reduction is necessary under this Paragraph 10, it will,
at the same time as it makes such determination, furnish the Executive and the
Company an opinion that Executive shall not be liable for any excise tax under
Section 4999 of the Code. The Executive and the Company shall each provide the
Accounting Firm access to and copies of any books, records, and documents in the
possession of the Executive or the Company, 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 this Paragraph 10. The fees and expenses of the
Accounting Firm for its services in connection with the determinations and
calculations contemplated by this Paragraph 10 shall be borne by the Company.
11. RESTRICTION ON STOCK
For a period of one (1) year from the Effective Date, the
Executive agrees not to make any dispositions or sales of any common stock of
the Company that would be reportable as "non-exempt dispositions" under Section
16(b) of the Exchange Act. Notwithstanding the foregoing sentence, the Company
agrees that the Executive may transfer common stock of the Company:
(i) to one or more charities, charitable remainder trusts or
charitable annuity trusts,
(ii) to immediate family members, related by blood, marital
relations or adoption, or to one or more family trusts for the benefit of such
immediate family members, without limitation as to number of shares; provided
that the transferee under this clause (ii) agrees not to transfer or sell such
shares within the one (1) year period commencing on the Effective Date,
(iii) up to an aggregate of 450 shares to immediate family
members without restriction on such family members' right to subsequently sell
or transfer the shares, and
(iv) up to 5% of Executive's then current unrestricted holdings
of the Company's common stock in any secondary public offering of the Company's
common stock.
The restrictions imposed under this Paragraph 11 shall not apply after the
Executive's employment with the Company is terminated: (A) by the Executive with
Good Reason; (B) by the Company with or without Cause; or (C) on account of the
Executive's death or Disability.
12. LEGAL FEES
The Company agrees to reimburse the Executive for all
legal and professional fees and costs incurred by the Executive in connection
with the negotiation and preparation of this Agreement and the Non-Qualified
Stock Option Agreements referred to in Paragraph 2 of this Agreement, but in no
event to exceed $10,000.
13. BURDEN AND BENEFIT
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This Agreement shall be binding upon, and shall inure to
the benefit of, the Company and the Executive, and their respective heirs,
personal and legal representatives, successors and assigns. This Agreement may
not be assigned by the Executive without the prior written consent of the
Company.
14. SEVERABILITY
The provisions of this Agreement shall be deemed
severable, and the invalidity or unenforceability of any one or more of the
provisions hereof shall not affect the validity or enforceability of the other
provisions of this Agreement.
15. ENTIRE AGREEMENT
This Agreement contains the entire agreement and
understanding by and between the Company and the Executive with respect to the
subject matter hereof, and no representations, promises, agreements or
understandings, written or oral, not contained herein shall be of any force or
effect. No change or modification hereof shall be valid or binding unless the
same is in writing and signed by the party against whom such waiver is sought to
be enforced; moreover, no valid waiver of any provision of this Agreement at any
time shall be deemed a waiver of any other provision of this Agreement at such
time or will be deemed a valid waiver of such provision at any other time.
16. GOVERNING LAW
This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Maryland.
17. ARBITRATION
Any dispute or controversy arising under or in connection
with this Agreement which is not settled to the satisfaction of either party
pursuant to the special Board session set forth above in Paragraph 4 or
otherwise shall be settled exclusively by arbitration, conducted before a single
arbitrator in Baltimore, MD in accordance with the rules of the JAMS/ENDISPUTE
then in effect. Judgment may be entered on the arbitrator's award in any court
having jurisdiction; provided, however, that the Company shall be entitled to
seek a restraining order or injunction in any court of competent jurisdiction to
prevent any continuation of any violation of the provisions of Sections 7 or 8
of the Agreement and the Executive hereby consents that such restraining order
or injunction may be granted without the necessity of the Company's posting any
bond. The fees and expense of the arbitrator shall be borne by the
non-prevailing party.
18. NOTICES
Any notice under this Agreement shall be in writing and
delivered by fax, e-mail or registered mail to the signatories at the addresses
below.
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IN WITNESS WHEREOF, the parties have executed this Agreement as
of the Effective Date, November 10, 2000.
▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇: USINTERNETWORKING, INC.
/s/ ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
----------------------------- --------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Chairman, Compensation Committee
Address: ▇▇▇ ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
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