DIGITAL RIVER EMPLOYMENT AGREEMENT FOR XXXX X. XXXXXXX
This AGREEMENT is made effective as of May 25, 1998 by and between Digital
River Inc. (the "Company"), a corporation organized under the laws of Delaware,
with its principal administrative office at 0000 Xxxx 00xx Xxxxxx, Xxxxx,
Xxxxxxxxx and Xxxx X. Xxxxxxx (the "Executive").
WHEREAS, the Company wishes to assure itself of the services of the
Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the Company on
a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive agrees to serve as
Chairman and Chief Executive Officer of the Company. The Executive shall serve
as a full time employee of the Company to perform such duties as the Company may
from time to time reasonably direct. The Executive's responsibilities will
include, among other things, (i) developing and assisting in the development of
new products and business for the Company, (ii) supervising the preparation and
development of budgets for the Company for approval by the Board of Directors,
and (iii) developing and directing the Company's on-line services, finance,
marketing, sales and technology areas. Notwithstanding the above, the Executive
may maintain his interests existing as of the date hereof in Tech Squared Inc.
so long as the services rendered by the Executive in connection with the
position does not substantially interfere with the Executive's performance of
his duties under this Agreement.
2. TERM.
(a) The period of Executive's employment under this Agreement shall be deemed
to have commenced as of the date hereof, and shall continue for a period of
twenty-four (24) full calendar months thereafter (the "Expiration Date").
Unless written notice shall have been delivered by the party desiring to
terminate this Agreement, which written notice shall have been delivered not
later than 120 days prior to the Expiration Date (including the Expiration Date
with respect to any renewed term), this Agreement shall be renewed for
consecutive one (1) year periods.
(b) During the period of his employment hereunder, except for periods of
absence occasioned by illness, and reasonable vacation periods, Executive shall
devote substantially all his business time, attention, skill, and efforts to the
faithful performance of his duties hereunder including activities and services
related to the organization, operation and management of the Company, provided,
however, that, with the approval of the Board of Directors of the Company (the
"Board"), as evidenced by a resolution of such Board, from time to time,
Executive may serve,
or continue to serve, on the boards of directors of, and hold any other
offices or positions in, companies or organizations, which, in such Board's
judgment, will not present any conflict of interest with the Company, or
materially affect the performance of Executive's duties pursuant to this
Agreement.
(c) Notwithstanding anything herein contained to the contrary: (i) Executive's
employment with the Company may be terminated by the Company or Executive during
the term of this Agreement, subject to the terms and conditions of this
Agreement; and (ii) nothing in this Agreement shall mandate or prohibit a
continuation of Executive's employment following the expiration of the term of
this Agreement upon such terms and conditions as the Board and Executive may
mutually agree.
3. COMPENSATION AND REIMBURSEMENT.
(a) The compensation specified under this Agreement shall constitute the salary
and benefits paid for the duties described in Section 1. The Company shall pay
Executive as compensation a salary of not less than $140,000 per year to be
increased to not less than $225,000 per year upon the successful completion of
an initial public offering ("Base Salary"). Such Base Salary shall be payable
in accordance with the Company's payroll practice in effect from time to time.
During the period of this Agreement, Executive's Base Salary shall be reviewed
at least annually; the first such review will be made no later than one year
from the date of this Agreement. Such review shall be conducted by a Committee
designated by the Board, and the Board may increase Executive's Base Salary. An
increase shall become the "Base Salary" for purposes of this Agreement. In
addition to the Base Salary provided in this Section 3(a), the Company shall
also provide Executive at no cost to Executive with all such other benefits as
are provided uniformly to permanent full-time employees of the Company.
(b) The Executive shall also receive an annual bonus amount to be determined by
the Board. The bonus availability for 1998 will be 100% of the base salary at
the time of successful completion of the bonus objectives. The 1998 bonus
objectives are as follows: 50% of the bonus for the successful completion of an
IPO (based on the post IPO Base Salary), 50% of the bonus based on the
achievement of 1998 revenue goals as set forth by the compensation committee.
Executive shall continue to be entitled to receive an annual bonus in an amount
to be determined by the Board, this bonus will be similar in scope to the 1998
bonus. The Executive shall only be eligible for an annual bonus as long as the
Executive remains an employee of the Company.
(c) The Executive will be entitled to four (4) weeks paid vacation annually.
The Executive will be entitled to participate in or receive benefits under any
employee benefit plans including, but not limited to, retirement plans (i.e.,
401(k) plans), supplemental retirement plans, pension plans, profit-sharing
plans, health-and-accident plan, medical coverage or any other employee benefit
plan or arrangement made available by the Company currently or in the future to
its senior executives and key management employees, subject to and on a basis
consistent with the terms, conditions and overall administration of such plans
and arrangements. Executive will be entitled to incentive compensation and
bonuses as provided in any plan of the company in which
Executive is eligible to participate. Nothing paid to the Executive under
any such plan or arrangement will be deemed to be in lieu of other
compensation to which the Executive is entitled under this Agreement. In
addition the Company shall maintain term life insurance, naming the
Executive's designee as beneficiary, in the face amount of $1,000,000.
(d) In addition to the Base Salary provided for by paragraph (a) of this
Section 3 and other compensation provided for by paragraphs (b) and (c) of this
Section 3, the Company shall pay or reimburse Executive for all reasonable
travel and other reasonable expenses incurred by Executive performing his
obligations under this Agreement.
(e) It is agreed that the company has already granted to the Executive,
pursuant to a stock option agreement satisfactory to the Executive, stock
options to purchase 650,000 shares of common stock at an exercise price of $2.00
per share (being the then fair market value of such stock). 25% (162,500) of
the options shall vest immediately with the remainder vesting equally over a
four (4) year period commencing on the grant date, subject to Sections 4(e) and
5(e) hereof. These options may be exercised with the use of a "broker notice."
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
The provisions of this Section shall in all respects be subject to the terms and
conditions stated in Sections 7 and 14.
(a) Upon the occurrence of an Event of Termination (as herein defined) during
the Executive's term of employment under this Agreement, the provisions of this
Section 4 shall apply. As used in this Agreement, an "Event of Termination"
shall mean and include any one or more of the following: (i) the termination by
the Company of Executive's full-time employment hereunder for any reason,
including, without limitation, the company's failure to renew this Agreement,
other than a Change in Control (as defined in Section 5(a) hereof, upon
Retirement (as defined in Section 6 hereof), death or disability (as defined in
Section 6 hereof), or for Cause (as defined in Section 7 hereof); (ii)
Executive's resignation from the company's employ, upon any (A) failure to elect
or reelect or to appoint or reappoint Executive as Chief Executive Officer, (B)
unless consented to by the Executive, a material change in Executive's function,
duties, or responsibilities, which change would cause Executive's position to
become one of lesser responsibility, importance, or scope from the position and
attributes thereof described in Section 1, above, (and any such material change
shall be deemed a continuing breach of this Agreement), (C) a relocation of
Executive's principal place of employment by more than 30 miles from its
location at the effective date of this Agreement, or a material reduction in the
benefits and perquisites to the Executive from those being provided as of the
effective date of this Agreement or (D) material breach of this Agreement by the
Company. Upon the occurrence of any event described in clauses (A), (B), (C) or
(D), above, Executive shall have the right to elect to terminate his employment
under this Agreement by resignation upon not less than thirty (30) days prior
written notice given within a reasonable period of time not to exceed, except in
case of a continuing breach, three (3) calendar months after the event giving
rise to said right to elect.
(b) Subject to Section 10 hereof, upon the occurrence of an Event of
Termination, the Company shall be obligated to pay Executive, or, as severance
pay or liquidated damages, or both, an
amount equal to the sum of (i) twelve (12) months of the Executive's Base
Salary at the time of the occurrence of the Event of Termination plus (ii)
the average of the Annual Bonus amount for the three (3) prior years (or such
lesser time number of years, in the event that the Executive has been
employed by the Company for less than three (3) years). At the election of
the Executive such payment shall be made in a lump sum or in twelve (12)
equal monthly installments during the twelve (12) months following
Executive's termination.
(c) Upon the occurrence of an Event of Termination, the Company will cause to
be continued life, medical, dental and disability coverage (to the extent
available) substantially identical to the coverage maintained by the Company for
Executive prior to his termination for twelve (12) months.
(d) Upon the occurrence of an Event of Termination, the Executive will be
entitled to receive vested benefits due him under or contributed by the Company
on his behalf pursuant to any retirement, incentive, profit sharing, bonus,
performance, disability (if coverage is available under the company's current
policy) or other employee benefit plans maintained by the Company on the
Executive's behalf to the extent that such benefits are not otherwise paid to
Executive under a separate provision of this Agreement.
(e) Upon the occurrence of an Event of Termination, any unexercised stock
options granted to the Executive pursuant to Section 3(e) of this Agreement
shall immediately vest and be immediately exercisable upon the Executive's
receipt of the Notice of Termination relating to such Event of Termination for a
period of one hundred twenty (120) days thereafter. These options will be
exercisable through the standard means as outlined in the companies option plan
or through a broker exercise notice at the Executive's discretion.
5. CHANGE IN CONTROL.
(a) No benefit shall be payable under this Section 5 unless there shall have
been a Change in Control of the Company as set forth below. For purposes of
this Agreement, a "Change in Control" of the Company shall mean an event of a
nature that: (i) would be required to be reported in response to Item 1 (a) of
the current report on Form 8-K pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act") if the Company were (or is) required
to file reports pursuant to the Exchange Act; or (ii) without limitation such a
Change in Control shall be deemed to have occurred at such time as (A)
individuals who constitute the Board on the date hereof (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date hereof whose election was
approved by a vote of at least a majority of the directors comprising the
Incumbent Board, shall be, for purposes of this clause (A), considered as though
he were a member of the Incumbent Board; or (B) a plan of reorganization,
merger, consolidation, sale of all or substantially all the assets of the
Company or similar transaction occurs in which the company is not the resulting
entity; or (C) a proxy statement shall be distributed soliciting proxies from
stockholders of the Company, by someone other than the current management of the
Company, seeking stockholder approval of a plan of reorganization, merger or
consolidation of the company with one or more corporations as a result of which
the outstanding shares of the class of securities then subject to such a plan or
transaction are exchanged for or converted into
cash or property or securities not issued by the company shall be
distributed; or (D) a tender offer is completed for 20% or more of the voting
securities of the Company then outstanding.
(b) If any of the events described in Section 5(a) hereof constituting a Change
in Control have occurred or the Board has determined that a change in Control
has occurred, Executive shall be entitled to the benefits provided in paragraphs
(c) and (d) of this Section 5 upon his subsequent termination of employment at
any time during the term of this Agreement (regardless of whether such
termination results from his dismissal or his resignation at any time during the
term of this Agreement following any demotion, loss of title, office or
significant authority or responsibility, reduction in the annual compensation or
benefits or relocation of his principal place of employment by more than 30
miles from its location immediately prior to the change in control), unless such
termination is because of Termination for Cause.
(c) Upon the occurrence of a Change in Control followed by the Executive's
termination of employment, the Company shall pay Executive, or in the event of
his subsequent death, his beneficiary or beneficiaries, or his estate, as the
case may be, as severance pay or liquidated damages, or both, an amount equal to
the sum of (i) twelve (12) months of the Executive's Base Salary at the time of
the occurrence of the Change in Control plus (ii) the average of the Annual
Bonus amount for the prior three (3) years (or such lesser number of years, in
the event that the Executive has been employed by the Company for less than (3)
three years). At the election of the Executive, which election is to be made
within thirty (30) days of the Date of Termination following a change in
Control, such payment shall be made in a lump sum or paid in equal monthly
installments during the twelve (12) months following Executive's termination.
In the event that no election is made, payment to the Executive will be made on
a monthly basis during the remaining term of the Agreement.
(d) Upon the occurrence of a Change in Control followed by the Executive's
termination of employment, the Company will cause to be continued life, medical,
dental and disability coverage (if coverage is available under the Company's
current policy) substantially identical to the coverage maintained by the
Company for Executive prior to his severance for twelve (12) months following
termination.
(e) Upon the occurrence of a Change of Control, any unexercised stock options
granted to the Executive pursuant to Section 3(d) of this Agreement shall
immediately vest and be immediately exercisable and may be exercised as outlined
in 3(e).
6. TERMINATION UPON RETIREMENT, DEATH, AND DISABILITY.
(a) Termination by the Company of the Executive based on "Retirement" shall
mean termination in accordance with the Company's retirement policy or in
accordance with any retirement arrangement established with executive's consent
with respect to him. Upon termination of Executive upon Retirement, Executive
shall be entitled to all benefits under any retirement plan of the Company and
other plans to which Executive is a party.
(b) This Agreement shall automatically terminate upon the death of the
Executive. If terminated because of death as a minimum the rights granted in
section 4(e) will be immediately available for executives beneficiary.
(c) If the Executive is Disabled (as defined below) for a continuous period of
six (6) months, the Company may terminate this Agreement upon written notice to
the Executive. If the Company terminates the Executive due to the Disability of
the Executive, the Company shall, for a period of one (1) year from the date of
termination, provide the Executive with the term life insurance and medial
insurance as are in effect at the time of termination. The Executive, for
purposes thereof, shall be deemed to be "Disabled" when, as a result of bodily
injury or disease or mental disorder he is so disabled that he is prevented from
performing the principal duties of his employment and is under the regular care
of a currently licensed physician or surgeon for such bodily injury, disease or
mental disorder.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of (i) any
knowing act, or knowing failure to act, by the Executive involving fraud or
willful malfeasance in the performance of his duties under this Agreement,
including, but not limited to, Executive's willful failure to serve as a full
time employee of the company pursuant to the terms and provisions of Section 1
of this Agreement, or (ii) the Executive's unlawful appropriation of a corporate
opportunity or other breach of fiduciary duty or other obligation to the
Company, or (iii) the conviction of the Executive of a felony under federal or
state law. For purposes of this Section, no act, or the failure to act, on
Executive's part shall be "willful" unless done, or omitted to be done, not in
good faith and without reasonable belief that the action or omission was in the
best interest of the Company or its affiliates. Notwithstanding the foregoing,
Executive shall not be deemed to have been Terminated for Cause unless and until
there shall have been deliver to him a Notice of Termination which shall include
a copy of a resolution duly adopted by the affirmative vote of a majority of
the members of the Board at a meeting of the Board called and held for that
purpose (after reasonable, 30 days, notice to Executive and an opportunity for
him, together with counsel, to be heard before the Board), finding that in the
good faith opinion of the Board, Executive was guilty of conduct justifying
termination for Cause and specifying the particulars thereof in detail. The
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause.
8. NOTICE
(a) Any purported termination by the Company or by the Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean (A) if Executive's employment is
terminated for Disability, thirty (30) days after a Notice of Termination is
given (provided that he shall not have returned to the performance of his duties
on a full-time basis during such thirty (30) day period), and (B) if his
employment is terminated for any other reason, the date specified in the Notice
of Termination.
9. CONFIDENTIALITY
Executive will not, during or after the term of his employment, disclose any
knowledge of the past, present, planned or considered business activities of the
Company thereof to any person, firm corporation, or other entity for any reason
or purpose whatsoever which is not otherwise publicly available. In the event
of a breach or threatened breach by the Executive of the provisions of this
Section 9, the Company will be entitled to an injunction restraining Executive
from disclosing, in whole or in part, the knowledge of the past, present,
planned or considered business activities of the Company, or from rendering any
services to any person, firm corporation, other entity to whom such knowledge,
in whole or in part, has been disclosed or is threatened to be disclosed.
Nothing herein will be construed as prohibiting the Company from pursuing any
other remedies available to the Company for such breach or threatened breach,
including the recovery of damages from Executive.
10. NON-COMPETITION.
Upon any termination of Executive's employment hereunder pursuant to Section 4
hereof, Executive agrees not to compete with the Company for a period of twelve
(12) months following such termination in those states within the United States
and those countries outside the United States in which the Company conducts
business (the "Restricted Area"); provided, that the Executive may continue his
involvement with Tech Squared and other permitted interests and the ownership by
the Executive of less than five percent (5%) or less of a publicly-traded class
of securities shall not be deemed a violation of this Section 10. Executive
agrees that during such period and within the Restricted Area, Executive shall
not work for or advise, consult or otherwise serve with, directly or indirectly,
any entity whose business materially competes with the business of distributing
third party vendors software via the Internet. The parties hereto, recognizing
that irreparable injury will result to the Company, its business and property in
the event of Executive's breach of this Section 10 agree that in the event of
any such breach by Executive, the Company will be entitled, in addition to any
other remedies and damages available, to an injunction to restrain the violation
hereof by Executive. Executive represents and admits that in the event of the
termination of his employment pursuant to Section 7 hereof, Executive's
experience and capabilities are such that Executive can obtain employment in a
business engaged in other lines and/or of a different nature than the Company,
and that the enforcement of a remedy by way of injunction will not prevent
Executive from earning a livelihood. Nothing herein will be construed as
prohibiting the Company from pursuing any other remedies available to the
Company for such breach or threatened breach, including the recovery of damages
from Executive.
11. SOURCE OF PAYMENTS.
All payments provided in this Agreement shall be timely paid in cash or check
from the general funds of the Company. The Company may use insurance proceeds
especially obtained therefore as partial payment in the event of disability.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto and
supersedes any prior employment agreement between the Company or any predecessor
of the Company and Executive, except that this Agreement shall not affect or
operate to reduce any benefit or compensation inuring to the Executive of a kind
elsewhere provided. No provision of this Agreement shall be interpreted to mean
that Executive is subject to receiving fewer benefits than those available to
him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this Agreement
shall be subject to anticipation, commutation, alienation, sale, assignment,
encumbrance, charge, pledge, or hypothecation, or to execution, attachment,
levy, or similar process or assignment by operation of law, and any attempt,
voluntary or involuntary, to affect any such action shall be null, void, and of
no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Company and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument in
writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been waived,
nor shall there be any estoppel against the enforcement of any provision of this
Agreement, except by written instrument of the party charged with such waiver or
estoppel. No such written waiver shall be deemed a continuing waiver unless
specifically stated therein, and each such waiver shall operate only as to the
specific term or condition waived and shall not constitute a waiver of such term
or condition for the future as to any act other than that specifically waived.
15. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
16. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
17. GOVERNING LAW
This agreement shall be governed by the laws of the State of Minnesota.
IN WITNESS WHEREOF, the parties hereto have caused this Executive
Employment Agreement to be duly executed and delivered as of the day and year
first above written.
EXECUTIVE: COMPANY:
XXXX X. XXXXXXX DIGITAL RIVER, INC.
/s/ Xxxx X. Xxxxxxx BY /s/ Xxxxxx X. Xxxxxxx
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TITLE: Chairman of Compensation Committee
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