Exhibit 10.6
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is effective as of the 30th day of
January 2002, by and between TELKONET COMMUNICATIONS, INC., a Delaware
corporation (the "Company"), and J. XXXXXXX XXXXXX (the "Executive").
W I T N E S S E T H
WHEREAS, the Company desires to employ the Executive, and the Executive desires
to be employed by the Company, on the terms and subject to the conditions set
forth herein;
NOW, THEREFORE, in consideration of the mutual promises herein contained, the
parties hereby agree as follows:
1. EMPLOYMENT.
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The Company hereby employs the Executive as its Chief Executive Officer
and the Executive hereby accepts such employment, on the terms and
subject to the conditions hereinafter set forth.
2. TERM.
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Subject to the provisions for the termination of this Agreement as
provided for herein, the term of this Employment Agreement shall
commence on the date hereof and shall continue through January 30th,
2005 (the "Base Term") and shall automatically be extended for an
additional one year (each a "Renewal Year") at the end of the Base Term
and each Renewal Term unless on or before the sixtieth (60th) day prior
to the end of the Base Term or a Renewal Term, either party gives to
the other party written notice of termination of this Employment
Agreement, in which case this Employment Agreement shall terminate upon
the completion of the then applicable employment period.
3. POSITION AND DUTIES.
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(a) The Executive shall serve as the Chief Executive Officer of
the Company. The Executive's exact duties and the scope of his
authority without obtaining Board of Director approval shall
be set forth in a separate writing, and attached hereto as
Exhibit A. The duties and scope of authority may be changed by
the Board of Directors from time to time in the exercise of
its reasonable business judgment. The Executive shall be
entitled to the full protection of applicable indemnification
provisions of the certificate of incorporation, bylaws of the
Company and the corporate law of Delaware, as the same may be
amended from time to time, for his service as a director,
officer and employee of the Company or any subsidiary of the
Company or for services performed for any fringe benefit
program of the Company. Such indemnification shall include all
permissive provisions including advancement of payment.
(b) The Executive shall have the right to terminate his employment
with the Company but such termination shall not be considered
a voluntary resignation or termination of such employment or
of this Employment Agreement by the Executive but rather a
discharge of the Executive by the Company without "cause" (as
defined in 6(A)(ii)). This shall apply in the following
conditions:
(i) the Executive is required to relocate from his
current residence in Charlotte, NC;
(ii) there occurs a material breach by the Company of any
of its obligations under this Employment Agreement
(other than those specified in this Section 3(b))
that has not been cured in all material respects
within ten (10) days after the Executive gives notice
thereof to the Company;
(iii) there occurs a "change in control" (as hereinafter
defined) of the Company; or
(iv) the Executive has not been paid for a cumulative
sixty (60) day period without Executive's written
consent in excess of the period of nonpayment for
similar Executives.
(c) The term "change in control" means the first to occur of the
following events:
(i) any person or group of commonly controlled persons
who are not currently stockholders, acquires,
directly or indirectly, thirty percent (30%) or more
of the voting control or value of the equity
interests in the Company; or
(ii) the shareholders of the Company approve an agreement
to merge or consolidate with another corporation or
other entity resulting (whether separately or in
connection with a series of transactions) in a change
in ownership of twenty percent (20%) or more of the
voting control or value of the equity interests in
the Company, or an agreement to sell or otherwise
dispose of all or substantially all of the Company's
assets (including, without limitation, a plan of
liquidation or dissolution), or otherwise approve of
a fundamental alteration in the nature of the
Company's business.
4. COMPENSATION.
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During the term of this Employment Agreement, the Company shall pay or
provide, as the case may be, to the Executive the compensation and
other benefits and rights set forth in this Paragraph 4.
(a) The Company shall pay to the Executive a base salary payable
in accordance with the Company's usual pay practices (and in
any event no less frequently than monthly) at the rate of One
Hundred Thirty Thousand Dollars ($130,000) per annum, which
may be increased (but not decreased) from time to time based
upon the performance of the Company and the Executive.
Currently, this amount is payable bi-weekly.
(b) The Executive shall receive options to purchase 650,000 shares
of common stock from the Employee Stock Option plan at the
exercise price of $1.00 per share. The first 50,000 shares are
immediately vested upon the execution of the Employment
Agreement and the remaining 600,000 shares vest ratably at
50,000 shares per consecutive calendar quarter from the date
of the Employment Agreement.
(c) The Company may pay to the Executive bonus compensation for
each calendar or fiscal year of the Company, not later than
ninety (90) days following the end of each year or the
termination of his employment, as the case may be, prorated on
a per diem basis for partial calendar or fiscal years. It is
acknowledged that these bonuses may be based in part on the
Executive's performance and in part on the Company's
performance.
(d) During the Base Term of this Agreement and any Renewal Term,
the Company shall maintain in full force and effect, and the
Executive shall be entitled to participate in, all of the
Company's employee benefit plan and arrangements in effect on
the date hereof in at least the same manner and capacity as
the officers and key management employees of the Company. This
does not include life insurance or disability insurance if the
cost of coverage is substantially in excess of the average
cost for someone of the same age. The Company shall not make
any changes in such plans and arrangements which would
adversely affect the Executive's rights or benefits
thereunder, unless such change occurs pursuant to a program
applicable to all officers and key management employees of the
Company. The Executive shall be entitled to participate in or
receive benefits under any employee benefit plan or
arrangement made available by the Company in the future to its
officers and key management employees, subject to and on a
basis consistent with the terms, conditions and overall
administration of such plans and arrangements as long as the
cost of coverage is not substantially in excess of the average
cost of someone of the same age. Nothing paid to the Executive
under any plan or arrangement presently in effect or made
available to the Executive in the future shall be deemed to be
in lieu of any amounts payable to the Executive pursuant to
this Section 4.
(e) The Company shall reimburse the Executive or provide him with
an expense allowance during the term of this Employment
Agreement for travel, entertainment and other expenses
reasonable and necessarily incurred by the Executive in
connection with the Company's business. The Executive shall
furnish such documentation with respect to reimbursements or
allowances to be made hereunder as the Company shall
reasonably request. Depending on the individual's exact
duties, a company owned vehicle may be provided.
(f) Upon dissolution or liquidation of the Company, or upon a
merger or consolidation in which the Company is not the
surviving corporation, all Options awarded to the Executive
under the ESOP and not previously exercised and vested shall
become fully exercisable and vested no later than the date of
such dissolution, merger or consolidation, and the Executive
shall have the right, immediately prior to such dissolution or
liquidation, or such merger or consolidation, to exercise such
Executive's Options in whole or in part, but only to the
extent that such Options are otherwise exercisable under the
terms of the Plan.
5. PAYMENT IN THE EVENT OF DISABILITY.
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(a) In the event of the Executive's "permanent disability" (as
hereinafter defined) during the term of this Employment
Agreement, for a period of 6 months after determination of a
permanent disability years the Company shall pay to the
Executive an annual amount equal to the Executive's then
effective per annum rate of salary, as determined under
Paragraph 4(a). The Company, to the extent prudent, shall
insure against disability through an insurance company. Such
coverage shall contain a benefit for total, as well as partial
and residual, disabilities and shall be in addition to the
payment obligation contained in this Paragraph 5(a). The
Company shall review and revise the amount of coverage not
less than annually in accordance with the prior year's total
cash compensation as soon as the amount of cash compensation,
including all cash bonuses, can be calculated.
(b) For purposes of this Employment Agreement, the Executive's
"permanent disability" shall be deemed to have occurred after
one hundred twenty (120) days in the aggregate during any
consecutive twelve (12) month period, or after ninety (90)
consecutive days, during which one hundred twenty (120) or
ninety (90) days, as the case may be, the Executive, by reason
of his physical or mental disability or illness, shall have
been unable to substantially discharge his duties under this
Employment Agreement. The date of permanent disability shall
be such one hundred twentieth (120th) or ninetieth (90th) day,
as the case may be. In the event either the Company or the
Executive, after receipt of notice of the Executive's
permanent disability from the other, dispute that the
Executive's permanent disability shall have occurred, the
Executive shall promptly submit to a physical examination by
the chief of medicine of any major accredited hospital and,
unless such physician shall issue his written statement to the
effect that in his opinion, based on his diagnosis, the
Executive is capable of resuming his employment and devoting
his full time and energy to discharging his duties within
thirty (30) days after the date of such statement, such
permanent disability shall be deemed to have occurred. In lieu
of any such examination, a determination by the disability
insurance carrier for the Company shall suffice.
6. TERMINATION.
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(A) The employment of the Executive under this Employment
Agreement, and the terms hereof, may be terminated by the
Company:
(i) on the death or permanent disability of the Executive
(as defined in Paragraph 4(b)), or;
(ii) for cause at any time by action of the Board. For
purposes hereof, the term "cause" shall mean:
(a) The Executive's fraud, commission of a
felony or of an act or series of acts which
result in material injury to the business
reputation of the Company, commission of an
act or series of repeated acts of dishonesty
which are materially inimical to the best
interests of the Company, or the Executive's
willful and repeated failure to perform his
lawful duties under this Employment
Agreement, which failure has not been cured
within fifteen (15) days after the Company
gives notice thereof to the Executive,
provided, however, that the Executive shall
not be entitled to any more than two notice
cure opportunities during each fiscal year
of the Company; or
(b) The Executive's material breach of any
material provision of this Employment
Agreement not involving performance of his
duties, which breach has not been cured in
all substantial respects within ten (10)
days after the Company gives notice thereof
to the Executive shall not be entitled to
any more than two weeks notice cure
opportunities during each fiscal year of the
Company.
Upon any termination of this Employment Agreement, the
Executive shall be deemed to have resigned from all offices
held by the Executive in the Company.
(B) In the event of a termination claimed by the Company to be for
"cause" pursuant to Paragraph 6(a)(ii), the Executive shall
have the right to have the justification for said termination
determined forthwith by arbitration. In order to exercise such
right, the Executive shall serve on the Company within thirty
(30) days after termination a written request for arbitration.
The Company immediately shall request the appointment of an
arbitrator by the American Arbitration Association and
thereafter the question of "cause" shall be determined under
the rules of the American Arbitration Association, and the
decision of the arbitrator or arbitrators shall be final and
binding on both parties. The parties shall use all reasonable
efforts to facilitate and expedite the arbitration and shall
act to cause the arbitration to be completed as promptly as
possible. Expenses of the arbitration shall be borne equally
by the parties, unless apportioned otherwise by the
arbitrators.
(C) In the event of termination for any of the reasons set forth
in subparagraph (A)(i) or (A)(ii) of this Paragraph 6, or if
the Executive terminates his employment, unless as under
subparagraph 3b, the Executive shall be entitled to no further
compensation or other benefits under this Employment
Agreement, except as to that portion of any unpaid salary and
other benefits accrued and earned by him hereunder up to and
including the effective date of such termination. If the
Company terminates the Executive's employment other than
pursuant to subparagraph 6(A)(i) or 6(A)(ii) or if the
Executive terminates his employment pursuant to subparagraph
3(b), all of the compensation and benefits payable to the
Executive pursuant to this Employment Agreement shall be paid
to the Executive for a period of eighteen (18) months
following the date of such termination (the "Severance
Period"). For purposes of this Paragraph 6(C), with respect to
any benefits payable to the Executive following termination,
the Company may elect to (i) pay to the Executive in cash an
amount equivalent to the value of the benefits to be paid for
the duration of the Severance Period; or (ii) continue to
provide benefits to the Executive for the duration of the
Severance Period. If there occurs a change of control, or take
over, of the Company and the acquiring or controlling entity
terminates the Executive, then the Executive shall be paid for
a period of thirty-six (36) months following the date of such
termination (the "Severance Period"), including all of the
compensation and other benefits payable to the Executive
pursuant to this Employment Agreement.
7. NON-COMPETITION AND CONFIDENTIALITY.
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The Executive acknowledges the Company's reliance and expectation of
the Executive's continued commitment to performance of his duties and
responsibilities during the term of this Employment Agreement. In light
of such reliance and expectation on the part of the Company, the
Executive hereby agrees to be bound by the terms of the Non-Competition
and Confidentiality Agreement, of even date herewith, a copy of the
form of which is attached hereto and made a part hereof as Exhibit B.
8. MISCELLANEOUS.
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(a) The Executive represents and warrants that he is not a party
to any agreement, contract or understanding, whether
employment or otherwise, which would restrict or prohibit him
from undertaking or performing employment in accordance with
the terms and conditions of this Employment Agreement.
(b) The provisions of this Employment Agreement are severable and
if any one or more provisions may be determined to be illegal
or otherwise unenforceable, in whole or in part, the remaining
provisions and any partially unenforceable provision, to the
extent enforceable in any jurisdiction, nevertheless shall be
binding and enforceable.
(c) The rights and obligations of the Company under this
Employment Agreement shall inure to the benefit of, and shall
be binding on, the Company and its successors and assigns, and
the rights and obligations (other than obligations to perform
services) of the Executive under this Employment Agreement
shall inure to the benefit of, and shall be binding upon, the
Executive and his heirs, personal representatives and assigns.
(d) Any notice to be given under this Employment Agreement shall
be personally delivered in writing or shall have been deemed
duly given when received after it is posted in the United
States mail, postage prepaid, registered or certified, return
receipt requested, and if mailed to the Company, shall be
addressed to its principal place of business and if mailed to
the Executive, shall be addressed to him at his home address
last known on the records of the Company, or at such other
address or addresses as either the Company or the Executive
may hereafter designate in writing to the other. Notice by
regular mail postage prepaid, shall be given at the same time
the registered certified copy is mailed and shall be
sufficient if not returned and the registered or certified
copy is returned either refused or because not picked up.
(e) The failure of either party to enforce any provision or
provisions of this Employment Agreement shall not in any way
be construed as a waiver of any such provision or provisions
as to any future violations thereof, or prevent that party
thereafter from enforcing each and every other provision of
this Employment Agreement. The rights granted the parties
herein are cumulative and the waiver of any single remedy
shall not constitute a waiver of such party's right to assert
all other legal remedies available to it under the
circumstances.
(f) This Employment Agreement supersedes all prior agreements and
understandings between the parties and may not be modified or
terminated orally. No modification, termination or attempted
waiver shall be valid unless in writing and signed by the
party against whom the same is sought to be enforced.
(g) This Employment Agreement (other than the statutory rights or
indemnification which shall be under Delaware law) shall be
governed by and construed according to the laws of the State
of Maryland without giving effect to applicable conflicts of
law provisions.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date
first above written.
TELKONET COMMUNICATIONS, INC.
By: /s/ Xxxxxx X. Xxxxx
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Name: Xxxxxx X. Xxxxx
Title: Secretary
/s/ J. Xxxxxxx Xxxxxx J.
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