EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is entered into as of
January 23, 2006 by and between Xxxxx X. Xxxxxxxx (the "Executive") and
Tumbleweed Communications Corp., a Delaware corporation (the "Company").
1. Duties and Scope of Employment.
(a) Position. During the Executive's employment under this
Agreement ("Employment"), the Company agrees to employ the Executive in the
position of Chief Executive Officer ("CEO"). The Executive shall also continue
to serve as the Chairman of the Company's Board of Directors (the "Board");
however, the Executive shall serve in such capacity without additional
compensation.
(b) Obligations to the Company. During his Employment, the
Executive agrees to perform such duties as are reasonable and consistent with
the office of CEO as may be assigned to the Executive from time to time by the
Board. Nothing in this Agreement will prevent the Executive from serving on
the board of directors of up two publicly traded companies or other
organizations.
(c) Start Date. The Executive shall commence full-time
Employment in the position of CEO on January 14, 2006 (the "Start Date").
2. Cash and Incentive Compensation.
(a) Salary. The Company shall pay the Executive as
compensation for his services a base salary at the rate of not less than
$14,583.33 per semi-monthly pay period ($350,000 on an annualized basis),
payable in accordance with the Company's standard payroll schedule and subject
to applicable tax withholding. (The salary specified in this subsection (a),
together with any increases in such salary that the Company may grant from
time to time, is referred to in this Agreement as the "Base Salary.")
(b) Incentive Bonus. The Executive will be eligible to earn
a quarterly performance bonus with an annual target amount equivalent to fifty
percent of the Executive's Base Salary ("Target Bonus"). The Target Bonus to
be paid will be determined by the Compensation Committee of the Board after a
performance review that will occur promptly after the end of each quarter and
will be based on the achievement of mutually agreed upon objectives that will
be established by the Executive and the Compensation Committee within 30 days
after the Executive's Start Date. Bonuses payable under this subsection (b)
shall be payable in accordance with the Company's normal practices and are
subject to applicable tax withholding.
(c) Equity. Effective on the Start Date, the Company shall
grant the Executive a stock option (the "Option") to purchase 2,250,000 shares
of the Company's Common Stock (the "Shares"). The per Share exercise price of
the Option will be $2.61. The term of such Option shall be 10 years and shall
be subject to the following vesting schedule: (i) 20% of the Shares subject to
the Option shall be immediately vested upon the Start Date; and (ii) the
remaining Shares subject to the Option shall vest in equal installments each
month for thirty-eight (38) months thereafter, such that all Shares shall be
vested at the end of thirty-eight (38) months from the Start Date. For the
avoidance of doubt, except as provided in Sections 7(c) and 8 below, all stock
options granted by the Company to the Executive shall be exercisable until the
later of 90 days following the last vesting event for Executive's options or
the end of the period to exercise the options otherwise provided for in the
documents (stock option plan and stock option agreement) governing such
options.
3. Benefits.
(a) Health Benefits. Beginning on the first day of the month
following the Executive's Start Date and continuing during the Executive's
Employment, the Executive and the Executive's eligible dependents will be
entitled to participate in a comprehensive benefits program including medical,
dental and vision insurance. Additionally, beginning on the first day of the
month following the Executive's Start Date, the Executive will be entitled to
participate in other benefit programs, including: Life and AD&D insurance;
Short and Long-Term Disability insurance; and an Employee Assistance Program.
Insurance premiums for employee coverage in benefit plans are paid 100% by the
Company. Medical insurance premiums for eligible dependents are paid
approximately 80% by the Company. Vision and Dental Insurance premiums for
eligible dependents are paid 100% by the Company. Insurance premium rates,
including the percentage paid by the Company, are subject to change and all
benefits, including eligibility for such benefits, are governed by the terms
and conditions of the applicable benefit plans.
(b) 401(k) Plan. During the Executive's Employment, the
Executive will be eligible to participate in a 401(k) Plan and Pre-Tax
Flexible Benefits Plan.
(c) Paid Time Off Benefits. The Executive will be entitled
to 20 days of paid time off during the Executive's first and each subsequent
year of Employment, accruing at the rate of 13.33 hours per month from the
Executive's Start Date, as well other paid Company holidays.
4. Business Expenses. During the Executive's Employment, the
Executive shall be authorized to incur necessary and reasonable travel,
entertainment and other business expenses in connection with his duties
hereunder. The Company shall reimburse the Executive for such expenses, upon
presentation of an itemized account and appropriate supporting documentation,
all in accordance with the Company's generally applicable policies.
5. Attorney's Fees. The Company will reimburse the Executive for
attorney's fees incurred by the Executive in connection with the negotiation
and execution of this Agreement, up to a maximum of $2,000.
6. Nature of Employment.
(a) At-Will Employment. The Executive's Employment with the
Company shall at all times be "at will," which means that either the Executive
or the Company may terminate the Executive's Employment at any time, for any
or no reason, with or without Cause (as defined below); provided that,
following termination of Employment, the Company shall continue to have the
obligations, as applicable, set forth in Sections 7, 8, 9 and 13, and the
Executive shall continue to have the obligations, as applicable, set forth in
Section 11.
(b) Rights Upon Termination. Except as expressly provided in
Section 7, upon termination of the Executive's Employment pursuant to this
Section 6, the Executive shall be entitled to the accrued but unpaid
compensation, benefits (including payment for accrued but unused vacation) and
reimbursement described in Section 2, 3 and 4 for the period preceding the
effective date of termination. The termination of this Agreement shall not
limit or otherwise affect any of the Executive's obligations under Section 11
or the Company's obligations under Sections 7, 8, 9 and 13, if applicable.
7. Termination Benefits. The Executive shall be entitled to receive
benefits upon termination of Employment only as specifically set forth in this
Section 7.
(a) Termination following a Constructive Termination or
other than for Cause, Death or Disability. If the Company, or the successor to
its assets or business in the event of a Change of Ownership Control,
terminates the Executive's Employment for any reason other than Cause, the
Executive's death, or Disability, or the Executive terminates his Employment
following a Constructive Termination, then, subject to the Executive's
delivery of a signed release of all claims in a form reasonably satisfactory
to the Company, the Executive will be entitled to the following termination
benefits, beginning on the date of termination:
(i) Continuation for a period of one year of the
Executive's then-current Base Salary (subject to applicable tax withholding),
payable in accordance with the Company's normal payroll practices;
(ii) Continuation for a period of one year of the
vesting of the Executive's then-outstanding Company stock options; and
(iii) Continuation for a period of one year of the
Executive's medical coverage for himself and his dependents at the Company's
expense to the extent and at the rate such expenses are covered by the Company
for then-current employees of the Company.
(b) Termination for Cause or Resignation by the Executive.
In the event of the termination of the Executive's Employment for Cause or the
Executive's resignation (other than a Constructive Termination), the Executive
will not be entitled to any severance payments or continued salary, bonus or
benefits, and such termination shall be governed solely by Section 6(b) above.
(c) Termination as a result of Death or Disability. In the
event of termination of Employment as a result of the Executive's death or
Disability, subject to the delivery by the Executive or the Executive's estate
of a signed release of all claims in a form reasonably satisfactory to the
Company, the Executive or the Executive's estate will be entitled, at the
Company's option to be exercised within 30 days after such termination, to
either: (i) continuation for a period of one year of the vesting of the
Executive's then-outstanding Company stock options (in which event the
Executive's options shall be exercisable for a period of 90 days following
such one year period), or (ii) one year's acceleration of the vesting of the
Executive's then-outstanding stock options (in which event the Executive's
options shall be exercisable for a period of one year following such
acceleration).
8. Effect of Change of Ownership Control. In addition to the benefits
under Section 7(a)(i) and 7(a)(iii) above, if a Change of Ownership Control
occurs during the Executive's Employment with the Company and, within twelve
(12) months following such Change of Ownership Control, either (i) the
Executive's Employment with the Company is terminated without Cause or (ii)
the Executive terminates his Employment following a Constructive Termination,
the vesting of 100% of the Executive's then-outstanding stock options will be
accelerated such that they vest immediately. In the event of a Change of
Ownership Control, the Executive will be entitled to exercise his stock
options until the later of one year following the closing of the Change of
Ownership Control or the end of the period to exercise the options otherwise
provided for in the documents (stock option plan and stock option agreement)
governing such options.
9. Change of Control Benefits. This Section 9 shall apply only with
respect a Change of Ownership Control that closes and becomes effective prior
to the second anniversary of the Start Date. To the extent that no such
transaction has occurred by that date, this Section 9 shall terminate. If any
payment or benefit the Executive would receive pursuant to this Agreement or
otherwise, but determined without regard to any additional payment required
under this Section 9, (collectively, the "Payment") would (x) constitute a
"parachute payment" within the meaning of Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code"), and (y) be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties payable with
respect to such excise tax (such excise tax, together with any such interest
and penalties, are hereinafter collectively referred to as the "Excise Tax"),
then the Executive shall be entitled to receive from the Company an additional
payment (the "Gross-Up Payment," and any iterative payments pursuant to this
paragraph also shall be "Gross-Up Payments") in an amount that shall fund the
payment by the Executive of any Excise Tax on the Payment, as well as all
income and employment taxes on the Gross-Up Payment, any Excise Tax imposed on
the Gross-Up Payment and any interest or penalties imposed with respect to
income and employment taxes imposed on the Gross-Up Payment. For this purpose,
all income taxes will be assumed to apply to the Executive at the highest
marginal rate. Any Gross-Up Payment shall be paid to the Executive, or for his
benefit, within 15 days following receipt by the Company of the report of the
accounting firm described below.
The accounting firm engaged by the Company for general audit purposes
as of the day prior to the effective date of the Change of Ownership Control
shall perform the foregoing calculations. If the accounting firm so engaged by
the Company is also serving as accountant or auditor for the individual,
entity or group which will control the Company upon the occurrence of a Change
of Ownership Control, the Company shall appoint a nationally recognized
accounting firm other than the accounting firm engaged by the Company for
general audit purposes to make the determinations required hereunder. The
Company shall bear all expenses with respect to the determinations by such
accounting firm required to be made hereunder.
The accounting firm engaged to make the determinations hereunder
shall provide its calculations, together with detailed supporting
documentation, to the Company and the Executive within thirty calendar days
after the date on which such accounting firm has been engaged to make such
determinations or such other time as requested by the Company or the
Executive. If the accounting firm determines that no Excise Tax is payable
with respect to a Payment, it shall furnish the Company and the Executive with
an opinion reasonably acceptable to the Executive that no Excise Tax will be
imposed with respect to such Payment. Notwithstanding the above, in the event
that the Excise Tax incurred by the Executive is determined by the Internal
Revenue Service ("IRS") to be greater than the amount so determined by the
accounting firm engaged to make the determinations hereunder, the Company
agrees to promptly make such additional payment, including interest and any
tax penalties, to the Executive as the accounting firm engaged to make the
determinations hereunder reasonably determines in light of such IRS
determination is appropriate to fulfill the parties' intent under this Section
9. Any good faith determinations of the accounting firm made hereunder shall
be final, binding, and conclusive upon the Company and the Executive.
10. Definitions.
(a) "Cause." For all purposes under this Agreement, "Cause"
shall mean: (i) the commission of a felony by the Executive intended to result
in the Executive's substantial personal enrichment at the Company's expense;
(ii) the Executive's conviction of a crime involving moral turpitude; or (iii)
the Executive's willful failure to perform his duties to the Company, which
failure is deliberate, results in injury to the Company, and continues for
more than 15 days after written notice is given to the Executive. For purposes
of this definition, no act or omission is considered to have been "willful"
unless it was not in good faith and the Executive had knowledge at the time
that the act or omission was not in the best interests of the Company.
(b) "Change of Ownership Control." For all purposes under
this Agreement, "Change of Ownership Control" shall mean: (i) a merger,
reorganization, consolidation or similar event, whether in a single
transaction or in a series of transactions (collectively the "Transaction")
unless immediately following such Transaction (and after giving effect to such
Transaction) the Company's stockholders immediately prior to the Transaction
own at least 50% of the total combined voting power of the surviving or
acquiring entity in substantially the same proportions as their ownership of
the voting power of the Company's outstanding securities immediately before
such Transaction; (ii) any person (having the meaning ascribed to such term in
Section 3(a)(9) of the Securities Exchange Act of 1934, as amended ("1934
Act") and used in Sections 13(d) and 14(d) thereof, including a "group" within
the meaning of Section 13(d)(3)) has or acquires beneficial ownership (within
the meaning of Rule 13d-3 under the 0000 Xxx) of at least 50% of the total
combined voting power of the Company's outstanding securities; (iii) the sale,
transfer or other disposition of all or substantially all of the Company's
assets; or (iv) a complete liquidation or dissolution of the Company.
(c) "Constructive Termination." For all purposes under this
Agreement, "Constructive Termination" shall mean: (i) a material diminution of
the Executive's duties; (ii) a change in the Executive's title or reporting
relationship; (iii) a change greater than 25 miles in the location of the
Executive's designated work place for the Company; (iv) a reduction in the
Executive's Base Salary; (v) a material reduction in the Executive's health
insurance benefits provided by the Company, except for changes and reductions
in such health insurance benefits applicable to all employees of the Company
generally; or (vi) the failure of any successor to the assets or business of
the Company through any Change of Ownership Control to fully assume all
obligations of the Company under this Agreement.
(d) "Disability." For all purposes under this Agreement,
"Disability" shall mean an illness, injury or other incapacitating condition
as a result of which the Executive is unable to perform the Executive's duties
at the Company for any six consecutive months. In any such event, the Company,
in its sole discretion, may terminate the Executive's employment by giving the
Executive notice of termination for Disability. The Executive agrees to submit
to such medical examinations as may be necessary to determine whether a
Disability exists, pursuant to such reasonable requests made by the Company
from time to time, and any determination as to the existence of a Disability
shall be made by a physician selected by the Company.
11. Confidentiality Agreement; Eligibility to Work. The Executive
shall sign a Proprietary Information and Inventions Agreement (the
"Confidentiality Agreement") in the form attached hereto as Exhibit A. The
Executive acknowledges that in accordance with federal law he is required to
demonstrate employment eligibility, which includes verification of his
identity and of his authorization to work in the United States.
12. Successors.
(a) Company's Successors. This Agreement shall be binding on
any successor (whether direct or indirect and whether by purchase, lease,
merger, consolidation, liquidation or otherwise) to all or substantially all
of the Company's business and/or assets, and any such successor shall assume
all such obligations. The Company may assign its rights under this Agreement
to any such successor. For all purposes under this Agreement, the term
"Company" shall include any successor to the Company's business and/or assets
which becomes bound by this Agreement.
(b) Executive's Successors. This Agreement is a contract for
personal services and shall not be transferred or assigned by the Executive;
however, all rights of the Executive under this Agreement shall inure to the
benefit of, and be enforceable by, the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees.
13. Indemnification. The Executive will be indemnified pursuant to
the indemnity agreement attached hereto as Exhibit B ("Indemnification
Agreement").
14. Miscellaneous Provisions.
(a) No Duty to Mitigate. The Executive shall not be required
to mitigate the amount of any payment contemplated by this Agreement (whether
by seeking new employment or in any other manner), nor, except as otherwise
provided in this Agreement, shall any such payment be reduced by any earnings
that the Executive may receive from any other source.
(b) Notice. Notices and all other communications
contemplated by this Agreement shall be in writing and shall be deemed to have
been duly given when personally delivered or when mailed by overnight courier,
U.S. registered or certified mail, return receipt requested and postage
prepaid. In the case of the Executive, mailed notices shall be addressed to
him at the home address that he most recently communicated to the Company in
writing. In the case of the Company, mailed notices shall be addressed to its
corporate headquarters, and all notices shall be directed to the attention of
its Secretary.
(c) Modifications and Waivers. No provision of this
Agreement shall be modified, waived or discharged unless the modification,
waiver or discharge is agreed to in writing and signed by the Executive and by
an authorized officer of the Company (other than the Executive). No waiver by
either party of any breach of, or of compliance with, any condition or
provision of this Agreement by the other party shall be considered a waiver of
any other condition or provision or of the same condition or provision at
another time. The Executive and the Company agree to cooperate to make such
amendments to the terms of this Agreement as may be necessary to avoid the
imposition of penalties and additional taxes under Section 409A of the Code
("Code Section 409A"); provided however, that the parties agree that any such
amendment shall not (i) materially increase the cost to, or liability of, the
Company with respect to any payments under this Agreement (but an acceleration
of the timing of payment into the immediately preceding tax year shall not be
deemed to materially increase the cost to the Company) or (ii) decrease the
value of benefits provided to the Executive under this Agreement and provided
further that the Company shall reimburse the Executive for up to $5,000 of
expenses incurred by the Executive as a result of any legal or tax advice he
receives in connection with any amendment or proposed amendment contemplated
by this Section 14(c).
(d) Whole Agreement. No other agreements, representations or
understandings (whether oral or written) which are not expressly set forth in
this Agreement have been made or entered into by either party with respect to
the subject matter of this Agreement. This Agreement, the Confidentiality
Agreement, the Indemnification Agreement, and the stock option agreement and
stock plan documents, contain the entire understanding of the parties with
respect to the subject matter hereof. The offer letter agreement dated January
10, 2006 between the parties is superceded by this Agreement.
(e) Taxes. All payments made under this Agreement shall be
subject to reduction to reflect taxes or other charges required to be withheld
by law.
(f) Choice of Law. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws
of the State of California (except provisions governing the choice of law).
(g) Severability. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not effect the validity or
enforceability of any other provision hereof, which shall remain in full force
and effect.
(h) Headings. The headings of the paragraphs contained in
this Agreement are for reference purposes only and shall not in any way affect
the meaning or interpretation of any provision of this Agreement.
(i) Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[Signature page follows]
Each of the parties has executed this Agreement, in the case of the
Company by its duly authorized officer, as of the day and year first above
written.
XXXXX X. XXXXXXXX
/s/Xxxxx X. Xxxxxxxx
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Xxxxx X. Xxxxxxxx
TUMBLEWEED COMMUNICATIONS CORP.
By: /s/ Xxxxxxx X. Xxxxxxx
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Title: Secretary
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EXHIBIT A - Confidentiality Agreement
EXHIBIT B - Indemnification Agreement
