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EXHIBIT 10.38
EMPLOYMENT AGREEMENT
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This EMPLOYMENT AGREEMENT, made as of June 1, 2000 (the "Effective
Date"), is entered into by and between NorthPoint Communications, Inc. (the
"Company") and Michael Malaga (the "Executive").
WHEREAS, the Company and Executive wish to enter into a formal
employment agreement that shall govern the terms and conditions of Executive's
employment with the Company and shall provide certain severance and other
benefits for Executive in the event that his employment should terminate.
WHEREAS, the Executive is agreeing to abide by the restrictive
covenants contained herein and is foregoing other career opportunities in
reliance on this Employment Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, the parties agree as follows:
1. Definitions
A. Target Bonus. "Target Bonus" means the target annual bonus for Executive
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during in any year or, if Executive is entitled to a bonus under an
individual written agreement with the Company, the annual bonus to which
Executive is entitled thereunder.
B. Base Salary. "Base Salary" means the greater of the annual rate of base
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salary in effect for Executive at the time of Executive's Qualifying
Termination or the annual rate of base salary in effect for Executive
immediately before the Change in Control.
C. Cause. Termination for "Cause" means the following: (i) Executive's
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conviction of a felony or any crime of dishonesty; (ii) Executive's
commission of any act of fraud with respect to the Company; (iii) any
intentional misconduct by Executive intended to have a materially adverse
effect upon the Company's business; (iv) Executive's repeated failure to
satisfactorily perform his job duties; (v) an intentional breach by
Executive of any of Executive's fiduciary obligations as an officer or
director of the Company or a breach of this Employment Agreement or any
other agreement with the Company that has a materially adverse effect upon
the Company; or (vi) Executive's death or Permanent Disability.
D. Change in Control. "Change in Control" shall have the meaning set forth
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in the Common Stock Purchase Agreement and Amendment to Common Stock
Purchase Agreement attached as Exhibit A hereto.
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E. Change of Employment Circumstances. "Change of Employment Circumstances"
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means (i) a material reduction in Executive's level of duties or
responsibilities or the nature or scope of Executive's functions, or (ii) a
reduction in Executive's base salary or a reduction in Executive's total
cash compensation (consisting of base salary and target bonus), or (iii) the
failure to provide Executive with employee benefits (including
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medical/dental, disability and life insurance) that are substantially
equivalent to the benefits provided to Executive immediately before a Change
in Control, or (iv) a relocation of Executive's principal place of
employment by more than thirty-five miles away (or any requirement that
Executive spend more than two days a week at any location more than thirty-
five miles away), or (v) the breach of the terms of any compensation
agreement or arrangement between the Company and Executive, or (vi) the
repudiation or failure by the Company or its successor to acknowledge (upon
Executive's written request) or to comply with any of its obligations under
this Employment Agreement.
F. Comparable Position. A "Comparable Position" means a position with a
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successor to part or all of the business of the Company, if the terms of
such position do not differ from Executive's prior position with the Company
in any manner that would constitute a Change of Employment Circumstances,
assuming that the terms of such new position with the successor remained
materially the same as the terms of Executive's employment with the Company.
G. Final Determination. "Final Determination" means an audit adjustment by
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the Internal Revenue Service that is either (i) agreed to by both Executive
(or his estate) and the Company (such agreement by the Company to be not
unreasonably withheld) or (ii) sustained by a court of competent
jurisdiction in a decision with which Executive and the Company concur (such
concurrence by the Company to be not unreasonably withheld) or with respect
to which the period within which an appeal may be filed has lapsed without a
notice of appeal being filed.
H. Period of Coverage. The "Period of Coverage" means the period commencing
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on the Effective Date and ending upon the date of termination of this
Employment Agreement.
I. Permanent Disability. "Permanent Disability" shall mean the inability of
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Executive to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment that is expected to
result in death or has lasted or can be expected to last for a continuous
period of twelve (12) months or more.
J. Qualifying Termination. "Qualifying Termination" shall mean a
termination of Executive's employment with the Company either (i) by the
Company for any reason other than for Cause, or (ii) by Executive, following
the occurrence of a Change in Control that occurs during the Period of
Coverage which results in a Change of Employment Circumstances, provided
that Executive properly executes, and does not revoke or attempt to revoke,
a Release of claims against the Company, its affiliates and their employees
and agents in the form attached as Exhibit B (the "Release"). A Qualifying
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Termination shall be deemed not to have occurred where Executive is offered
a Comparable Position with the new corporate entity subsequent to a Change
in Control, whether or not Executive accepts such position. If Executive is
offered a position which is not a Comparable Position and accepts such
position, then Executive will be treated as if he had been offered and
accepted a Comparable Position.
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2. Job Duties. Executive shall serve as the Chief International Officer of the
Company. In such position, Executive's duties shall include serving as the
Chief Executive Officer of VersaPoint N.V.
3. Current Stock and Benefits.
A. Founder's Stock. Executive purchased common stock of the Company on
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June 4, 1997 (the "Initial Purchase"). The Common Stock Purchase Agreement
between the Company and Executive dated June 4, 1997 and the Amendment to
Common Stock Purchase Agreement between the Company and Executive dated
August 13, 1997 that underlie the Initial Purchase (collectively, the
"Purchase Agreement") are attached hereto as Exhibit A.
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B. Cash Compensation. Executive is paid a base salary at the annual
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rate of Four Hundred Thousand Dollars ($400,000.00), to be paid in
accordance with the Company's standard payroll policy. Such base salary may
be increased by the Board of Directors in its sole discretion.
C. Bonus. Executive shall be eligible to receive an annual target
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bonus of up to a maximum of one hundred percent (100%) of his annual base
salary. Payment of the bonus shall be at the discretion of the Compensation
Committee of the Company's Board of Directors and shall be based on the
achievement of objectives agreed to by the Compensation Committee of the
Board of Directors. In future years, payment of the bonus shall be at the
discretion of the Compensation Committee of the Company's Board of Directors
and shall be based on the achievement of objectives as determined by such
Committee.
D. Other Employee Benefits. Executive shall, throughout the Period of
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Coverage, be eligible to participate in all group term life insurance plans,
group health plans, accidental death and dismemberment plans and short-term
and long-term disability programs, sick leave, vacation leave and other
executive perquisites which are made available to the Company's executive
and/or other Company employees.
4. Additional Compensation. In addition to the compensation enumerated above,
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and in return for the consideration contained herein, the Company has agreed to
provide the Executive with the compensation set forth in subsections A, B and C
below.
A. Supplemental Life Insurance. The Company will provide Executive with
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supplemental group term life insurance coverage of $500,000 during the
Period of Coverage.
B. Financial Counseling Assistance. The Company will provide Executive
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with annual financial counseling during the Period of Coverage by a provider
selected by the Executive. In no event, however, shall the Company provide
Executive with financial counseling in an amount in excess of $10,000 per
year.
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C. Change in Control.
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(1) Change in Control Protection. Notwithstanding anything to the
contrary in the Initial Purchase or Purchase Agreement, upon (i) a
Change in Control of the Company, and (ii) a Qualifying Termination of
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the Executive, the Executive shall be entitled to the following
benefits:
a) Release of Restrictions. The restrictions in Sections 3(a) and
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3(b) of the Purchase Agreement (the "Restrictions"), to the extent
not otherwise released for the shares of Company common stock
underlying the Initial Purchase, will immediately be released for
all the shares of Company common stock underlying the Initial
Purchase.
b) Installment Sum Payment of Salary and Bonus. Beginning within
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ten (10) business days after Qualifying Termination (or, if later,
the last day of any period during which the Release may be revoked
by Executive), the Company shall make twelve (12) equal monthly
cash payments to Executive, subject to any mandatory tax
withholding, equal to one-twelfth (1/12) times the sum of
Executive's Annual Base Salary and Executive's Target Bonus.
c) Continuing Benefit Coverage. The Company will, at normal
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employee rates, provide Executive and, to the extent available
before the Qualifying Termination, Executive's eligible dependents
with coverage under the Company's medical/dental plan, life
insurance and accident plan and disability plan until the earlier
of (i) one (1) year after the date of Executive's Qualifying
Termination or (ii) the first date that Executive is covered under
another employer's program which provides substantially the same
level of benefit coverage without exclusion for pre-existing
conditions. After this period of coverage, Executive (and, if
applicable, Executive's eligible dependents) may elect to continue
coverage under the Company's group medical/dental plan at
Executive's own expense in accordance with the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended ("COBRA") and, for
purposes of determining the maximum period of COBRA coverage, such
maximum period will begin immediately following the end of Company-
subsidized coverage.
d) Excess Tax Gross-Up Payment. If any compensation payable
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hereunder, either alone or when aggregated with other compensation
payable to Executive, would constitute a parachute payment that
would subject Executive to an excise tax under Section 4999 of the
Internal Revenue Code, Executive shall be entitled to receive an
additional lump sum cash payment, subject to mandatory tax
withholding, which, when added to all compensation payable to
Executive that constitutes a parachute payment, provides Executive
with the same after tax-compensation that he would have received
from such parachute payments
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had none of such compensation constituted a parachute payment (a
"Tax Gross-Up"). The procedures for making such payment are set
forth in Section 6.
(2) Limitation on Release of Restrictions. Notwithstanding anything else
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set forth in this Section 4, if it is reasonably determined by the
Company's Board of Directors in good faith, upon consultation with
Company management and the Company's independent auditors, that the
release of Restrictions on unvested stock upon a Change in Control (to
the extent that those Sections provide for acceleration or cash-out that
would not otherwise occur under the terms of the instruments evidencing
such restricted stock) would preclude accounting for any proposed
business combination of the Company as a pooling of interests, and the
Board of Directors otherwise desires to approve such a proposed business
transaction which requires as a condition to the closing of such
transaction that it be accounted for as a pooling of interests, then,
solely to the extent necessary to permit such accounting, such release of
Restrictions shall not occur. The previous sentence shall not limit any
release of Restrictions of Company common stock that would occur, in
absence of this Employment Agreement, under the terms of the Purchase
Agreement.
(3) Offset of Benefits. The compensation and benefits payable hereunder
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shall not be reduced or offset by any amounts that Executive earns or
could earn from any other sources following Executive's Qualifying
Termination. However, except to the extent the Company expressly agrees
otherwise in writing, if the Company becomes obligated to pay Executive
any severance pay or severance benefits under a separate employment or
severance agreement or arrangement, the benefits payable hereunder shall
be reduced by the amount of benefits payable under such other agreement
or arrangement.
5. Restrictive Covenants.
A. In return for the consideration contained herein, Executive has agreed
to certain restrictive covenants set forth below. During the Period of
Coverage, Executive agrees that he shall:
(1) devote substantially all of his time and energy to the performance
of Executive's duties described herein, except during periods of illness
or vacation.
(2) not directly or indirectly provide services to or through any
person, firm or other entity except the Company, unless otherwise
authorized by the Company in writing.
(3) not render any services of any kind or character for Executive's own
account or for any other person, firm or entity without first obtaining
the Company's written consent.
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B. Notwithstanding the foregoing, Executive shall have the right to perform
such incidental services as are necessary in connection with (i) his
private, passive investments, but only if Executive is not obligated or
required to (and shall not in fact) devote any managerial efforts which
interfere with the services required to be performed by him hereunder, (ii)
his charitable or community activities or (iii) participation in trade or
professional organizations, but only if such incidental services do not
significantly interfere with the performance of Executive's services
hereunder.
6. Excise Tax Gross-Up Procedures.
A. The amount of any such Tax Gross-Up to which Executive becomes entitled
under Section 4.C(1)(d), will be determined pursuant to the following:
X = Y / (1 - (A + B + C)), where
X is the total dollar amount of the Tax Gross-Up payable to
Executive;
Y is the total Excise Tax (as defined in Internal revenue
Code Section 4999) imposed on Executive;
A is the Excise Tax rate in effect at the time;
B is the highest combined marginal federal income and
applicable state income tax rate in effect for Executive,
after taking into account the deductibility of state income
taxes against federal income taxes to the extent allowable,
for the calendar year in which the Tax Gross-Up is paid; and
C is the applicable Hospital Insurance (Medicare) Tax Rate
in effect for Executive for the calendar year in which the
Tax Gross-Up is paid;
provided if there is a change in the tax laws after the date hereof that would
render the amount determined above insufficient to fully reimburse Executive on
an after-tax basis for the amount of any Excise Tax, Executive shall be entitled
to such additional amount as may be necessary to provide him with such
reimbursement.
B. Within ninety (90) days after a determination is made by the Internal
Revenue Service or Executive's tax advisor that an item of compensation or
benefit payable hereunder constitutes a parachute payment under Code Section
280G for which Executive is liable for an Excise Tax, Executive shall
identify the nature of the payment to the Company and submit to the Company
the calculation of the Excise Tax attributable to that payment and the Tax
Gross-Up to which Executive is entitled with respect to such tax liability.
The Company will pay such Tax Gross-Up to Executive (net of all applicable
withholding taxes, including any taxes required to be withheld under Code
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Section 4999) within ten (10) business days after Executive's submission of
the calculation of such Excise Tax and the resulting Tax Gross-Up, provided
such calculations represent a reasonable interpretation of the applicable
law and regulations.
C. In the event that Executive's actual Excise Tax liability is determined
by a Final Determination to be greater than the Excise Tax liability
previously taken into account for purposes of the Tax Gross-Up paid to
Executive pursuant to this Section 6, then within ninety (90) days following
the Final Determination, Executive shall submit to the Company a new Excise
Tax calculation based upon the Final Determination. Within ten (10) business
days after receipt of such calculation, the Company shall pay Executive the
additional Tax Gross-Up attributable to such excess Excise Tax liability.
D. In the event that Executive's actual Excise Tax liability is determined
by a Final Determination to be less than the Excise Tax liability previously
taken into account for purposes of the Tax Gross-Up paid to Executive
pursuant to this Section 6, then Executive shall refund to the Company,
promptly upon receipt, any federal or state tax refund attributable to the
Excise Tax overpayment.
7. Termination of Employment.
A. By Company. The Company may terminate Executive's employment under this
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Employment Agreement at any time for any reason, with or without Cause.
B. By Executive. Executive may terminate his employment under this
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Employment Agreement at any time, for any reason, with or without Cause, by
giving the Company at least thirty (30) days prior written notice of such
termination. However, such thirty (30) day notice requirement shall not
apply if Executive terminates his employment due to a Change in Control.
8. Release of Claims. All compensation and benefits under Section 4 above are
in consideration for Executive's execution of the Release, which Release
Executive does not subsequently revoke or attempt to revoke. If Executive does
not execute such a Release or if Executive attempts to revoke such Release,
Executive will not be entitled to any of the benefits provided under this
Employment Agreement.
9. Successors and Assigns. The provisions of this Employment Agreement shall
inure to the benefit of, and shall be binding upon, the Company, its successors
and assigns, and the Executive, the personal representative of his estate and
his heirs and legatees; provided, however, Executive may not assign, transfer or
delegate his rights or obligations hereunder and any attempt to do so shall be
void.
10. Notices.
A. Any and all notices, demands or other communications required or desired
to be given hereunder by any party shall be in writing and shall be validly
given or made to another party if served either personally or, if deposited
in the United States mail,
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certified or registered, postage prepaid, return receipt requested. If such
notice, demand or other communication shall be served personally, service
shall be conclusively deemed made at the time of such personal service. If
such notice, demand or other communication is given by mail, service shall
be conclusively deemed made at the time of the receipt by the party to whom
such notice, demand or other communication is sent. Any and all notices,
demands or other communications shall be delivered to the following address:
To the Company: NorthPoint Communications
303 2nd Street
San Francisco, CA 94107
Fax: (415) 403-4004
To Executive: Michael W. Malaga
2300 NorthPoint, #105
San Francisco CA 94123
B. Any party hereto may change its address for the purpose of receiving
notices, demands and other communications as herein provided by a written
notice given in the manner aforesaid to the other party hereto.
11. Waivers. No waiver of any term or provision of this Employment Agreement
shall be valid unless such waiver is in writing signed by the party against whom
enforcement of the waiver is sought. In the case of the Company, such waiver
shall be signed by at least one (1) member of the Company's Board. The waiver
of any term or provision of this Employment Agreement shall not apply to any
subsequent breach of this Employment Agreement.
12. Governing Document. This Employment Agreement and the Purchase Agreement,
and all other exhibits and attachments hereto constitute the entire agreement
and understanding of the Company and Executive with respect to the terms and
conditions of Executive's employment with the Company and the payment of
severance and other benefits, and supersedes all prior and contemporaneous
written or verbal agreements and understandings between Executive and the
Company relating to such subject matter. Where the terms of the Purchase
Agreement conflict with the terms of this Employment Agreement, the terms of
this Employment Agreement shall control. Any and all prior agreements,
understandings or representations relating to Executive's employment with the
Company are hereby terminated and cancelled in their entirety and are of no
further force or effect.
13. Governing Law. The provisions of this Employment Agreement shall be
construed and interpreted under the laws of the State of California applicable
to agreements executed and to be wholly performed within the State of
California. If any provision of this Employment Agreement as applied to any
party or to any circumstance should be adjudged by a court of competent
jurisdiction to be void or unenforceable for any reason, the invalidity of that
provision shall in no way affect (to the maximum extent permitted by law) the
application of such provision under circumstances different from those
adjudicated by the court, the application of any other provision of this
Employment Agreement, or the enforceability or invalidity of this Employment
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Agreement as a whole. Should any provision of this Employment Agreement become
or be deemed invalid, illegal or unenforceable in any jurisdiction by reason of
the scope, extent or duration of its coverage, then such provision shall be
deemed amended to the extent necessary to conform to applicable law so as to be
valid and enforceable or, if such provision cannot be so amended without
materially altering the intention of the parties, then such provision shall be
stricken and the remainder of this Employment Agreement shall continue in full
force and effect.
14. Deductions. All amounts paid to Executive hereunder are subject to all
withholdings and deductions required by law.
15. Amendment and Termination. This Employment Agreement may be modified,
amended or terminated only by a written agreement signed by Executive and an
authorized member of the Company's Board.
16. Remedies. All rights and remedies provided pursuant to this Employment
Agreement or by law shall be cumulative, and no such right or remedy shall be
exclusive of any other. A party may pursue any one or more rights or remedies
hereunder or may seek damages or specific performance in the event of another
party's breach hereunder or may pursue any other remedy by law or equity,
whether or not stated in this Employment Agreement.
17. Arbitration. Executive agrees that any and all disputes that he has with
the Company, or any of its employees, which arise out of his employment or under
the terms of his employment, shall be resolved through final and binding
arbitration, as specified herein. This shall include, without limitation,
disputes relating to this Employment Agreement, his employment by the Company or
the termination thereof, claims for breach of contract or breach of the covenant
of good faith and fair dealing, and any claims of discrimination or other claims
under Title VII of the Civil Rights Act of 1964, the Age Discrimination in
Employment Act, the Americans with Disabilities Act, the California Fair
Employment and Housing Act, the Employee Retirement Income Securities Act, the
Racketeer Influenced and Corrupt Organizations Act, or any other federal, state
or local law or regulation now in existence or hereinafter enacted and as
amended from time to time concerning in any way the subject of his employment
with the Company or its termination. The only disputes not covered by this
Employment Agreement are the following: (i) claims for benefits under the
unemployment insurance or workers' compensation laws, and (ii) claims concerning
the validity, infringement or enforceability of any trade secret, patent right,
copyright, trademark or any other intellectual property held or sought by the
Company or which the Company could otherwise seek; in each of these instances
such disputes or claims shall not be subject to arbitration, but rather, shall
be resolved pursuant to applicable law. Binding arbitration shall be conducted
in the county in which the Company's principal place of business is then located
in accordance with the rules and regulations of the American Arbitration
Association (AAA). One arbitrator shall be chosen by mutual agreement of the
Company and Executive from the AAA Employment Advisory Panel. Each side shall
bear its own attorneys'
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fees; that is, the arbitrator shall not have authority to award attorneys' fees
unless a statutory section at issue in the dispute authorizes the award of
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attorneys' fees to the prevailing party, in which case the arbitrator has
authority to make such award as permitted by the statute in question. Executive
understands and agrees that the arbitration shall be instead of any jury trial
and that the arbitrator's decision shall be final and binding to the fullest
extent permitted by law and enforceable by any court having jurisdiction
thereof.
18. Counterparts. This Employment Agreement may be executed in more than one
counterpart, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the day and year first above written.
NORTH POINT COMMUNICATIONS, INC.
By /s/ J. Peter Wagner
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Name: J. Peter Wagner
Title: Chair of the Compensation Committee
of the Board of Directors
EXECUTIVE:
/s/ Michael W. Malaga
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(Signature)
Michael W. Malaga
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(Print Name)
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EXHIBIT A
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EXHIBIT B
Dear Mr. Malaga:
This letter is provided to confirm the agreement we have reached
regarding your separation from employment with NorthPoint Communications, Inc.,
(the "Company"). We have agreed that your employment with the Company will
terminate effective _________________, 200__.
In consideration of the benefits to be provided to you pursuant to
that certain in Employment Agreement between you and the Company dated May 16,
2000, you agree to the following:
A. You fully and forever release and promise not to institute or
participate in any legal proceeding against the Company or any of its directors,
officers, or employees with respect to any and all claims and causes of action
of any nature or kind, which are or may be claimed to exist, through and
including the date on which this Agreement is executed by you, including but not
limited to, any proceeding arising out of or relating in any way to your
employment with the Company or your separation from employment. You should
understand that you are forever waiving any rights you may have to pursue any
remedies available to you against the Company, including, but not limited to,
any employment-related cause of action, any tort or contract claims, any claim
for violation of any state, federal or local statute, ordinance or regulation
relating to employment or employment discrimination.
B. You have agreed to maintain in confidence all information you have
regarding the Company, its clients, the circumstances leading to your separation
from the Company and the terms of this Agreement, except to the extent you are
required by law to make any such disclosure.
C. This Agreement between us shall be deemed to have been entered into in
the State of California and shall be construed and interpreted in accordance
with the laws of this State. It supersedes any and all prior agreements between
you and the Company and contains the entire agreement between us.
D. You and the Company hereby expressly waive any and all rights and
benefits conferred by the provisions of Section 1542 of the Civil Code of the
State of California, which states as follows:
A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor.
You may have up to ____________ (___) days in which to consider this
Agreement and you should review it with an attorney if you so desire. By your
signature below, you acknowledge that you have read and understand the terms of
this Agreement, and that you are signing it voluntarily and without coercion.
You further acknowledge that the waivers you
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have made in this Agreement are knowing, conscious and made with full
appreciation that you are forever foreclosed from pursuing any of the rights so
waived.
Very truly yours,
__________________________
Dated:____________________ By:________________________________
(Name, Title)
I hereby accept and agree to the terms and conditions set forth in the
above agreement.
Dated:_____________________ ___________________________________
(Executive Name)
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