Employment Agreement - E-Sport Inc. and Ross Schaufelberger
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of
February 27, 1998, by and between E-Sport, Inc., a Delaware corporation (the
"Company") and Ross Schaufelberger (the "Employee").
R E C I T A L S:
- - - - - - - -
The Company and the Employee desire to enter into this Agreement to
establish the terms and conditions of the Employee's employment by the Company
during the term hereof.
A G R E E M E N T:
- - - - - - - - -
NOW, THEREFORE, in consideration of the foregoing recital, and subject to
the conditions and covenants set forth herein, the parties agree as follows:
1. Employment and Term.
-------------------
(a) The Company hereby employs the Employee as its Chief
Operating Officer and the Employee hereby accepts such employment upon the terms
and subject to the conditions set forth in this Agreement. Unless earlier
terminated as provided in this Agreement, the term of the Employee's employment
under this Agreement shall commence on the date hereof and shall continue for a
period of three (3) years from the date hereof (the "Term").
(b) The Employee shall perform such duties and functions
consistent with his role as Chief Operating Officer as may from time to time be
reasonably assigned to him by the President or the Board of Directors of the
Company (the "Board"). The Employee agrees that during the course of the
Company's business hours throughout the Term, he will devote the whole of his
time, attention and efforts to the performance of his duties and obligations
hereunder. The Employee shall not, during the Term, without the written approval
of the Board first had and obtained in each instance, directly or indirectly (i)
accept employment or receive any compensation for the performance of services
from any business enterprise other than the Company or (ii) enter into or be
concerned or interested in any trade or business or public or private work
(whether for profit or otherwise and whether as partner, principal, shareholder
or otherwise), which may, in the absolute discretion of the Board, hinder or
otherwise interfere with the performance by the Employee of his duties and
obligations hereunder, except as a holder of not more than five percent (5%) of
any class of stock or other securities in any company which is listed and/or
traded on any securities market.
1
<PAGE>
2. Compensation.
------------
2.1 Salary. For all services to be rendered by the Employee under
------
this Agreement, the Company agrees to pay the Employee a salary (the "Base
Salary") equal to One Hundred Twenty-Five Thousand Dollars ($125,000) per year,
payable in bi-weekly installments, less all amounts required by law to be
withheld or deducted. During the Term of this Agreement, the Compensation
Committee of the Board (the "Compensation Committee") shall review the
Employee's Base Salary on or about each anniversary date of the date of this
Agreement. The Compensation Committee, in its sole and absolute discretion from
time to time, may increase or decrease the Employee's Base Salary, provided that
such Base Salary shall not be less than $125,000 per year without Employee's
consent.
2.2 Performance Bonus. If the Employee remains in the employ of the
-----------------
Company under this Agreement for twelve months from the date of this Agreement,
the Compensation Committee, in its sole and absolute discretion, also may pay
the Employee discretionary performance bonuses (the "Performance Bonuses").
Payment of the Performance Bonuses shall be based on the Employee achieving
reasonable performance objectives designated by the Compensation Committee and
communicated to the Employee. The Performance Bonuses shall be made in such
amounts and at such times as the Compensation Committee may determine in its
discretion.
2.3 Employee Stock Purchase. Within 20 days of the date hereof, the
-----------------------
Company shall sell restricted shares of its common stock to the Employee in
accordance with the following terms and conditions pursuant to an employee stock
incentive plan or an employee stock purchase agreement (the "Plan") to be
adopted by the Company's Board of Directors:
(a) The Company shall sell to the Employee Two Hundred Sixty-
Four Thousand Three Hundred Seventy-Five (264,375) shares of the Company's
common stock (the "Purchased Shares") at a purchase price of $.01 per share (the
"Purchase Price"). The Plan shall contain customary terms and conditions which
shall include restrictions on the disposition of the Purchased Shares,
restrictions on the ability to vote the Purchased Shares and shall grant the
Company a right to repurchase such Purchased Shares at the Purchase Price. The
voting restrictions will terminate upon the consummation of a Qualified Public
Offering (as defined in Section 2.3(b) below) or a Change of Control (as defined
in Section 2.3(c)): The Company's repurchase right shall initially be
exercisable after Employee's termination of employment with respect to 75% of
the Purchased Shares and shall be reduced to 50% on December 31, 1998, 25% on
December 31, 1999 and terminated on December 31, 2000; provided, however, that
such repurchase right shall terminate earlier upon (i) the consummation of a
Qualified Public Offering, (ii) a Change in Control (as defined in Section
2.3(c) below) or (iii) termination of the Employee's employment by the Company
prior to the Term without Cause (as such term is defined in Section 4(b) hereof)
or by the Employee with Good Cause (as such term is defined in Section 4(e)
hereof). Until such time as the Company actually
2
<PAGE>
exercises its repurchase right, Employee shall have all the rights of a
stockholder (subject to the restrictions contained in the Plan) with respect to
the Purchased Shares.
(b) For purposes hereof, a "Qualified Public Offering" shall
mean a firmly underwritten public offering of the Company's common stock on a
Form S-1, Form SB- 1 or Form SB-2 Registration Statement filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
with respect to which the Company receives net proceeds of at least $
10,000,000.
(c) For purposes hereof, a "Change in Control" shall be deemed
to mean any of the following transactions which occur after February 28, 1998:
(i) the acquisition, in a transaction other than a public offering of the
Company's common stock, by any person, entity or "group" (within the meaning of
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended), of
securities of the Company representing 60% or more of the combined voting power
of the then outstanding securities of the Company, (ii) the merger or other
business combination of the Company with or into another corporation, a majority
of the directors of which were not directors of the Company immediately prior to
the merger or in which stockholders of the Company immediately prior to the
effective date of such merger directly or indirectly own less than 60% of the
voting power in such corporation, or (iii) the sale or other disposition of all
or substantially all of the assets of the Company.
3. Employee Benefits. During the Term of the Employee's employment
-----------------
hereunder:
(a) The Employee shall be entitled to two weeks annual vacation
leave.
(b) The Company shall pay or reimburse the Employee for all
reasonable and necessary travel and other business expenses incurred or paid by
the Employee in connection with the performance of his services under this
Agreement consistent with the Company's policies for other senior executives of
the Company.
(c) The Employee shall be entitled to participate in any policies,
programs or benefits which the Company may, in its sole and absolute discretion,
make generally available to its other senior executives from time to time.
4. Termination of Employment.
-------------------------
(a) Notwithstanding any other provision of this Agreement, the
Employee's employment under this Agreement may be terminated as follows:
(i) Upon the death of the Employee, this Agreement and the
Employee's employment hereunder shall terminate immediately and without notice
by the Company;
3
<PAGE>
(ii) In the event of the inability of the Employee to perform
his duties or responsibilities hereunder, as a result of mental or physical
ailment or incapacity, for a period of ninety (90) consecutive calendar days or
an aggregate of one hundred twenty (120) calendar days during any calendar year
(whether or not consecutive), this Agreement and the Employee's employment
hereunder shall terminate upon delivery of written notice to the Employee; or
(iii) By the Company for Cause (as defined below) in accordance
with the provisions of Section 4(c) hereof.
(b) The parties agree that for purposes of this Agreement, the term
"Cause" shall mean the following:
(i) The Employee's willful and repeated failure to
satisfactorily perform his reasonably assigned job duties under this Agreement;
(ii) Failure by the Employee to comply with all applicable
laws in performing his job duties or in directing the conduct of the Company's
business,
(iii) Commission by the Employee of any felony or intentionally
fraudulent act; or
(iv) Employee's breach of this Agreement.
(c) With respect to the events described in Sections 4(b)(i), (ii)
and (iv) above, the Company shall give written notice to the Employee of any
such event and the Employee shall have thirty (30) days beginning on the date of
delivery of such written notice to cure same, or if such event cannot be cured
within said thirty (30) day period, the Employee shall commence his efforts to
cure the event within the thirty (30) day period and diligently work to cure
such event within a reasonable time period. If the Employee within said thirty
(30) day period or within a reasonable time period, as applicable, does not cure
the event for which notice has been provided, then the Employee's employment
under this Agreement may be terminated by the Company by delivery to the
Employee of written notice of termination and such termination will be effective
as of the date of delivery of such written notice. With respect to events
described in Section 4(b)(iii) above, the Employee's employment under this
Agreement may be terminated by the Company by delivery to the Employee of
written notice of termination and such termination will be effective as of the
date of delivery of such written notice. Upon the effectiveness of termination
pursuant to Section 4(a), the Employee shall not be entitled to receive any
further compensation or benefits pursuant to this Agreement except for payment
within ten days after his termination date of all accrued but unpaid Base
Salary.
(d) In addition to its rights to terminate the Employee's employment
under this Agreement pursuant to Section 4(a), the Company may also terminate
the Employee's employment under this Agreement for any other reason, provided
that, in
4
<PAGE>
such event, the Employee shall be entitled to receive an amount equal to one-
half of the Employee's Base Salary (for the then-current calendar year) payable
monthly in six equal installments and the Employee shall not be entitled to
receive any other compensation or benefits hereunder except as set forth in
Section 2.3. The Employee acknowledges and agrees that the provisions of this
paragraph 4 state his entire and exclusive rights, entitlements, and remedies
against the Company, its successors, assigns, affiliates, officers, directors,
employees and representatives for termination without any cause shown by the
Company.
(e) The Employee may terminate his employment for good cause or
without any cause. In the event the Employee terminates his employment for "Good
Cause" (as defined below), he shall be entitled to receive the severance
benefits described in Section 4(d) above. If he terminates his employment for
any other reason, he shall not be entitled to receive any compensation except
for payment within ten days after his termination date of all accrued but unpaid
Base Salary. For purposes of this Agreement, "Good Cause" for termination of
employment by the Employee shall be deemed to exist if the Company fails to
maintain the Employee in the position of an officer of the Company or in the
event of a material breach of the provisions of this Agreement by the Company.
The Employee acknowledges and agrees that the provisions of this Section 4(e)
state his entire and exclusive rights and remedies under this Agreement against
the Company, its successors, assigns, affiliates, officers, directors, employees
and representatives if he terminates this Agreement.
5. Assignment of Rights and Duties. Neither the Employee nor the Company
-------------------------------
may assign their rights or duties under this Agreement without prior written
consent of both parties, which consent may be withheld for any reason. Any
attempted assignment, transfer, conveyance, or other disposition of any interest
of either party in this Agreement shall be void. Notwithstanding the foregoing,
the Company may make such assignment to any affiliated company, but its
assignment of this Agreement to an affiliate does not relieve it of its
obligations under this Agreement if that affiliate fails to perform the
Company's obligations under this Agreement.
6. Confidential Information and Nonsolicitation.
--------------------------------------------
(a) The Employee agrees that he will enter into a proprietary
information and confidentiality agreement in a form which will be used for
Company employees generally. Furthermore, the Employee acknowledges and agrees
that the Company has developed and uses certain proprietary and confidential
information, data, processes, business methods, computer software, data bases,
customer lists and know-how ("Confidential Information"). The Employee agrees
that the Confidential Information is a trade secret of the Company which shall
remain the sole property of the Company notwithstanding that the Employee, as an
employee of the Company, may participate in the development of the Confidential
Information. During the term of this Agreement and at all times thereafter the
Employee shall not disclose any Confidential Information to any person or entity
for any reason or purpose whatsoever (other than for
5
<PAGE>
the benefit of the Company), nor shall the Employee make use of any Confidential
Information for the Employee's own benefit or for the benefit of any other
person or entity. Upon termination of this Agreement for any reason, the
Employee will promptly surrender to the Company all Confidential Information in
the Employee's possession or under the Employee's control, whether prepared by
the Employee or by others.
(b) The Employee agrees (i) that for a period of three (3) years
following the termination of the Employee's employment hereunder, the Employee
will not directly or indirectly solicit or attempt to solicit any of the
employees of or consultants to the Company to leave the Company to become
employees of or consultants to any other person or entity who is a competitor of
the Company and (ii) that for a period of one (1) year following the termination
of the Employee's employment hereunder, the Employee will not directly or
indirectly solicit or attempt to solicit any of the employees of or consultants
to the Company to leave the Company or to become employees of or consultants to
any other person or entity.
7. Miscellaneous.
-------------
7.1 Modification and Waiver of Breach. No waiver or modification of
---------------------------------
this Agreement or any term hereof shall be binding unless it is in writing
signed by the parties hereto. No failure to insist upon compliance with any
term, provision or condition to this Agreement, whether by conduct or otherwise,
in any one or more instances, shall be deemed to be or construed as a waiver of
any such term, provision or condition or as a waiver of any other term,
provision or condition of this Agreement.
7.2 Notices. All notices, requests, demands and other
-------
communications under this Agreement must be in writing and shall be deemed given
upon personal delivery, facsimile transmission (with confirmation of receipt),
delivery by a reputable overnight courier service or five (5) days following
deposit in the United States mail (if sent by certified or registered mail,
postage prepaid, return receipt requested), in each case duly addressed to the
party to whom such notice or communication is to be given as follows:
To the Company: E-Sport, Inc.
500 Newport Center Drive, Suite 920
Newport Beach, CA 92660
Attention: Chairman of the Board
Facsimile Number: (714) 644-5762
To the Employee: Ross Schaufelbcrger
3707 Channel Place
Newport Beach, California 92663
Any party may change its address for the purpose of this Section 7.2 by
giving the other party written notice of the new address in the manner set forth
above.
6
<PAGE>
7.3 Enforceability. If any of the covenants contained in this
--------------
Agreement, for any reason and to any extent, are construed to be invalid or
unenforceable, the remainder of this Agreement, and the application of the
remaining covenants to other persons or circumstances shall not be affected
hereby, but rather shall be enforced to the greatest extent permitted by law.
7.4 Entire Agreement. This Agreement contains the entire agreement
----------------
between the Company and the Employee with respect to the subject matters hereof
and supersedes all prior or contemporaneous agreements, arrangements or
understandings, written or oral, with respect to the subject matters hereof.
7.5 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of California, excluding its
rules on conflicts of law.
7.6 Counterparts. This Agreement may be executed simultaneously in
------------
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
"THE COMPANY" E- SPORT, a Delaware corporation
By: /s/ Ahmed O. Alfi
-----------------------------------
Ahmed O. Alfi
Chairman of the Board
"THE EMPLOYEE" /s/ ROSS SCHAUFELBERGER
---------------------------------------
ROSS SCHAUFELBERGER
7