Executive Employment Agreement - Digital Island Inc. and Charles Picasso
EXECUTIVE EMPLOYMENT AGREEMENT
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This EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") is entered into as
of August 28, 2000 by and between DIGITAL ISLAND, INC. a Delaware corporation
(the "Corporation"), and Charles Picasso ("Executive").
WHEREAS, the Corporation and Executive wish to enter into a formal
employment contract setting forth certain terms and conditions applicable to
Executive's employment with the Corporation and the severance benefits to which
Executive would be entitled in the event his employment should be involuntarily
terminated under certain circumstances.
NOW, THEREFORE, the parties hereto agree as follows:
PART ONE - DEFINITIONS
For purposes of this Agreement, the following definitions shall be in
effect:
Average Compensation means the average of the Executive's W-2 wages
from the Corporation for the five (5) calendar years (or such fewer number of
calendar years of employment with the Corporation) completed immediately prior
to the calendar year in which the Change in Control is effected. Any W-2 wages
for a partial year of employment will be annualized, in accordance with the
frequency which such wages are paid during such partial year, before inclusion
in the Executive's Average Compensation.
Board means the Corporation's Board of Directors.
Change in Control means a change in the ownership or control of the
Corporation effected through any of the following transactions:
(i) a merger, consolidation or reorganization approved by the
Corporation's stockholders, unless securities representing more than
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fifty percent (50%) of the total combined voting power of the
outstanding voting securities of the successor corporation are
immediately thereafter beneficially owned, directly or indirectly and
in substantially the same proportion, by the persons who beneficially
owned the Corporation's outstanding voting securities immediately
prior to such transaction, or
(ii) any stockholder-approved sale, transfer or other
disposition of all or substantially all of the Corporation's assets in
complete liquidation or dissolution of the Corporation;
(iii) the acquisition, directly or indirectly, by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by or is under common
control with, the Corporation) of beneficial ownership (within the
meaning of
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Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of
securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's outstanding securities
pursuant to a tender or exchange offer made directly to the
Corporation's stockholders; or
(iv) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for
Board membership, to be comprised of individuals who either (A) have
been Board members continuously since the beginning of such period or
(B) have been elected or nominated for election as Board members
during such period by at least a majority of the Board members
described in clause (A) who were still in office at the time the Board
approved such election or nomination.
Code means the Internal Revenue Code of 1986, as amended.
Common Stock means the Corporation's common stock.
Disability means the Executive's inability, by reason of any physical
or mental injury or illness, to substantially perform the services required of
him under this Agreement for a period in excess of one hundred eighty (180)
consecutive days. In such event, Executive shall be deemed to have terminated
employment by reason of such Disability on the last day of such one hundred
eighty (180)-day period.
Fair Market Value means, with respect to the shares of Common Stock
subject to any of the Executive's Options, the closing selling price per share
of Common Stock on the date in question, as such price is reported by the
National Association of Securities Dealers on the Nasdaq National Market and
published in The Wall Street Journal. If there is no closing selling price
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reported for the Common Stock on the date in question, then the Fair Market
Value will be the closing selling price on the last preceding date for which
such published report exists.
Involuntary Termination means (i) the Corporation's termination of
Executive's employment for any reason other than a Termination for Cause or (ii)
Executive's voluntary resignation within ninety (90) days following (A) a
material reduction in the scope of his duties and responsibilities or the level
of management to which he reports, (B) a reduction in his level of base salary
or (C) a relocation of his principal place of employment by more than fifty (50)
miles. Involuntary Termination shall not include the termination of Executive's
employment by reason of death or Disability.
Option means any option granted to the Executive under the Plan,
including the stock options to be granted to Executive pursuant to the
provisions of Paragraph 4 of this Agreement, which is outstanding either at the
time of the Change in Control or upon the Executive's subsequent Involuntary
Termination. The Executive's Options shall be divided into two (2) separate
categories as follows:
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Acquisition-Accelerated Options: any Option (or installment
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thereof) which automatically vests on an accelerated basis, pursuant to the
acceleration provisions of the agreement evidencing that Option, upon a
Change in Control.
Severance-Accelerated Options: the portion of each Option which,
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pursuant to Part Four of this Agreement, vests on an accelerated basis upon
an Involuntary Termination within twelve (12) months after a Change in
Control.
Option Parachute Payment means, with respect to any Acquisition-
Accelerated Option or any Severance-Accelerated Option, the portion of that
Option deemed to be a parachute payment under Code Section 280G and the Treasury
Regulations issued thereunder. The portion of such Option which is categorized
as an Option Parachute Payment shall be calculated in accordance with the
valuation provisions established under Code Section 280G and the applicable
Treasury Regulations and shall include an appropriate dollar adjustment to
reflect the lapse of the Executive's obligation to remain in the Corporation's
employ as a condition to the vesting of the accelerated installment. In no
event, however, shall the Option Parachute Payment attributable to any
Acquisition-Accelerated Option or Severance-Accelerated Option (or accelerated
installment) exceed the spread (the excess of the Fair Market Value of the
accelerated option shares over the option exercise price payable for those
shares) existing at the time of acceleration.
Other Parachute Payment means any payment in the nature of
compensation (other than the Change in Control benefits to which the Executive
becomes entitled under Part Four of this Agreement) which are made to the
Executive in connection with the Change in Control and which accordingly qualify
as parachute payments within the meaning of Code Section 280G(b)(2) and the
Treasury Regulations issued thereunder. The Executive's Other Parachute
Payment shall include (without limitation) the Present Value, measured as of the
Change in Control, of the Option Parachute Payment attributable to the
Executive's Acquisition-Accelerated Options (if any).
Parachute Payment means any payment or benefit provided Executive
under Part Four of this Agreement (other than the Option Parachute Payment
attributable to the Executive's Severance-Accelerated Options) which is deemed
to constitute a parachute payment within the meaning of Code Section 280G(b)(2)
and the Treasury Regulations issued thereunder.
Plan means (i) the Corporation's 1999 Stock Incentive Plan, as amended
or restated from time to time, and (ii) any successor stock incentive plan
subsequently implemented by the Corporation.
Present Value means the value, determined as of the date of the Change
in Control, of any payment in the nature of compensation to which the Executive
becomes entitled in connection with the Change in Control or his subsequent
Involuntary Termination, including (without limitation) the Option Parachute
Payment attributable to the Executive's Severance-Accelerated Options, the
additional severance benefits to which the Executive becomes entitled under Part
Four of this Agreement and the Option Parachute Payment attributable to the
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Executive's Acquisition-Accelerated Options. The Present Value of each such
payment shall be determined in accordance with the provisions of Code Section
280G(d)(4), utilizing a discount rate equal to one hundred twenty percent (120%)
of the applicable Federal rate in effect at the time of such determination,
compounded semi-annually to the effective date of the Change in Control.
Salary Continuation Period means the period for which payment of the
Executive's Base Salary may, pursuant to Part Three or Four of this Agreement,
be continued following an Involuntary Termination of the Executive's
employment.
Termination for Cause means the termination of the Executive's
employment for any of the following reasons: (i) Executive's conviction of a
felony or his embezzlement of the Corporation's funds, (ii) a material breach by
Executive of one or more of his obligations under this Agreement, (iii) any
misconduct by Executive which has a materially adverse effect upon the
Corporation's business or reputation, (iv) Executive's material dereliction of
the major duties, functions and responsibilities of his executive position after
written warning from the Corporation or (v) a material breach by Executive of
any of Executive's fiduciary obligations as an officer of the Corporation.
However, prior to any termination of Executive's employment for any of the
reasons specified in clauses (ii) through (v), the Corporation shall give
written notice to Executive of the actions or omissions deemed to constitute the
grounds for a Termination for Cause, and Executive shall have a period of thirty
(30) days in which to cure the specified default in his performance.
PART TWO -- TERMS AND CONDITIONS OF EMPLOYMENT
1. Duties and Responsibilities.
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A. Executive shall serve as Chief Operating Officer of the
Corporation and shall in such capacity report directly to the Corporation's
Chief Executive Officer.
B. Executive shall perform the duties of his office as Chief
Operating Officer in good faith and to the best of his ability and shall be
available to render all services required of him hereunder at all reasonable
times and places in accordance with the reasonable directives and requests of
the Corporation's Chief Executive Officer or the Board.
C. Executive shall, during the term hereof, devote his full time,
ability, energy and skill to the performance of his duties and responsibilities
hereunder. Notwithstanding clause B above, Executive shall be based at the
Corporation's principal offices in the San Francisco/Bay Area, California, but
Executive shall be required to travel to other geographic locations in
connection with the performance of his executive duties hereunder.
2. Period of Employment. Executive's employment with the Corporation
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shall be governed by the provisions of this Agreement for the period commencing
August 28, 2000 and continuing until this Agreement is terminated in accordance
with the provisions of Paragraph 10. The period during which Executive's
employment continues in effect shall be hereafter referred to as the "Employment
Period."
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3. Cash Compensation.
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A. Executive shall be paid a base salary at the annual rate of not
less than Two Hundred Fifty Thousand Dollars ($250,000.00). Such
rate shall be subject to annual review by the Board and may be
increased at the Board's discretion. Base salary shall be paid at
periodic intervals in accordance with the Corporation's payroll
practices for salaried employees.
B. For the first twelve (12) months of the Employment Period,
Executive shall be entitled to incentive compensation, payable in
two installments within that period, of Forty Thousand Dollars
($40,000) each, upon (i) commencement of employment, and (ii)
completion of 6 months of employment. In addition, Executive may
be considered for an incentive bonus at the end of the first full
fiscal year worked upon (i) the Corporation's achievement of the
financial objectives and performance milestones established by
the Board for each such twelve (12)-month period, (ii)
Executive's achievement of his individual performance objectives
as agreed by Executive and the CEO for that twelve (12)-month
period and (iii) Executive's continuation in employment through
the close of each fiscal year for which incentive compensation is
paid by the Corporation.
C. For each subsequent twelve (12)-month period during the
Employment Period, beginning with the twelve (12)-month period
commencing October 1, 2001, Executive shall be entitled to
incentive compensation, payable currently in semi-annual
installments following the close of each 6 months within such
period, in a targeted annualized amount of Eighty Thousand
Dollars ($80,000) upon (i) the Corporation's achievement of the
financial objectives and performance milestones established by
the Board for each such twelve (12)-month period, (ii)
Executive's achievement of his individual performance objectives
as agreed by Executive and the CEO for that twelve (12)-month
period and (iii) Executive's continuation in employment through
the close of each 6 months within that twelve (12)-month period
for which semi-annual incentive compensation is paid by the
Corporation.
4. Equity Compensation
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A. Upon Executive's commencement of employment with the Corporation,
Executive shall immediately be granted a stock option under the Plan to purchase
500,000 shares of Common Stock, such Option to vest as follows: 100,000 shares
shall vest upon the earlier of (i) Executive's completion of six (6) months of
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employment with the Corporation or (ii) an Involuntary Termination of
Executive's employment other than a Termination for Cause. The remaining shares
shall vest at the rate of 8,333.33 shares per month commencing upon Executive's
completion of one (1) year of employment with the Corporation. The Option shall
have an exercise price per share equal to the closing selling price per share of
the Corporation's
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common stock on the grant date and shall have a maximum term of ten (10) years,
subject to earlier termination following Executive's cessation of employment.
The Option shall be immediately exercisable into restricted shares which will
remain subject to the Corporations right to repurchase such shares at the
exercise price thereof, such repurchase right to lapse at the rate that the
shares vest. The remaining terms of the Option shall be governed by the
provisions of the Plan. However, the Option shall be subject to (i) the vesting
acceleration provisions of Paragraph 11(d) of Part Three in the event there
should occur an Involuntary Termination of Executive's employment in the absence
of a Change in Control and (ii) the applicable vesting acceleration provisions
of Paragraphs 12 and 13(d) of Part Four in the event there should occur a Change
in Control.
5. Expense Reimbursement. In addition to the compensation specified
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in Paragraph 3, Executive shall be entitled, in accordance with the
reimbursement policies in effect from time to time, to receive reimbursement
from the Corporation for all business expenses incurred by Executive in the
performance of his duties hereunder, provided Executive furnishes the
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Corporation with vouchers, receipts and other details of such expenses in the
form required by the Corporation sufficient to substantiate a deduction for such
business expenses under all applicable rules and regulations of federal and
state taxing authorities.
6. Fringe Benefits.
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A. Executive shall, throughout the Employment Period, be eligible to
participate in all group term life insurance plans, group health plans,
accidental death and dismemberment plans and short-term disability programs and
other executive perquisites which are made available to the Corporation's
executives and for which Executive qualifies.
B. Executive shall accrue paid Paid Time Off benefits during the
Employment Period at the rate of one (1) week per calendar quarter and may take
his accrued PTO at such times as are mutually convenient to Executive and the
Corporation.
7. Death or Disability. Upon Executive's death or Disability during
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the Employment Period, the employment relationship created pursuant to this
Agreement shall immediately terminate, and no further compensation shall become
payable to Executive pursuant to Paragraph 3. In connection with such
termination, the Corporation shall only be required to pay Executive or his
estate (i) any unpaid base salary earned under Paragraph 3 for services rendered
through the date of his death or Disability, (ii) the dollar value of all
accrued and unused vacation benefits based upon Executive's most recent level of
base salary and (iii) any incentive compensation which becomes due and payable
for the fiscal year in which the Executive's death or Disability occurs, pro-
rated in amount on the basis of the portion of that year completed prior to
Executive's death or Disability. None of the Options granted to Executive shall
vest or become exercisable for any additional option shares following the
termination of the employment relationship by reason of Executive's death or
Disability.
8. Restrictive Covenants. During the Employment Period:
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(i) Executive shall devote his full time and energy solely and
exclusively to the performance of his duties described herein, except
during periods of illness or vacation periods.
(ii) Executive shall not directly or indirectly provide services
to or through any person, firm or other entity except the Corporation,
unless otherwise authorized by the Board in writing.
(iii) Executive shall not render any services of any kind
or character for his own account or for any other person, firm or entity
without first obtaining the Corporation's written consent.
However, Executive shall have the right to perform such incidental
services as are necessary in connection with (a) Executive's 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, or (b) Executive's charitable or
community activities, or participation in trade or professional organizations,
but only if such incidental services do not interfere with the performance of
Executive's services hereunder.
9. Proprietary Information.
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A. Executive hereby acknowledges that the Corporation may, from time
to time during the Employment Period, disclose to Executive confidential
information pertaining to the Corporation's business and affairs, technology,
research and development projects and customer base, including (without
limitation) financial information concerning customers and prospective business
opportunities. All information and data, whether or not in writing, of a
private or confidential nature concerning the business, technology or financial
affairs of the Corporation and its clients (collectively, "Proprietary
Information") is and shall remain the sole and exclusive property of the
Corporation. By way of illustration, but not limitation, Proprietary
Information shall include all trade secrets, research and development projects,
financial records, business plans, personnel data, computer programs and
customer lists and accounts relating to the business operations, technology or
financial affairs of the Corporation, other similar items indicating the source
of the Corporation's revenue, all information pertaining to the salaries, duties
and performance ratings of the Corporation's employees and all financial
information relating to the Corporation's clients and their proposed or
contemplated business transactions.
B. Executive shall not, at any time during or after such Employment
Period, disclose to any third party or directly or indirectly make use of any
such Proprietary Information, other than in connection with the Corporation's
business and affairs.
C. All files, letters, memoranda, reports, records, data or other
written, reproduced or other tangible manifestations of the Proprietary
Information, whether created by Executive or others, to which the Executive has
access during the Employment Period shall be used by Executive only in the
performance of his duties hereunder. All such materials (whether written,
printed or otherwise reproduced or recorded) shall be returned by Executive to
the
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Corporation immediately upon the termination of the Employment Period or upon
any earlier request by the Corporation, without Executive retaining any copies,
notes or excerpts thereof.
D. Executive's obligation not to disclose or use Proprietary
Information shall also extend to any and all information, records, trade
secrets, data and other tangible property of the Corporation clients or any
other third parties who may have disclosed or entrusted the same to the
Corporation or Executive in connection with the Corporation's business
operations.
E. Executive's obligations under this Paragraph 9 shall continue in
effect after the termination of his employment with the Corporation, whatever
the reason or reasons for such termination, and the Corporation shall have the
right to communicate with any future or prospective employer of Executive
concerning Executive's continuing obligations under this Paragraph 9.
10. Termination of Employment.
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A. The Corporation may terminate Executive's employment under this
Agreement at any time for any reason, with or without cause, by giving at least
thirty (30) days prior written notice of such termination to the Executive. If
such termination notice is given to Executive, the Corporation may, if it so
desires, immediately relieve Executive of some or all of his duties. In no
event shall such thirty (30)-day notice requirement be applicable to a
Termination for Cause under Paragraph C below.
B. Executive may terminate his employment under this Agreement at
any time by giving the Corporation at least thirty (30) days prior written
notice of such termination.
C. The Corporation may at any time, upon written notice, discharge
the Executive from employment with the Corporation hereunder pursuant to a
Termination for Cause. Such termination shall be effective immediately upon
such notice.
D. Upon the termination of Executive's employment for any reason
during the Employment Period, Executive shall be paid all salary and unused Paid
Time Off earned through the date of such termination.
E. If Executive's employment is terminated by reason of a
Termination for Cause or should Executive voluntarily resign from employment
(other than in connection with an event which constitutes an Involuntary
Termination hereunder), then all vesting in Executive's outstanding Options
shall cease at the time of such termination, and Executive shall not have more
than a three (3)-month period following the termination of his employment in
which to exercise any outstanding Options for the shares of the Corporation's
common stock which are vested and exercisable at the time of such termination of
employment.
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PART THREE - SEVERANCE BENEFITS
Should the Executive's employment with the Corporation terminate by
reason of an Involuntary Termination in the absence of a Change in Control or
more than twelve (12) months after a Change in Control, then the Executive shall
become entitled to receive the severance benefits provided under this Part
Three. Such benefits shall be in lieu of any other severance benefits to which
Executive might otherwise be entitled by reason of his termination of
employment.
11. Nature of Severance Benefits. The severance benefits payable to
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Executive under this Part Three shall consist of the following:
(a) Salary Continuation. Executive shall receive salary
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continuation payments, at the monthly rate of base salary in
effect for him under Paragraph 3 at the time of his
Involuntary Termination, for a period of twelve (12) months.
Such salary continuation payments shall be made at semi-
monthly intervals on the 15th and last day of each calendar
month.
(b) Health Care Coverage. Continued health care coverage under
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the Corporation's medical plan shall be provided, without
charge, to Executive and his eligible dependents upon his
election to receive such continued health care coverage
under Internal Revenue Code Section 4980B ("COBRA"). Such
Corporation-paid coverage shall continue until the earlier
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of (i) the expiration of the twelve (12)-month period
measured from the effective date of his Involuntary
Termination or (ii) the first date on which Executive is
covered under another employer's health benefit program
without exclusion for any pre-existing medical condition.
Any additional health care coverage to which Executive and
his dependents may be entitled under COBRA following the
period of such Corporation-paid coverage shall be at
Executive's sole cost and expense.
(c) Partial Option Acceleration. The vesting schedule in effect
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for each of the Executive's Options shall be accelerated by
an additional twelve (12) months so that Executive shall
immediately vest in that number of additional shares equal
to the number of additional shares for which the Option
would have become exercisable under the normal vesting
schedule in effect for the Option had Executive actually
rendered an additional twelve (12) months of service with
the Corporation prior to the date of his Involuntary
Termination. Executive shall have until the earlier of (i)
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the expiration of the option term or (ii) the end of the
three (3)-
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month period following the date of such Involuntary
Termination in which to exercise his Option for any or all
of the option shares in which Executive is vested at the
time of his Involuntary Termination, including the option
shares which vest on an accelerated basis in accordance with
the foregoing provisions of this subparagraph (d).
PART FOUR - CHANGE IN CONTROL BENEFITS
This Part Four sets forth certain Change in Control Benefits to which
Executive may become entitled. Paragraph 12 specifies the benefits to which
Executive may become entitled upon the Change in Control. Should Executive's
employment with the Corporation terminate by reason of an Involuntary
Termination within twelve (12) months after a Change in Control, then the
Executive shall become entitled to receive the severance benefits provided under
Paragraph 13. However, the Executive's benefits under this Part Four shall in
all events be subject to the benefit limitations of Part Five and the
restrictive covenants of Part Six of this Agreement and shall be in lieu of all
other severance benefits to which the Executive might otherwise be entitled by
reason of such termination of his employment, including any such benefits under
Part Three.
12. Certain Change in Control Benefits. Should a Change in Control
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occur in which the Executive's Options are not assumed by the successor entity
or otherwise continued in effect pursuant to the terms of the Change in Control
transaction, then each of the Executive's Options shall immediately vest and
become exercisable, immediately prior to that Change in Control, for all the
shares of Common Stock at the time subject to those Options and may be exercised
for any or all of those shares as fully-vested shares of Common Stock.
13. Involuntary Termination Benefits. The severance benefits payable
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to Executive under this Part Four in the event his employment with the
Corporation should terminate by reason of an Involuntary Termination within
twelve (12) months after a Change in Control shall consist of the following:
(a) Salary Continuation. Executive shall receive salary
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continuation payments, at the monthly rate of base salary in effect for him
under Paragraph 3 at the time of his Involuntary Termination, for a period of
twelve (12) months. Such salary continuation payments shall be made at semi-
monthly intervals on the 15th and last day of each calendar month.
(b) Incentive Compensation. Executive shall be entitled to one
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hundred percent (100%) of any remaining incentive compensation which would have
actually become payable to him on the basis of the Corporation's financial
performance for the remainder of the fiscal year in which such Involuntary
Termination occurs, had he continued in the Corporation's employ through the end
of that fiscal year. Payment shall be made in semi-annual installments at the
same time as incentive bonuses are paid to active executives during the balance
of such fiscal year.
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(c) Health Care Coverage. Continued health care coverage under
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the Corporation's medical plan shall be provided, without charge, to Executive
and his eligible dependents upon his election to receive such continued health
care coverage under Internal Revenue Code Section 4980B ("COBRA"). Such
Corporation-paid coverage shall continue until the earlier of (i) the expiration
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of the twelve (12)-month period measured from the effective date of his
Involuntary Termination or (ii) the first date on which Executive is covered
under another employer's health benefit program without exclusion for any pre-
existing medical condition. Any additional health care coverage to which
Executive and his dependents may be entitled under COBRA following the period of
such Corporation-paid coverage shall be at Executive's sole cost and expense.
(d) Partial Option Acceleration. Should the Executive's Option
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shares not vest on an accelerated basis at the time of the Change in Control
because those Options are assumed by the successor entity or otherwise continued
in effect following that Change in Control, then upon an Involuntary Termination
of Executive's employment with the Corporation (or the successor entity) within
twelve (12) months after the effective date of such Change in Control, fifty
percent (50%) of Executive's then unvested Option shares shall immediately vest.
Executive shall have until the earlier of (i) the expiration of the option term
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or (ii) the end of the three (3)-month period following the date of such
Involuntary Termination in which to exercise his Options for any or all of the
option shares in which Executive is vested at the time of his Involuntary
Termination, including the Option shares which vest on an accelerated basis in
accordance with the foregoing provisions of this subparagraph (d).
PART FIVE - BENEFIT LIMITATION
14. Benefit Limitation. The aggregate Present Value (measured as of
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the Change in Control) of the severance benefits to which the Executive becomes
entitled under Paragraph 13 at the time of his Involuntary Termination (namely,
the salary continuation payments, the incentive bonus, the continued health care
coverage and the Option Parachute Payment attributable to the Severance-
Accelerated Options) shall in no event exceed in amount the greater of the
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following dollar amounts (the "Benefit Limit"):
(a) 2.99 times the Executive's Average Compensation, less the
Present Value, measured as of the Change in Control, of all Other Parachute
Payments to which the Executive is entitled, or
(b) the amount which yields the Executive the greatest after-tax
amount of benefits under Part Four of this Agreement after taking into
account any excise tax imposed under Code Section 4999 on the payments and
benefits which are provided to Executive under Part Four or which otherwise
constitute Other Parachute Payments.
The Option Parachute Payment attributable to the accelerated vesting
of the Executive's Acquisition-Accelerated Options at the time of the Change in
Control shall also be subject to the Benefit Limit.
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For purposes of applying the Benefit Limit to the Executive's
severance benefits under Part Four, the value of his consulting agreement under
Paragraph 17 and his non-competition covenant under Paragraph 18 shall be
determined by independent appraisal by a nationally-recognized independent
accounting firm acceptable to both the Executive and the Corporation, and a
portion of his severance benefits shall, to the extent of such appraised value,
be specifically allocated as reasonable compensation for the consulting
agreement and non-competition covenant.
15. Resolution Procedure. In the event there is any disagreement
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between the Executive and the Corporation as to whether one or more payments to
which the Executive becomes entitled in connection with either the Change in
Control or his subsequent Involuntary Termination constitute Parachute Payments,
Option Parachute Payments or Other Parachute Payments or as to the determination
of the Present Value of any of those payments, such dispute shall be resolved as
follows:
(i) In the event temporary, proposed or final Treasury
Regulations in effect at the time under Code Section 280G (or applicable
judicial decisions) specifically address the status of any such payment or
the method of valuation therefor, the characterization afforded to such
payment by the Regulations (or such decisions) shall, together with the
applicable valuation methodology, be controlling.
(ii) In the event Treasury Regulations (or applicable
judicial decisions) do not address the status of any payment in dispute,
the matter shall be submitted for resolution to independent tax counsel
mutually acceptable to the Executive and the Corporation ("Independent
Counsel"). The resolution reached by Independent Counsel shall be final and
controlling; provided, however, that if in the judgment of Independent
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Counsel the status of the payment in dispute can be resolved through the
obtainment of a private letter ruling from the Internal Revenue Service, a
formal and proper request for such ruling shall be prepared and submitted
by Independent Counsel, and the determination made by the Internal Revenue
Service in the issued ruling shall be controlling. All expenses incurred in
connection with the retention of Independent Counsel and (if applicable)
the preparation and submission of the ruling request shall be shared
equally by the Executive and the Corporation.
(iii) In the event Treasury Regulations (or applicable
judicial decisions) do not address the appropriate valuation methodology
for any payment in dispute, the Present Value thereof shall, at the
Independent Counsel's election, be determined through an independent third-
party appraisal, and the expenses incurred in obtaining such appraisal
shall be shared equally by the Executive and the Corporation.
16. Reduction of Benefits. Once the requisite determinations under
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Paragraph 15 have been made, then to the extent the aggregate Present Value,
measured as of the Change in Control, of (i) the Option Parachute Payment
attributable to the Severance-
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Accelerated Options (or installments thereof) plus (ii) the Parachute Payment
attributable to the Executive's other benefit entitlements under Part Four of
this Agreement would, when added to the Present Value of all of the Executive's
Other Parachute Payments (including the Option Parachute Payment attributable to
any Acquisition-Accelerated Options), exceed the Benefit Limit, the following
reductions shall be made to the Executive's severance benefits under Part Four
of this Agreement, to the extent necessary to assure that such Benefit Limit is
not exceeded: first, the Executive's salary continuation payments and incentive
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bonus payment shall be reduced, and then the period of his continued health care
----
coverage shall will be shortened. To the extent such Benefit Limit is still
exceeded following such reductions, then the portion of each Option which is to
vest on an accelerated basis pursuant to Part Four (based on the amount of the
Option Parachute Payment attributable to such Option) shall be reduced to the
extent necessary to eliminate such excess.
PART SIX -- CONSULTING SERVICES
AND SPECIAL RESTRICTIVE COVENANTS
17. Consulting Services. In consideration for the severance benefits
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to which the Executive's becomes entitled under Part Four of this Agreement
following his Involuntary Termination within twelve (12) months after a Change
in Control, Executive shall make himself available during the Salary
Continuation Period to render such consulting services to the Corporation within
his area of expertise as may reasonably be requested by the Board, but in no
event may more than twenty (20) hours of such services be required of the
Executive per month. Should the nature of the assignment require more than
such maximum number of hours, then the Executive shall be entitled to be
compensated for any additional hours he agrees to commit to the project, with
such compensation to be at the hourly rate established with the Corporation at
the time the consulting services are to be rendered. Executive shall also be
entitled to reimbursement from the Corporation of all reasonable out-of-pocket
expenses he incurs in rendering his consulting services hereunder, with such
reimbursement to made within twenty (20) days after his submission of the
appropriate invoices and other documentation for those expenses.
18. Restrictive Covenants. During the Employment Period and for an
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additional period of two (2) years following the termination of Executive's
employment for any reason other than death, Executive shall be subject to the
following restrictive covenants:
a. Executive shall not, directly or indirectly own, manage,
operate, join, control or participate in the ownership,
management, operation or control of (including, without
limitation, service as member of the board of directors or
other governing entity), or be employed by any enterprise
which is engaged, within the United States of America or
within a fifty (50)-mile radius of any other area in which
the Corporation is conducting business, in any business or
enterprise providing goods or services competitive with the
goods and services provided by the Corporation either during
the Employment Period or at the time Executive's employment
terminates or which the Corporation is at that time planning
to provide in accordance with business plans adopted by the
Board
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during Executive's period of employment with the
Corporation. However, such restriction shall not apply to
any passive investment representing an interest of less than
two percent (2%) of an outstanding class of publicly-traded
securities of any corporation or other enterprise. For
purposes of this covenant, an entity shall be deemed to be
in a "competitive" business if a material portion of its
business involves providing hosting services, application
and/or content distribution services, or network services.
Without limiting the generality of the foregoing, the
following entities (together with their successors) shall
specifically be deemed to be enterprises engaged in
businesses competitive with the Corporation: Exodus
Communications, Inc., Akamai Technologies, Inc., and MCI
WorldCom, Inc.
b. Executive shall not directly or indirectly encourage or
solicit any of the Corporation's employees to leave the
Corporation's employ for any reason or interfere in any
other manner with employment relationships at the time
existing between the Corporation and its employees.
c. Executive shall not directly or indirectly solicit any
customer, vendor, supplier, licensor, licensee or other
business affiliate of the Corporation or otherwise induce
any such person to terminate its existing business
relationship with the Corporation or interfere in any other
manner with any existing business relationship between the
Corporation and any customer, vendor, supplier, licensor,
licensee or other business affiliate.
Executive hereby acknowledges that monetary damages may not be
sufficient to compensate the Corporation for any economic loss which may be
incurred by reason of his breach of the foregoing non-competition covenants.
Accordingly, in the event of any such breach, the Corporation shall, in addition
to the termination of this Agreement and any remedies available to the
Corporation at law, be entitled to obtain equitable relief in the form of an
injunction precluding Executive from continuing such breach.
PART SEVEN -- MISCELLANEOUS PROVISIONS
19. Cessation of Severance Benefits. In the event Executive breaches
-------------------------------
any of his obligations under Paragraph 8, 9, 17 or 18 of this Agreement, he
shall cease to be entitled to any further severance benefits under Part Three or
Four of this Agreement, including (without limitation) any subsequent right to
exercise any outstanding Options or to receive any further salary continuation
payments or continued health care coverage at the Corporation's expense.
20. Death. Should Executive die before he receives the full amount
-----
of salary continuation payments to which he may become entitled under Part Three
or Four of this
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Agreement, then the balance of such payments shall be made, on the due dates
hereunder had Executive survived, to the executors or administrators of his
estate.
21. Successors and Assigns. The provisions of this Agreement shall
----------------------
inure to the benefit of, and shall be binding upon, the Corporation, its
successors and assigns, and the Executive, the personal representative of his
estate and his heirs and legatees.
22. General Creditor Status. The benefits to which Executive may
-----------------------
become entitled under Part Three or Four of this Agreement shall be paid, when
due, from the Corporation's general assets, and no trust fund, escrow
arrangement or other segregated account shall be established as a funding
vehicle for such payments. Accordingly, Executive's right (or the right of the
executors or administrators of Executive's estate) to receive such benefits
shall at all times be that of a general creditor of the Corporation and shall
have no priority over the claims of other general creditors.
23. Notices.
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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, 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, such notice shall be conclusively deemed given two business days after the
deposit thereof in the United States mail addressed to the party to whom such
notice, demand or other communication is to be given as hereinafter set forth:
To the Corporation: Digital Island Corporation
45 Fremont Street, 12/th/ Floor
San Francisco, California 94105
Attention: Charles Bass
To Executive: Charles Picasso
______________________
______________________
______________________
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.
24. Governing Document. This Agreement constitutes the entire
------------------
agreement and understanding of the Corporation and Executive with respect to the
terms and conditions of Executive's employment with the Corporation and the
payment of severance benefits and supersedes all prior and contemporaneous
written or verbal agreements and understandings between Executive and the
Corporation relating to such subject matter. This Agreement may
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only be amended by written instrument signed by Executive and an authorized
officer of the Corporation. Any and all prior agreements, understandings or
representations relating to the Executive's employment with the Corporation are
hereby terminated and cancelled in their entirety and are of no further force or
effect.
25. Governing Law. The provisions of this letter agreement will 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 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 permissible by law) the application of such
provision under circumstances different from those adjudicated by the court, the
application of any other provision of this Agreement, or the enforceability or
invalidity of this Agreement as a whole. Should any provision of this 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
will be stricken and the remainder of this Agreement shall continue in full
force and effect.
26. Remedies. All rights and remedies provided pursuant to this
--------
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 Agreement.
27. Arbitration. Any and all disputes between Executive and the
-----------
Corporation which arise out of Executive's employment under the terms of this
Agreement or the termination of such employment shall be resolved through final
and binding arbitration. This shall include, without limitation, disputes
relating to this Agreement, Executive's employment by the Corporation 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, 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 Executive's employment with the
Corporation or its termination. The only claims not covered by this Agreement
---
are claims for benefits under the workers' compensation or unemployment
insurance laws, which will be resolved pursuant to those laws. Binding
arbitration will be conducted in San Francisco, California in accordance with
the rules and regulations of the American Arbitration Association. Each party
will split the cost of the arbitration filing and hearing fees, and the cost of
the arbitrator; each side will bear its own attorneys' fees, that is, the
arbitrator will not have authority to award attorneys' fees, unless a statutory
------
section at issue in the dispute authorizes the award of 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 civil litigation and that this means
that he is waiving his right to a jury trial as to such claims. The
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parties further understand and agree 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.
28. Counterparts. This 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 have executed this Executive
Employment Agreement as of the day and year written above.
DIGITAL ISLAND, INC.
__________________________________________
Howard Lasky, VP and General Counsel
_________________________________
CHARLES PICASSO, EXECUTIVE
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