Offer Letter - Digital Island Inc. and Thomas Thompson
DIGITAL ISLAND
353 Sacramento Street
Suite 1520
San Francisco, CA 94111
January 8, 1999
Mr. Thomas Thompson
2 Townsend Street, Apt. #2806
San Francisco, CA 94101
Dear Tom:
On behalf of Digital Island, I am pleased to extend this offer of
employment to you. We all look forward to your joining our organization and
contributing to our future success.
The terms of our offer are as follows:
1. You will serve as Chief Financial Officer and will report directly
to me as President. You will commence employment in such position no later than
January 25, 1999.
2. Your base salary will be at the annual rate of $170,000 and will
be paid in accordance with the Company's payroll practices, subject to all
applicable withholdings.
3. For each fiscal year of the Company during your period of
employment, beginning with the fiscal year starting October 1, 1998, you will be
entitled to incentive compensation in an amount not less than twenty thousand
dollars ($20,000) which is to become payable upon (i) the Company's achievement
of the financial objectives and performance milestones established by the Board
for each such year, (ii) achievement of your individual objectives as agreed by
you and the President each year and (iii) your continuation in employment
through the close of that year.
4. As soon as possible following your actual commencement of
employment with the Company, you will be granted a stock option for the number
of shares of the Company's common stock equal to one percent (1%) of the total
number of shares of the Company's common stock currently outstanding on a fully-
diluted basis (including shares issuable upon conversion of outstanding
preferred stock or upon exercise of outstanding stock options).
For purposes of your option grant, you will be deemed to have
commenced employment with the Company once you have terminated employment with
your current employer, accepted this offer letter and become subject to the
control and direction of the Company as to your job assignments. The option
will have an exercise price per share equal to the fair market value per share
of the Company's common stock on the grant date, as such value is determined by
the Board. The option will be an incentive stock option under the federal tax
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January 8, 1999
Page 2
laws, to the maximum extent allowable, and the balance will be a non-statutory
option. The option will have a maximum term of ten (10) years, subject to
earlier termination upon your cessation of employment. The option will become
exercisable for twenty-four percent (24%) of the option shares upon your
completion of one year of employment with the Company and will become
exercisable for the balance of the option shares in a series of thirty-eight
(38) successive monthly installments, each equal to two percent (2%) of the
total number of option shares, upon your completion of each of the next thirty
eight (38) months of employment with the Company following the first anniversary
of your start date. The remaining terms of your option will be governed by the
provisions of the Company's 1998 Stock Incentive Plan. No additional vesting
will occur after your termination of employment.
5. In the event of a Change in Control, your option described in
Paragraph 4 above will accelerate and become immediately exercisable for all of
the option shares as fully-vested shares, unless the acquiring entity assumes
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the option. If your option is assumed and does not accelerate in the event of a
Change in Control, then immediately upon an Involuntary Termination of your
employment with the Company (or successor entity), which occurs within eighteen
(18) months after the effective date of such Change in Control and more than six
(6) months after the date you commence employment with the Company, your option
will immediately vest and become exercisable for all the shares at the time
subject to that option and may be exercised for any or all of those shares as
fully-vested shares at any time prior to the expiration or sooner termination of
your option.
For purposes of this Paragraph 5 and Paragraph 9, the following
definitions shall be in effect:
Change in Control shall mean any of the following transactions
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effecting a change in ownership or control of the Company:
(i) a merger, consolidation or reorganization approved by the
Company's shareholders, unless securities representing more than fifty
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percent (50%) of the total combined voting power of the 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 Company's outstanding voting securities
immediately prior to such transaction, or
(ii) any shareholder-approved transfer or other disposition of
all or substantially all of the Company's assets in complete liquidation or
dissolution of the Company, or
(iii) the acquisition, directly or indirectly by any person or
related group of persons (other than the Company or a person that directly
or indirectly controls, is controlled by, or is under common control with,
the Company), of beneficial ownership (within the meaning of Rule 13d-3 of
the
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January 8, 1999
Page 3
Securities Exchange Act of 1934, as amended) of securities possessing more
than fifty percent (50%) of the total combined voting power of the
Company's outstanding securities pursuant to a tender or exchange offer
made directly to the Company's shareholders.
In no event, however, shall a Change in Control be deemed to occur in
connection with any public offering of the Company's common stock.
Involuntary Termination shall mean (i) the involuntary termination of
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your employment with the Company other than a termination for "Cause" or (ii)
your voluntary resignation within ninety (90) days following (A) a material
reduction in the scope of your duties and responsibilities or the level of
management to which you report, (B) a reduction in the level of your
compensation (including base salary, fringe benefits and target bonuses under
any corporate-performance based incentive program) by more than fifteen percent
(15%) or (C) a relocation of your principal place of employment by more than
fifty (50) miles. Involuntary Termination shall not include the termination of
your employment by reason of death or disability. Your employment will be
deemed to be terminated for "Cause" if your termination occurs for any of the
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following reasons: (i) your commission of a felony or your embezzlement of the
Company's funds, (ii) any unauthorized use or disclosure of the Company's
proprietary information, (iii) any intentional misconduct on your part which has
a materially adverse effect upon the Company's business or reputation or (iv)
your repeated and willful failure to perform the duties, functions and
responsibilities of your executive position after written warning from the
Company.
6. You will 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 Company's executives and for which you qualify. You will
accrue paid vacation benefits at the rate of one (1) week per calendar quarter.
7. At the time you commence employment with the Company, you will be
required to execute the Company's standard Proprietary Information and
Inventions Agreement, a copy of which will be furnished to you prior to your
start date.
8. Your employment with the Company is not for any specified period
of time. As a result, either you or the Company are free to terminate your
employment relationship at any time for any reason, with or without cause. In
addition, your employment relationship will immediately terminate upon your
death or disability. At the time your employment terminates, the Company will
only be required to pay you (i) any unpaid base salary for services rendered
through the date of such termination and (ii) the dollar value of all accrued
and unused vacation benefits based upon the level of base salary in effect for
you at the time of your termination.
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January 8, 1999
Page 4
9. However, upon an Involuntary Termination of your employment with
the Company that occurs more than twelve (12) months after the date your
employment with the Company commences, whether or not that termination is in
connection with a Change in Control, you will be entitled to salary continuation
payments, at the monthly rate of the base salary in effect for you at the time
of such termination, for a period of six (6) months. Such salary continuation
payments will be made at semi-monthly intervals on the 15th and last day of each
calendar month and will be subject to all applicable withholding requirements.
All bonus entitlement will cease with any bonus payable to you for the close of
the fiscal quarter immediately preceding the date of your Involuntary
Termination.
10. Verification of your citizenship or right to work in the United
States is required, and you will need to provide proof of this on your first day
of employment.
11. This offer letter constitutes the full and complete agreement
between us concerning the terms of your employment. Although your duties,
title, compensation and/or benefits, as well as the Company's personnel policies
and procedures, may change from time to time, the "at will" nature of your
employment may only be changed by an express written agreement signed by you and
a duly-authorized officer of the Company.
We are delighted that you will be joining Digital Island. We believe
that you bring the skills and expertise to help us continue to build our
reputation in the industry. We look forward to working with you in developing
the full potential of our company.
This offer letter will remain outstanding until January 18, 1999. To
indicate your acceptance of the foregoing terms of your employment, please sign
the duplicate original of this letter and return it to my attention by the close
of business on January 18, 1999.
Very truly yours,
_______________________________________
Ruann F. Ernst, President and Chief
Executive Officer
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January 8, 1999
Page 5
ACCEPTANCE
I hereby accept and agree to the terms of the foregoing offer of
employment with Digital Island.
__________________________________________
Thomas Thompson
DATED: January ______, 1999