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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered
into as of February 1, 1998, between EXECUTIVE TELECARD, LTD., a
Colorado corporation with principal offices located in Denver,
Colorado (the "Company"), and COLIN SMITH (the "Executive").
WHEREAS, the parties desire to enter into this Agreement
setting forth the terms and conditions for the employment
relationship of the Executive with the Company.
NOW, THEREFORE, it is AGREED as follows:
1. Employment. The Executive is hereby employed as
the Vice President of Legal Affairs and General Counsel of the
Company for a period commencing on the date hereof and ending on
December 31, 2000. As the Vice President of Legal Affairs and
General Counsel of the Company, the Executive shall render
executive, policy, and other management services to the Company
of the type customarily performed by persons serving in such
capacities. The Executive shall be responsible for the legal
affairs of the Company, and the Executive's duties shall also
include the supervision of all aspects of legal matters of the
Company. The Company's employees within its legal affairs
department shall be subject to the Executive's orders and
direction. The Executive shall report directly to the Company's
Chairman and Chief Executive Officer, and shall also perform such
duties as the Chairman and Chief Executive Officer of the Company
may from time to time reasonably direct. During the term of this
Agreement, there shall be no material increase or decrease in the
duties and responsibilities of the Executive otherwise than as
provided herein, unless the parties otherwise agree in writing.
2. Location of Services; Relocation Expenses. During
the term of this agreement, the Executive shall perform services
at the Company's various offices (particularly its principal
office in Denver, Colorado). The Executive shall be reimbursed
for any reasonable travel and other expenses which are incurred
and accounted for by the Executive in connection with the
Executive's relocation to the Company's principal office, up to
an allowance of $25,000, which may be increased at the sole
discretion of the Company's Chief Executive Officer.
3. Salary. Subject to Section 17 hereof, the Company
shall pay the Executive an annual salary equal to $125,000, with
such increases as may be determined by the Board of Directors in
its discretion ("Base Salary"). On the first anniversary of the
date hereof, the Base Salary will be increased to 110% of the
present amount. The Base Salary of the Executive shall not be
decreased at any time during the term of this Agreement from the
amount then in effect, unless the Executive otherwise agrees in
writing. Participation in deferred compensation, discretionary
bonus retirement, and other employee benefit plans and in fringe
benefits shall not reduce the Base Salary. The Base Salary shall
be payable to the Executive not less frequently than monthly.
4. Bonuses. The Executive shall be eligible to earn
annual bonuses during each fiscal year, except the fiscal year
commencing April 1, 1998 and ending December 31, 1998 (the "First
Fiscal Year"), and shall be eligible to earn quarterly bonuses
during each quarter of the First Fiscal Year (such year or
quarter being referred to herein as a "Bonus Period") that he
remains an executive employee of the Company. For each Bonus
Period the Executive and the Chairman and Chief Executive of the
Company shall adopt written performance goals within the Bonus
Period. If annual goals are met or exceeded for an annual Bonus
Period, the Executive shall earn a bonus of $50,000. If
quarterly goals are met or exceeded for the three quarters of the
First Fiscal Year, the Executive shall earn bonuses of $12,500,
$12,500 and $25,000, respectively. (For the avoidance of doubt,
a delay by any person in the adoption of written performance
goals shall not entitle the Executive to any bonus or, upon the
adoption and achievement of such goals, delay in any way the
payment thereof.) If only certain of such goals are met, or
goals are met only in part, for such Bonus Period, the Executive
shall earn a bonus equal to an amount to be determined by the
Board of Directors, in its sole discretion. Annual bonuses shall
be payable to the Executive by February 1st of each year;
quarterly bonuses for the First Fiscal Year shall be payable to
the Executive within 45 days after the end of the applicable
fiscal quarter (or, in each case, within 30 days of when it is
determined whether the applicable goals are met, whichever is
later). The Board of Directors may, in its sole discretion,
award additional or greater bonuses to the Executive based upon
achievement of other Company objectives during the Bonus Period.
5. Participation in Employee Benefit Plans. In
addition to the benefits noted below, the Executive shall be
entitled to participate, on the same basis as other executive
employees of the Company, in any stock option, stock purchase,
pension, thrift, profit-sharing, group life insurance, medical
coverage, education, or other retirement or employee pension or
welfare plan or benefits that the Company has adopted or may
adopt for the benefit of its employees. The Executive shall be
entitled to participate in any fringe benefits which are now or
may be or become applicable to the Company's executive employees
generally.
Such employee benefits presently include the following:
Medical coverage, including health, dental and vision insurance,
commences at the beginning of the month following 30 days from
the date on which the Executive commences service with the
Company, and the Executive is responsible for 25% of the expense
of the Executive's medical coverage, with the Company responsible
for the remaining 75%. The Executive is eligible to participate
in the Company's 125 Flexible Spending Plan at the beginning of
the month following 30 days of service. The Executive's life
insurance is equal to two (2) times the Base Salary. The
Executive is eligible to contribute to the Company's 401k Plan.
Upon commencing service with the Company, the Executive is
eligible to immediately roll over any of Executive's pre-existing
401k Plan holdings.
The Executive shall promptly be reimbursed for any
expenses which he may incur in connection with his services
hereunder in accordance with the Company's normal reimbursement
policies as established from time to time.
6. Stock Options. Subject to approval by the
Company's Board of Directors, in consideration of the Executive's
acceptance of employment hereunder, the Executive shall be
granted options to purchase an aggregate of 100,000 shares of the
Company's common stock, at an exercise price to be equal to the
closing price of the Company's common stock as listed on The
Nasdaq National Market on the day preceding the date the
Executive's options are approved by the Compensation Committee,
and on terms to be set forth in one of the Company's standard
forms of stock option agreement to be entered into between the
Company and the Executive. The vesting of such options shall be
as follows:
(i) options to purchase 33,333 shares shall vest
on the first anniversary of the date hereof, subject to continued
employment as of such date and achievement of certain objectives
to be agreed to in writing between the Executive and the
Company's Chairman and Chief Executive Officer.
(ii) options to purchase 33,333 shares shall vest
on the second anniversary of the date hereof, subject to
continued employment as of such date and achievement of certain
objectives to be agreed to in writing between the Executive and
the Company's Chairman and Chief Executive Officer.
(iii) options to purchase 33,334 shares shall
vest on the third anniversary of the date hereof, subject to
continued employment as of such date and achievement of certain
objectives to be agreed to in writing between the Executive and
the Company's Chairman and Chief Executive Officer.
Each of the options will have a term of five years from
the date of grant. To the extent eligible, the options will be
issued as incentive stock options within the meaning and subject
to the limitations of Section 422 of the Internal Revenue Code.
Vesting of all options will accelerate in the event that the
current Chairman and Chief Executive Officer (Christopher J.
Vizas) ceases to be the Chief Executive Officer of the Company
and the employment of the Executive terminates or reasonable
advance notice of such termination is given.
7. Standards. The Executive shall perform the
Executive's duties and responsibilities under this Agreement in
accordance with such reasonable standards as may be established
from time to time by the Company's Chairman and Chief Executive
Officer. The reasonableness of such standards shall be measured
against standards for executive performance generally prevailing
in the Company's industry.
8. Voluntary Absences; Vacations. The Executive shall
be entitled to annual paid vacation of at least three weeks
(fifteen days) per year or such longer period as the Chairman and
Chief Executive Officer of the Company may approve. The timing
of paid vacations shall be scheduled in a reasonable manner by
the Executive.
9. Disability. If the Executive shall become disabled
or incapacitated to the extent that the Executive is unable to
perform the Executive's duties and responsibilities hereunder,
the Executive shall be entitled to receive disability benefits of
the type provided for other executive employees of the Company.
10. Termination of Employment.
(a) The Board of Directors may terminate the
Executive's employment at any time, subject to payment of the
compensation described below.
(b) In the case of (i) any termination by the
Board of Directors other than "termination for cause" as defined
below, or (ii) any termination by the Executive after a material
breach of this Agreement by the Company, including without
limitation by a demotion of the Executive below the rank of Vice
President of Legal Affairs and General Counsel, a reduction in
Base Salary (or a failure to consider the Executive for a bonus
in good faith as required hereunder) or a requirement to
relocate, or any termination by the Executive after the current
Chairman and Chief Executive Officer (Christopher J. Vizas)
ceases to be the Chief Executive Officer of the Company (in
either such case, "termination with good reason"), the Executive
shall continue to receive, for one year (in the case of a
termination within the first year of the Executive's employment)
or six months (in all cases thereafter) commencing on the date of
such termination (the "Severance Period"), full Base Salary, any
annual or quarterly bonus that has been earned before termination
of employment or is earned after the termination of employment
(where the Executive met the applicable personal performance
goals prior to termination and the Company meets the applicable
Company performance goals after termination), and all other
benefits and compensation that the Executive would have been
entitled to under this Agreement in the absence of termination of
employment (collectively, the "Severance Amount"). The Severance
Amount shall not be reduced by any compensation which the
Executive may receive for other employment with another employer
after termination of employment with the Company. If during the
term of this Agreement there is a "change in control" of the
Company, and in connection with or within two years after such
change of control the Company terminates the Executive's
employment other than termination for cause or the Executive
terminates with good reason, the Company shall be obligated,
concurrently with such termination, to pay the Severance Amount
in a single lump sum cash payment to the Executive. If the
Company fails to make timely payment of any portion of the
Severance Amount, the Executive shall be entitled to
reimbursement for all reasonable costs, including attorneys'
fees, incurred by the Executive in taking action to collect such
amount or otherwise enforce this Agreement. In addition, the
Executive shall be entitled to interest on the amounts owed to
him under this Agreement at the rate of 5% above the prime rate
(defined as the base rate on corporate loans at large U.S. money
center commercial banks as published by the Wall Street Journal),
compounded monthly, for the period from the date of employment
termination until payment is made to the Executive.
(c) The Executive shall have no right to receive
compensation or other benefits from the Company for any period
after termination for cause by the Company or termination by the
Executive other than termination with good reason, except for any
vested retirement benefits to which the Executive may be entitled
under any qualified employee pension plan maintained by the
Company and any deferred compensation to which the Executive may
be entitled.
(d) The term "termination for cause" shall mean
termination by the Company because of the Executive's (i) fraud
or material misappropriation with respect to the business or
assets of the Company; (ii) persistent refusal or willful failure
materially to perform his duties and responsibilities to the
Company, which continues after the Executive receives notice of
such refusal or failure; (iii) conduct that constitutes
disloyalty to the Company and which materially harms the Company
or conduct that constitutes breach of fiduciary duty involving
personal profit; (iv) conviction of a felony or crime, or willful
violation of any law, rule, or regulation, involving moral
turpitude; (v) the use of drugs or alcohol which interferes
materially with the Executive's performance of his duties; or
(vi) material breach of any provision of this Agreement.
(e) A "change in control," for purposes of
this Agreement, shall be deemed to have taken place if (i) any
person becomes the beneficial owner of 35% or more of the total
number of voting shares of the Company, (ii) the Company sells
substantially all of its assets, (iii) the Company merges or
combines with another company and immediately following such
transaction the persons and entities who were stockholders of the
Company before the merger own less than 50% of the stock of the
merged or combined entity, or (iv) the current Chairman and Chief
Executive Officer (Christopher J. Vizas) ceases to be the Chief
Executive Officer of the Company. For purposes of this
paragraph, a "person" includes an individual, corporation,
partnership, trust or group acting in concert, and a "beneficial
owner" shall have the meaning used in Rule 13d-3 under the
Securities Exchange Act of 1934.
11. Restrictive Covenants.
(a) During the employment of the Executive under
this Agreement and for a period of one year after termination of
such employment other than a termination by the Company without
cause, the Executive shall not at any time (i) compete on his own
behalf or on behalf of any other person or entity, with the
Company or any of its affiliates within all territories in which
the Company does business with respect to the business of the
Company or any of its affiliates as such business shall be
conducted on the date hereof or during the employment of the
Executive under this Agreement; (ii) solicit or induce, on his
own behalf or on behalf of any other person or entity, any
employee of the Company or any of its affiliates to leave the
employ of the Company or any of its affiliates; or (iii) solicit
or induce, on his own behalf or on behalf of any other person or
entity, any customer of the Company or any of its affiliates to
reduce its business with the Company or any of its affiliates.
(b) The Executive shall not at any time during or
subsequent to his employment by the Company, on his own behalf or
on behalf of any other person or entity, disclose any proprietary
information of the Company or any of its affiliates to any other
person or entity other than on behalf of the Company or in
conducting its business, and the Executive shall not use any such
proprietary information for his own personal advantage or make
such proprietary information available to others for use, unless
such information shall have come into the public domain other
than through unauthorized disclosure.
(c) The ownership by the Executive of not more
than 5% of a corporation, partnership or other enterprise shall
not constitute a violation hereof.
(d) If any portion of this Section 11 is found by
a court of competent jurisdiction to be invalid or unenforceable,
but would be valid and enforceable if modified, this Section 11
shall apply with such modifications necessary to make this
Section 11 valid and enforceable. Any portion of this Section 11
not required to be so modified shall remain in full force and
effect and not be affected thereby. The Executive agrees that
the Company shall have the right of specific performance in the
event of a breach by the Executive of this Section 11.
12. No Assignments. This Agreement is personal to each
of the parties hereto. No party may assign or delegate any
rights or obligations hereunder without first obtaining the
written consent of the other party hereto. However, in the event
of the death of the Executive all rights to receive payments
hereunder shall become rights of the Executive's estate.
13. Other Contracts. Subject to Section 17 hereof, the
Executive shall not, during the term of this Agreement, have any
other paid employment other than with a subsidiary of the
Company, except with the prior approval of the Board of
Directors.
14. Amendments or Additions; Action by Board of
Directors. No amendments or additions to this Agreement shall be
binding unless in writing and signed by all parties hereto. The
prior approval by a majority vote of the Board of Directors shall
be required in order for the Company to authorize any amendments
or additions to this Agreement, to give any consents or waivers
of provisions of this Agreement, or to take any other action
under this Agreement including any termination of employment with
or without cause.
15. Section Headings. The section headings used in
this Agreement are included solely for convenience and shall not
affect, or be used in connection with, the interpretation of this
Agreement.
16. Severability. The provisions of this Agreement
shall be deemed severable and the invalidity or unenforceability
of any provision shall not affect the validity or enforceability
of the other provisions hereof.
17. Phase-In to Full Time Status. Notwithstanding
anything herein to the contrary, the parties hereto acknowledge
that the Executive presently has other employment, and will be
continuing with such other employment on a part time basis
through approximately May 4, 1998. Accordingly, the parties
hereto agree that until approximately May 4, 1998, the Executive
shall be employed by the Company part time, approximately 10 days
per month, and during such period shall receive a pro rata
portion of an annual salary equal to 50% of the Base Salary. On
or about May 4, 1998, the Executive shall commence full time
employment and shall commence receiving 100% of the Base Salary.
In view of such part-time arrangement and the expected nine-month
1998 fiscal year, the written performance goals with respect to
the first bonus which the Executive is eligible to receive under
Section 4 hereof shall apply to a period ending January 31, 1999
rather than December 31, 1998, and the payment date shall be
March 1, 1999 rather than February 1, 1999.
18. Governing Law. This Agreement shall be governed by
the laws of the State of Colorado (other than the choice of law
rules thereof).
EXECUTIVE TELECARD, LTD.
By:
COLIN SMITH