Chief Operating Officer Employment Agreement

Exhibit 10.3


1015 31st Street, NW Suite 330

Washington, DC 20007

Tel: 202-295-4201

Confidential Fax: 202-342-8269


July 1, 2004


R.R. Harrison III

2 South Beers Street

Holmdel, New Jersey 07733


Re: Executive Employment Agreement


Dear Reed:


Cogent Communications is offering you the position of President and Chief Operating Officer. Your monthly starting salary will be $22,916.67, the equivalent of $275,000 if calculated annually. This position is an "exempt" position and will not be eligible for overtime compensation. Your salary will be paid semi-monthly.


You will serve as President and Chief Operating Officer of the Company, reporting directly to the Chairman and Chief Executive Officer, with duties and authority as are customary for such a role. These duties include but are not limited to all engineering, operations, customer care, provisioning, real estate, and chief network, technology, and information officer functions appropriate to your executive status.


You will devote substantially your full business time and attention toward the fulfillment and execution of all assigned duties. You may devote such time and attention as needed to other business activities such as personal investments, independent consulting, board memberships, and advisory roles. Such other business activities will not unreasonably interfere with your assigned duties.


In addition to the cash compensation you receive, Cogent will issue to you options to purchase 8427 shares of Series H Preferred Stock at a strike price of $230.77 per Series H share (8427 shares of Series H stock will currently convert to 6,482,307 shares of common stock and the equivalent strike price would be $.30.) These options will vest monthly beginning on your date of employment such that you will be fully vested after four (4) years in 48 equal portions on the first of each month of employment. If, following a Change of Control (as defined below), you are terminated other than for Cause (as defined below) or you resign for Good Reason (as defined below), you will be fully vested in your options, as more fully described in the accompanying Severance Agreement, incorporated by reference. Your accompanying Option Agreement, also incorporated by reference, will also provide for accelerated vesting over a period of twelve (12) months immediately following a Change of Control. In order to receive these options, you must sign Cogent's


accompanying Option Agreement at the time of your employment. Shareholder approval and board approval of the plan under which these options will be issued has not yet been received. You agree that should the plan not be approved or not become effective for any reason this option grant will be void and that you will not be entitled to any payment or benefit as compensation. In such event, the parties agree to negotiate commercially reasonable substitute provisions of equal value. These will be "non-qualified" options for purposes of the Internal Revenue Code. Consequently you will be treated as receiving compensation income at the time specified by the Internal Revenue Code. You recognize that Cogent will withhold from your salary any amounts required by law to be withheld as a result of the receipt of such compensation income. You may elect, by written notice to Cogent, to substitute up to $100,000 per year of Incentive Stock Options, ("ISOs"), whose strike price will be the fair market value on date of issuance, and will be subject to all laws and regulation governing such ISOs. You may make such election prior to July 6, 2004 and as to each ensuing year, prior to the anniversary thereof.


Cogent will pay to you within 5 business days of the date of your employment $50,000 (reduced by applicable taxes) as a signing bonus to cover your moving expenses. If you terminate your employment with Cogent without Good Reason or are terminated for Cause prior to the first anniversary of your employment, you will repay to Cogent $37,500; if you terminate your employment with Cogent without Good Reason or are terminated for Cause before the second anniversary of your employment, you will repay to Cogent $25,000; if you, terminate your employment with Cogent without Good Reason or are terminated for Cause before the third anniversary of your employment you will repay to Cogent $12,500. You agree that Cogent may withhold from your severance, if any, or other payment due you the amount payable hereunder. If (i) your employment is terminated without Cause, (ii) your employment is terminated due to Death or Disability; (iii) you terminate your employment for Good Reason, or (iv) your employment is severed for any reason after the last-referenced anniversary date, then in each such case, you will be under no obligation to reimburse the Company any portion of the signing bonus.


In the absence of a Change of Control, in the event of termination of your employment by Cogent other than for Cause, you will receive six month's salary against $275,000 and in addition, you will immediately become vested in the next three months of options, as set forth more fully in the attached Severance Agreement, and Option Agreement. In addition, you will receive the benefits described in the attached Severance Agreement. In the event of termination of your employment other than for Cause, or in the event you terminate your employment for Good Reason, in either case in conjunction with or following a Change in Control, you will receive six months salary against $275,000 and immediate vesting of all options, together with those benefits set forth in the accompanying Severance Agreement and Option Agreement.


Cogent will periodically evaluate your performance at minimum intervals of 12 months and commencing January 31, 2005. these reviews will be utilized to evaluate your compensation package relative to the market for similar level professionals at organizations of comparable stage of development and market opportunity as Cogent. The findings of these reviews will be submitted to the Company's compensation committee for final decision and appropriate compensation adjustments. You will also be eligible to receive one-time bonuses of 3% of base salary, upon 2 consecutive quarters of positive


EBITDA, and of 7% of base salary upon 2 consecutive quarters of positive cash flow, together with any other bonus consideration applicable to the Company's senior management. These bonuses will be paid (on a pro rata basis if applicable) in the event of termination of employment by the Company without Cause, or by you for Good Reason.


As a member of Cogent's team, you will be entitled to health care and dental coverage, which is partially (50%) funded by the company. The company will also offer a funded life insurance plan. The company has also implemented a 401(k) retirement plan that is corporately administered, however, it requires individual contributions on a non-matching basis by individual participants. You will be eligible for 3 weeks paid vacation annually. Additionally, the company has 6 fixed major holidays and 3 discretionary floating holidays to be chosen by you. These benefits may be modified by Cogent at any time.


Your employment by Cogent and the benefits, including the options, described herein is subject to approval by Cogent's board of directors. We will notify you when the board has approved your employment and the terms of your employment. Until such approval is received this letter will not constitute an offer or agreement.


Your employment will commence on July 1, 2004 or at a mutually agreed-upon to date between yourself and the company. Also, as a condition of employment, you will be required to sign Cogent's accompanying standard agreement (incorporated herein by reference) providing for invention disclosure and assignment, limitation of your right to compete with Cogent if you leave, and non-disclosure of confidential information. Your employment is also contingent upon completing the Form I-9 (Employment Eligibility Verification) and providing the required documentation establishing your legal right to work in the U. S. on your first day of employment. Please note that by law, the I-9 requirement must be met before you can begin work.


You will be an employee at will and may be discharged at any time without cause.


Any disputes between the parties concerning the interpretation and application of this Employment Agreement and attachments, shall be resolved exclusively by arbitration under the then-applicable procedures of the American Arbitration Association, (Labor Section, Washington, D.C.). The arbitrator's fees and costs of such proceeding shall be shared equally.


We look forward to having you join our team and build the most advanced next generation network for high-speed Internet services. If you have any further questions, please give me a call at 202-295-4201.


Sincerely,


/s/David Schaeffer


Dave Schaeffer

CEO


Accepted


/s/R. Reed Harrison III


7/1/2004


R. R. Harrison III


Date


Notice of Grant of Stock Options and Option Agreement

Cogent Communications Group, Inc.


Option holder: R.R. Harrison III

Plan: 2004 Incentive Award Plan


Effective as of the date indicated below (the "Grant Date") you have been granted a Nonstatutory Option to buy 8427 shares of Series H Participating Convertible Preferred Stock $.001 par value of Cogent Communications Group, Inc. (the Company) at $230.77 per share ("the Option"). This option will become vested and may be exercise in accordance with the following schedule:


The right to purchase all of the shares subject to the Option will vest in 48 equal monthly portions, commencing on July 1, 2004, and continuing on the first day of each month of the 47 ensuing months, whereupon you will be fully vested.


Notwithstanding the foregoing, this option shall be fully vested and exercisable upon the termination of your employment by reason of death or disability. Upon a Change of Control vesting shall accelerate such that the Option shall be fully vested within 12 months from the date of the Change of Control. The acceleration shall be effected by increasing the vesting increment set forth above to the percentage, if larger, resulting from dividing the difference between 100 and the Participant's current vested percentage by 12. Upon termination of employment any unvested portion of the Option shall expire; non-ISO vested options may be exercised during a period of ten years from the Grant Date. In addition, full vesting shall occur in accordance with paragraph 5 of your Severance Agreement, dated July 1, 2004 and such paragraph is hereby incorporated by reference.


The option must be exercised, if at all, to the extent vested prior to the tenth anniversary of the Grant Date, and if not exercised prior thereto shall terminate and no longer be exercisable. In addition, if the option is an Incentive Stock Option it must be exercised within 90 days of the date you cease to be an employee. The option will be deemed exercised upon delivery of a properly completed Exercise Notice and payment of the Option exercise price per share and any applicable tax withholding to the Company. Payment maybe made in cash, by check, or such other method as the Company may permit from time to time as set ...