Employment Agreement

EMPLOYMENT AGREEMENT


EMPLOYMENT AGREEMENT dated September 12, 2000, by and among Spyonit.com, Inc., a corporation organized under the laws of Delaware (the "COMPANY") and a wholly owned subsidiary of 724 Solutions Inc., an Ontario, Canada corporation ("PARENT" and, together with the Company and its affiliates, the "COMPANIES"), Parent and Richard W. Costolo (the "EMPLOYEE").


WITNESSETH:


WHEREAS, the Company desires to continue to employ the Employee, and Employee desires to accept such employment, on the terms and subject to the conditions hereinafter set forth; and


WHEREAS, this Agreement will be contingent upon the close of the transaction contemplated by the Agreement and Plan of Merger and Reorganization, dated the date hereof (the "MERGER AGREEMENT"), by and among Parent, Serpent Acquisition Corp., a Delaware corporation, and the Company, pursuant to which Serpent Acquisition Corp. will merge with and into the Company the "MERGER").


WHEREAS, the Employee has been employed by the Company and his or her continuing services are necessary to maintain the value of the Company; and


WHEREAS, the Employee, a stockholder of the Company, has agreed to exchange his or her shares of common stock of the Company for cash and shares of common stock of Parent pursuant to the Merger Agreement.


NOW, THEREFORE, in consideration of the mutual covenants hereinafter contained, the parties hereto agree as follows:


1. EMPLOYMENT; TERM. The Company hereby employs the Employee, and the Employee hereby accepts employment with the Company, in accordance with the terms and subject to the conditions set forth herein. The term of the Employee's employment hereunder shall commence the date the Merger becomes effective, which shall be the Employee's first date of employment with the Company (the "START DATE"), and shall continue until terminated in accordance with the provisions of Section 6.


2. DUTIES. During the Term, the Employee shall serve in the position set out in Section 1 of Schedule A and/or, subject to Section 6.3 hereof, in such other positions to which the Company from time to time may place him or her, and shall devote his or her full business time and best efforts to the business and affairs of the Company in a good faith effort to increase the net profits of the Company and increase the value of the Company to its stockholders; PROVIDED, HOWEVER, that any failure of the Company to increase its net profits or increase its value to its stockholders shall not by itself constitute a breach of the duties of the Employee. The Employee shall not during the term of this Agreement be engaged in any other business activity, whether or not such business activity is pursued for gain, profit or other pecuniary advantage, unless written approval is first secured from the board of directors of the Company.


3. COMPENSATION; STOCK OPTIONS.


3.1 SALARY; BONUS; AND TRAVEL EXPENSES. The Company shall pay the Employee a base salary (the "BASE SALARY") set out in Section 2 of Schedule A in accordance with the Company's standard payroll practices and subject to all legally required or customer withholdings. The Base Salary shall be reviewed annually in accordance with the standard practice of the Company. In addition, the Employee shall be eligible to receive a bonus up to the amount listed in Section 2 of Schedule A pursuant to a bonus plan from time to time in effect for similar employees of the Company. The Company agrees to reimburse the Employee for all reasonable and necessary travel, business entertainment and other business expenses incurred by the Employee in connection with the performance of his or her duties under this Agreement. Such reimbursements shall be made by the Company upon submission by the Employee of all required documentation in accordance with the Company's standard procedures.


3.2 STOCK OPTIONS. Subject to the approval of Parent's Board of Directors, Parent shall grant to the Employee, on or about the Start Date, an option to purchase the number of shares of Parent's Common Stock set out in Section 3 of Schedule A. The option will be on the terms and subject to the conditions of Parent's applicable stock option plan, and the applicable stock option agreement which the Employee must agree to and execute as a condition of the stock option agreement.


3.3 RETENTION BONUS. In addition to any bonus payable pursuant to Section 3.1, the Employee shall be entitled to receive from the Company a retention bonus ("RETENTION BONUS") set out in Section 4 of Schedule A on the first, second and third anniversaries of the date hereof, subject in each case to all legally required or customary withholdings, and provided, that in each case the Employee shall continue to be employed by the Company or any of its subsidiaries or affiliates on such date, except as provided in Section 6.2 or 6.3 hereof. The obligation of the Company to pay the Retention Bonus is hereby guaranteed by Parent.


4. BENEFITS. Parent shall maintain life/disability insurance for the benefit of the Employee in the amount of the Retention Bonus to be paid to the Employee pursuant to Section 3.3 hereof. Additionally, the Employee shall be entitled to participate in any plans maintained from time to time by Parent for the benefit of Parent's employees, including, but not limited to, those pertaining to group life, accident, dental prescription, sickness and medical, and long term disability insurance, provided that premiums for such coverages are reasonable, as determined by Parent in its sole discretion. The Employee will be required to pay for the premiums for Parent's mandatory long term disability (LTD) plan. The premium will be automatically deducted from the Employee's pay cheque.


5. VACATIONS; WORKING FACILITIES. (a) The Employee shall be entitled to three (3) weeks of vacation in each calendar year. Such vacations shall be taken at such time as the Company may from time to time reasonably approve, having regard to the operations of the Company. Vacation time shall be cumulative, in accordance with the Company's standard policies.


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(b) The Employee shall be furnished with office space, furnishings, secretarial assistance and such other facilities and services as the Company shall decide are reasonably necessary for the performance of the Employee's duties.


6. TERMINATION. Notwithstanding the provisions of Section 1 of this Agreement, the Employee's employment hereunder may terminate under the following circumstances:


6.1 TERMINATION BY THE COMPANY FOR "CAUSE". The Company may terminate the Employee's employment hereinunder for Cause at any time, upon written notice to the Employee setting forth in reasonable detail the nature of such Cause. For purposes of this Agreement, "CAUSE" shall mean: (i) the willful and continued failure of the Employee to perform the Employee's duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for performance is delivered to the Employee by the Company which specifically identifies the manner in which the Company believes that the Employee has not performed the Employee's duties and such failure is not cured within fifteen (15) calendar days alter receipt of such written demand; (ii) material acts of misconduct, including without limitation, unauthorized use or disclosure of Company confidential information, fraud, embezzlement or harassment; (iii) material breach of any provision of this Agreement; or (iv) conviction of any felony or of any other crime involving business matters. Upon the termination for Cause of Employee's employment, the Company shall have no further obligation or liability to the Employee other than for salary earned under this Agreement prior to the date of termination, and any accrued but unused vacation.


6.2 TERMINATION BY THE COMPANY WITHOUT CAUSE. The Employee's employment hereunder may be terminated without Cause by the Company upon written notice to the Employee, PROVIDED, HOWEVER, that if the Company terminates the Employee's employment without Cause, the Company shall continue to pay the Employee the Retention Bonus in accordance with Section 4 of Schedule A.


6.3 TERMINATION BY THE EMPLOYEE. The Employee may terminate his or her employment hereunder upon two week's written notice to the Company for Good Reason or otherwise; PROVIDED, HOWEVER, that in the event the Employee gives written notice to the Company of his or her termination of employment within one (1) month of a relocation of the Employee's worksite to a location 50 miles or more from the city of Chicago, Illinois, the Employee shall be entitled to continue to receive his or her Base Salary for a period of 6 months from the effective date of such termination and continue to receive the Retention Amounts in accordance with Section 4 of Schedule A, and PROVIDED FURTHER, HOWEVER, that if the Employee terminates his or her employment for Good Reason, the Company shall continue to pay the Employee the Retention Bonus in accordance with Section 4 of Schedule A. For purposes of this Agreement, "GOOD REASON" shall mean (i) any willful and continued failure by the Company to comply with any of the provisions of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith, and such failure is not cured within fifteen (15) days after receipt of notice thereof given by the Employee; (ii) any purported termination by the Company of the Employee's employment otherwise than as expressly permitted by this Agreement or (iii) the assignment of the Employee to a position, or the assignment of duties to the Employee involving a substantial amount of the Employee's time, which are materially


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inconsistent with the education and experience of the Employee and the general area of business in which tae Employee currently is assigned, excluding for this purpose an isolated and insubstantial action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Employee. The rights granted to Employee pursuant to this Section 6.3 with respect to any relocation of the Employee's worksite shall only apply for a period of 36 months from the Start Date.


6.4 DISABILITY. If, as a result of sickness or other disability, the Employee shall be unable to perform the Employee's duties as herein provided for a period of ninety (90) consecutive days or ninety (90) nonconsecutive days during any twelve (12) month period during the term of this Agreement, then the Company may at its option and subject to any applicable legal requirements relating to disabilities, terminate the Employee's employment. In the event of such termination, the Company shall only be required to pay to the Employee the compensation set forth in Section 3 hereof accrued up to the date of termination. In no event shall the Company be obligated to pay the Employee any Incentive Compensation occurring or accruing after the date of the Employee's termination.


6.5 DEATH. If the Employee dies during the term hereof, the Company shall only be required to pay to the Employee the compensation set forth in Section 3 hereof accrued up to the date of death. In no event shall the Company be obligated to pay the Employee any Incentive Compensation occurring or accruing after the date of the Employee's death.


7. CONFIDENTIAL INFORMATION; NONDISCLOSURE; OTHER OBLIGATIO ...