SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1 TO FORM 10-K
(MARK ONE)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: April 30, 1998.
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________.
Commission File Number: 0-21793
VERSATILITY INC.
(Exact name of registrant as specified in its charter)
Delaware 52-1214354
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
11781 Lee Jackson Memorial Highway
Seventh Floor
Fairfax, Virginia 22033
(703) 591-2900
(Address and telephone number of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01
par value per share
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. | |
The aggregate market value of the voting stock held by non-affiliates
of the Registrant based on the closing sale price of the Common Stock on August
26, 1998, as reported on the Over-the-Counter market was approximately
$4,275,730. Shares of Common Stock held by each executive officer and director
and by each person who is known to own 5% or more of the outstanding Common
Stock have been excluded from this computation in that such persons may be
deemed to be affiliates. This determination of affiliate status is not a
conclusive determination for other purposes. As of August 26, 1998, the
Registrant had 7,595,009 shares of Common Stock outstanding, par value $.01 per
share.
DOCUMENTS INCORPORATED BY REFERENCE
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None.
The undersigned registrant hereby amends the following items of its
Annual Report on Form 10-K as set forth on the pages attached hereto:
PART I
ITEM 1. BUSINESS
Recent Developments
On August 21, 1998, Versatility Inc., a Delaware corporation (the
"Company"), entered into an Agreement and Plan of Merger (the "Merger
Agreement") with Oracle Corporation, a Delaware corporation ("Parent"), and AQX
Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of
Parent (the "Purchaser"), which provides for the merger (the "Merger") of the
Purchaser with and into the Company with the Company continuing as the surviving
corporation (the "Surviving Corporation"). Pursuant to the terms of the Merger
Agreement, at the effective time of the Merger (the "Effective Time"), (i) each
share of Common Stock, par value $.01 per share, of the Company (the "Common
Stock") outstanding immediately prior to the Effective Time (other than shares
held by the Company, the Purchaser or Parent (which will be cancelled) and
shares for which appraisal rights under Delaware law are perfected) will be
converted into a right to receive a cash payment in the amount of $1.50 per
share and (ii) each share of Common Stock, par value $0.001 per share, of the
Purchaser outstanding prior to the Effective Time will be converted into the
right to receive one share of the common stock, par value $0.01 per share, of
the Surviving Corporation.
The closing of the Merger is subject to a number of conditions
precedent, including, without limitation, (i) the receipt of all required
government approvals, (ii) the approval of the Merger by the stockholders of the
Company, (iii) the retention of certain key employees of the Company, (iv) the
receipt of final court approval of the settlement of the putative securities
class actions filed in the United States District Court for the Southern
District of New York and the United States District Court for the Eastern
District of Virginia on terms consistent with the Memorandum of Understanding
Concerning Settlement Terms dated July 9, 1998 and the expiration of all rights
to appeal such settlement, and (v) absence of any instituted and continuing (or
in the case of (c) below, threatened) action, suit or proceeding against the
Company, Parent, the Purchaser or any officer, director, employee or other
person that the Company is obligated to indemnify, or by any governmental entity
or third party (a) directly relating to the Merger Agreement, the License
Agreement (defined below), any intellectual property of the Company, (b) who is
or was a stockholder of the Company or in a derivative action on behalf of the
Company, or (c) which could reasonably be expected to have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
In connection with the Merger Agreement, Edison Venture Fund, L.P.,
Noro-Moseley Partners III, L.P., Keith D. Roberts, Ronald R. Charnock and Marcus
W. Heth each entered into Support Agreements ("Support Agreements") with the
Company and Parent, whereby the stockholders (i) agreed to vote all shares of
Common Stock in favor of the Merger and against any action by the Company that
would breach the Merger Agreement or impair or delay the consummation of the
Merger and (ii) granted to designees of Parent an irrevocable proxy to vote
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such shares in favor of the Merger and as agreed in the Support Agreements. The
Support Agreements terminate upon the earlier of the Effective Time or the
termination of the Merger Agreement.
In connection with the Merger Agreement, the Company entered into a
Technology License Agreement (the "License Agreement") with Parent whereby the
Company agreed to grant to Parent a irrevocable, non-exclusive license of the
Company's computer software and related technology (the "Technology"). Parent
will pay the Company a sublicense fee equal to 30% of the net fees Parent
receives for sublicenses of the Technology, of which $2,000,000 will be prepaid
in three equal monthly installments commencing on September 1, 1998 (the
"Prepaid License Fee"). In the event that (i) Parent breaches the terms of the
Merger Agreement or failed to pay the sublicense fee when due, the Company may
terminate the License Agreement upon repayment of the Prepaid License Fee paid
to the Company in excess of $360,000, or (ii) the Merger Agreement is terminated
as a result of the Company accepting a superior offer than that presented in the
Merger Agreement upon repayment of the Prepaid License Fee paid to the Company
in excess of $360,000 and payment of the termination fee set forth in the Merger
Agreement.
As a condition precedent to the execution of the Merger Agreement,
Parent and each of Paul J. Zoukis, James J. Dellamore and Marcus W. Heth entered
into Non-Competition Agreements which have an initial term of two years from the
Effective Time and terminate upon the termination of the Merger Agreement. In
addition, Parent delivered to each of Messrs. Zoukis, Dellamore and Heth a
letter indicating its intent to offer employment to each at the Effective Time.
In connection with the Merger Agreement, the Company, Parent and
Silicon Valley Bank, a California chartered bank (the "Bank"), entered into a
Loan Modification and Extension of Forbearance Agreement (the "Loan Modification
Agreement") whereby, pursuant to the terms of the Loan Modification Agreement,
the Bank agreed to forebear from exercising remedies available to it as a result
of the Company's existing defaults under the loan agreements with the Bank until
the earlier of December 31, 1998 and the consummation of the Merger. The Bank's
continuing forbearance will terminate upon the termination of the Merger
Agreement. The Bank also agreed to allow the Company and Parent to enter into
the License Agreement, to waive the anti-dilution provisions applicable to its
warrant to purchase 100,000 shares of Common Stock during the period of
forbearance and to terminate its Warrant Agreement upon consummation of the
Merger. The Company agreed to deposit into an account at the Bank any refund
that the Company may receive from the Internal Revenue Service and/or the
Commonwealth of Virginia and agreed to withdraw such funds only pursuant to a
cash plan approved by the Bank.
On August 20, 1998, the Board of Directors of the Company approved the
Merger Agreement and the Merger and recommended that it be submitted to the
stockholders of the Company for their approval. The Company will file with the
Securities and Exchange Commission a proxy statement that will be mailed to the
stockholders in connection with a special stockholders meeting called to
consider and vote upon the Merger.
The foregoing descriptions of the Merger Agreement, the form of Support
Agreement, the License Agreement, and the Loan Modification Agreement are
qualified in their entirety by the text of the Merger Agreement, the form of
Support Agreement, the License Agreement, and the Loan Modification Agreement
which are set forth as Exhibits 2.1, 10.1, 10.2 and 10.3, respectively, and are
incorporated herein by reference.
<PAGE>
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Occupations of Directors and Executive Officers
The following table sets forth the directors and the executive officers
of the Company, their ages, and the positions currently held by each such person
with the Company.
Name Age Position
- ---- --- --------
Paul J. Zoukis 44 Director, President and Chief Executive
Officer
James J. Dellamore 41 Senior Vice President, Technology and
Operations
Kenneth T. Nelson 43 Senior Vice President - Finance &
Administration, Chief Financial Officer
and Secretary
Thomas A. Smith(1)(2) 36 Director
Charles A. Johnson(1)(2) 49 Director
Paul J. Palmer(1) 66 Director
- ---------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
PAUL J. ZOUKIS has served as President and Chief Executive Officer
since March 1998. Prior to joining the Company, Mr. Zoukis was CEO at Resolve
Services Corporation, a company specializing in human resource outsourcing and
which he co-founded in September 1997. Beginning in 1996, Mr. Zoukis was an
independent consultant to PSI International Inc. ("PSI") until November, 1996,
when he was named President and Chief Operating Officer at PSI. From 1991 to
1996, Mr. Zoukis held various positions at Hogan Systems, Inc., most recently as
Senior Vice President.
KENNETH T. NELSON has served as the Company's Chief Financial Officer
since February, 1998. Prior to joining the Company, Mr. Nelson was Vice
President-Finance and Administration and Chief Financial Officer of ROADSHOW
International, Inc., a software application company in the ERP marketplace, from
1993 to the end of 1997. From 1988 until 1993, Mr. Nelson was Vice President,
Treasurer of ICF Kaiser International, Inc., a diversified professional services
firm.
JAMES J. DELLAMORE has served as Senior Vice President, Technology and
Operations since February 24, 1998. Prior to joining the company, Mr. Dellamore
was Senior
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Vice President of Technology and Operations for Resolve Services Corporation , a
company specializing in human resource outsourcing. From June 1984 through
September 1997, Mr. Dellamore held various positions at Hogan Systems Inc., most
recently as Senior Vice President, Product Development and Services.
THOMAS A. SMITH has been a director of the Company since January 1996.
Mr. Smith is a partner in Mid-Atlantic Venture Fund, a venture capital fund. Mr.
Smith is a general partner of Edison Venture Fund III, L.P. ("Edison Venture
Fund"), and has been with Edison Venture Fund since 1990. Mr. Smith had
directed the Washington D.C. office of Edison Venture Fund since 1994. From
1990 to 1996, Mr. Smith was a senior associate in the risk capital investment
subsidiary of The Chase Manhattan Company.
CHARLES A. JOHNSON has been a director of the Company since January
1996. Since 1993, Mr. Johnson has been a general partner of Noro-Moseley
Partners III, L.P., an Atlanta-based venture capital firm. From 1992 to 1993,
Mr. Johnson was an independent consultant. In 1983, Mr. Johnson co-founded Sales
Technologies, Inc., a startup software company, and served as its President and
Chief Executive Officer until Sales Technologies, Inc. was acquired by Dun and
Bradstreet in January 1989. Mr. Johnson continued in his role as Chief Executive
Officer of that division of Dun and Bradstreet until February 1992. Prior to
founding Sales Technologies, Inc., Mr. Johnson was a management consultant with
McKinsey & Company and held a number of sales and marketing positions with
Procter & Gamble.
PAUL J. PALMER has been a director of the Company since September 1996.
Since January 1994, Mr. Palmer has been an executive consultant specializing in
the software industry. From 1957 until his retirement in December 1993, Mr.
Palmer held various positions in marketing and development with IBM, most
recently as Vice President.
Executive officers of the Company are elected by the Board of Directors
on an annual basis and serve until their successors have been duly elected and
qualified.
REPORTS ABOUT OWNERSHIP OF THE COMPANY'S COMMON STOCK
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities to file reports of ownership
and changes in ownership with the Securities and Exchange Commission and the
Nasdaq National Market. Officers, directors and greater than 10 percent
stockholders are required by Securities and Exchange Commission regulation to
furnish the Company with all Section 16(a) forms they file.
Based solely on its review of the copies of such forms and written
representations received from certain reporting persons that no Forms 5 were
required, the Company believes that during fiscal 1998 the Company's executive
officers, directors and greater than ten percent stockholders complied with all
applicable Section 16(a) filing requirements.
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ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION AND OTHER INFORMATION
CONCERNING DIRECTORS AND OFFICERS
EXECUTIVE COMPENSATION SUMMARY
The following table sets forth the annual and long-term compensation
for each of the past three fiscal years of each of (i) the Company's Chief
Executive Officer; (ii) the Company's former Chief Executive Officer (through
March 1998); (iii) each of the Company's most highly compensated executive
officers who were serving as of April 30, 1998 and (iv) three former executive
officers who would have been among the Company's four most highly compensated
executive officers, but for the fact that they were not serving in that capacity
as of April 30, 1998 (collectively, with the Chief Executive Officer, the "Named
Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term
------------------- ---------
(1) Compensation (2)
--- ----------------
Bonus Securities All Other
Name and Principal Position Year Salary ($) ($)(3) Underlying Options (#) Compensation (4)
- --------------------------- ---- ---------- ------ ---------------------- ----------------
<S><C>
Paul J. Zoukis(5) 1998 $ 46,712 $-- -- --
Director, President and Chief Executive
Officer
James J. 1998 $ 37,609 $-- -- --
Dellamore(5)
Senior Vice President, Technologies and
Operations
Kenneth T. Nelson(5) 1998 $ 48,134 $-- -- --
Senior Vice President - Finance &
Administration, Chief Financial Officer and
Secretary
Ronald R. Charnock
Former Chairman, President, Chief Executive 1998 $175,003 $14,860 -- --
Officer and Director
Marcus W. Heth
Senior Vice President, Technologies and 1998 $166,404 $12,634 -- $1,750
Former Secretary
Donald C. Yount
Former Senior Vice President, Finance and 1998 $110,550 $11,365 28,065 --
Chief Financial Officer
Stephen P. Winings
Former Senior Vice President, Sales 1998 $171,943 $47,207 39,097 $1,127
</TABLE>
- --------------
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(1) Excludes certain personal benefits such as life insurance premiums paid
by the Company. These amounts, in the aggregate, did not exceed the
lesser of $50,000 or 10% of the total annual salary and bonus for such
Named Executive Officer.
(2) The Company did not make any restricted stock awards, grant any stock
appreciation rights or make any long-term incentive payments during
fiscal 1998.
(3) Includes bonuses earned with respect to services rendered in the fiscal
year indicated, whether or not such bonus was actually paid during such
fiscal year.
(4) Represents matching contributions made by the Company to the Named
Executive Officer under the Company's 401(k) plan.
(5) Messrs. Zoukis', Dellamore's and Nelson's employment began on February
24, 1998, February 24, 1998 and February 2, 1998, respectively, the
compensation set forth reflects amounts earned from such date until the
end of fiscal 1998.
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides certain information concerning grants of
options to purchase the Company's Common Stock made during fiscal year ended
April 30, 1998, to each of the Named Executive Officers.
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------------------
Percent of Total
----------------
Number of Options Grant Date
-------- ------- ----------
Securities of Granted to Exercise or Present Value
------------- ---------- ----------- -------------
Underlying Employees in Base Price ($/ Expiration (2) ($)
----------- ------------- -------------- ---------- -------
Name Options Granted Fiscal Year (1) Share) Date 5% 10%
---- --------------- --------------- ---------- ---- -- ---
<S><C>
Paul J. Zoukis -- -- -- -- -- --
James J. Dellamore -- -- -- -- -- --
Kenneth T. Nelson -- -- -- -- -- --
Ronald R. Charnock -- -- -- -- -- --
Marcus W. Heth -- -- -- -- -- --
Donald C. Yount, Jr. 28,065 6.09% $11.50 5/21/07 $202,974 $514,376
Stephen P. Winings 39,097 8.48% $11.50 5/21/07 $282,761 $716,570
</TABLE>
(1) Based on options to purchase an aggregate of 460,894 shares of Common
Stock granted to all employees of the Company in fiscal 1998, including
the Named Executive Officers.
(2) In accordance with the rules of the Securities and Exchange Commission
(the "Commission"), shown are the hypothetical gains or "option
spreads" that would exist for the respective options. These gains are
based on assumed rates of annual compounded stock price appreciation of
5% and 10% from the date the option was granted over the full option
term. The 5% and 10% assumed rates of appreciation are
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mandated by the rules of the Commission and do not represent the
Company's estimate or projection of future increases in the price of
its Common Stock. There can be no assurance that the actual stock price
appreciation over the five-year option term will be at the assumed 5%
and 10% levels or at any other defined level.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
The following table provides information with respect to options
exercised in fiscal 1998 by the Named Executive Officers, the value realized
upon such exercises and the value of options held by such officers at year-end
based on the closing price of the Company's Common Stock on April 30, 1998.
AGGREGATED OPTION EXERCISES AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Shares of Common Stock
----------------------
Underlying Unexercised Value of Unexercised In-The-
---------------------- ----------------------------
Options at Year-End Money Options at Year-End
------------------- -------------------------
Shares Acquired Value
--------------- -----
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
<S><C>
Paul J. Zoukis -- -- -- -- -- --
James J. Dellamore -- -- -- -- -- --
Kenneth T. Nelson -- -- -- -- -- --
Ronald R. Charnock -- -- -- -- -- --
Marcus W. Heth -- -- -- -- -- --
Donald C. Yount, Jr. -- -- 5,613 22,452 -- --
Stephen P. Winings -- -- 7,819 31,278 -- --
</TABLE>
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-
CONTROL ARRANGEMENTS
During fiscal 1998, the Company entered into Severance Agreements with
Paul J. Zoukis, James J. Dellamore and Kenneth T. Nelson, which were amended and
restated on April 15, 1998 (the "Severance Agreements"). The Severance
Agreements provide the following principal benefits: (i) assurances that the per
year base salary will not be less than $250,000, $200,000 and $200,000 for
Messrs. Zoukis, Dellamore and Nelson, respectively; (ii) agreements to provice
grants of options to purchase shares of the Company's common stock equal to
470,000, 280,000 and 280,000 shares for Messrs. Zoukis, Dellamore and Nelson,
respectively, at an exercise price of $1.89 per share (at which price was
determined on May 8, 1998); (iii) assurances that the executives will be
eligible to receive periodic bonuses equal to no less than 50% of their then
current base salary; and (iv) an allowance for automobile expenses. The
Severance Agreements provide for a lump sum severance payment if such executive
is terminated for reasons other than cause, death or continued disability, or if
such executive terminates his employment for Good Reason. "Good Reason" is
defined in the Severance Agreements as assignment of duties inconsistent with
the executive's position or
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authority, reduction in the executive's base salary, relocation of the Company's
principal executive offices to a location more than 35 miles away or requiring
the executive to be based in another location, failure to timely pay the
executive any portion of salary, bonus or other compensation, or the occurrence
of a Change in Control. A "Change in Control" is defined in the Severance
Agreements as (i) a third party becomes a beneficial owner of securities of the
Company controlling more than 30% of the voting power of the Company's then
outstanding shares, (ii) a change of a majority of the Board of Directors, (iii)
a merger or consolidation of the Company, (iv) an approval of a liquidation of
the Company or the sale or disposition of substantially all of the assets of the
Company or (v) the insolvency or general assignment for the benefit of creditors
or the commencement of bankruptcy, insolvency or reorganization for the Company
or for all or substantially all of the assets of the Company. The severance
payment would equal two times the executive's base salary and two times his
maximum bonus for such fiscal year, a payment equal to all bonuses awarded or
allocated to the executive for that portion of the fiscal year completed and a
payment equal to the bonus awarded to the executive pro rated to the portion of
the fiscal year not completed, and also provides for automatic vesting of all
unvested options and maintenance of all insurance benefits for a period of two
years.
The Company entered into Indemnification Agreements with
Messrs. Zoukis, Dellamore and Nelson on April 15, 1998 (the "Indemnification
Agreements"). Each Indemnification Agreement provides that the Company will
indemnify the indemnitee against expenses, including reasonable attorneys' fees,
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with any civil or criminal action or
administrative proceeding arising out of the performance of his duties. Such
indemnification is available if the indemnitee acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company and with respect to any criminal action, had no reasonably cause to
believe that his conduct was unlawful. The Indemnification Agreement will also
require that the Company indemnify the party thereto in all cases to the fullest
extent permitted by applicable law. Each Indemnification Agreement requires the
Company to advance litigation expenses at the request of the party seeking
indemnification, whether prior to or after final resolution of a proceeding,
provided that he undertakes to repay such advances if it is ultimately
determined that he is not entitled to indemnification for his expenses. The
advance of litigation expenses will thereby be mandatory upon satisfaction of
certain conditions by the indemnitee. Each Indemnification Agreement permits the
party thereto to bring suit to seek recovery of amounts due under the
Indemnification Agreement and to recover the expenses of such a suit if he is
successful.
The foregoing description of the Severance Agreements and the
Indemnification Agreements is qualified in their entirety by the text of the
Severance Agreements and the Indemnification Agreements which are attached
hereto as Exhibits 10.4, 10.5, 10.6, 10.7, 10.8 and 10.9, respectively, and are
incorporated herein by reference.
COMPENSATION COMMITTEE'S REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee"),
which is composed of three non-employee Directors, has primary responsibility
for all compensation actions, affecting the Company's executive officers,
including base salaries, incentive awards, stock option awards and the terms and
conditions of their employment. The Committee administers the 1996 Stock Plan.
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COMPENSATION PHILOSOPHY
The Committee makes recommendations concerning appropriate executive
compensation and reports to the Board. Under the supervision, approval and
review of the Committee, the Company's compensation policies and programs are
designed to motivate, retain and attract management with incentives linked to
financial performance of the Company and the value that is delivered to its
shareholders. Specifically, the Company's policies and programs endeavor to: (i)
link executive compensation to sustainable increases in the financial
performance of the Company and preservation or realization of shareholder value;
(ii) differentiate compensation based upon individual contribution; (iv) promote
teamwork among executives and other Company employees; and (v) encourage the
retention of a sound management team. During each fiscal year, the Committee
reviews and recommends to the Board, with any modification it deems appropriate,
base salary levels for the Company's executive officers, including the Named
Executive Officers and certain other senior managers.
COMPONENTS OF EXECUTIVE OFFICER COMPENSATION
CASH COMPENSATION (BASE SALARY AND INCENTIVE BONUS). The Company
manages the total cash compensation to provide median levels of cash
compensation at average levels of corporate, business unit, and individual
performance. Cash compensation consists of two components; (i) a base salary
that is competitive with that of other companies paying at the median level of
the market, and (ii) an incentive opportunity that is variable and is reflective
of the financial performance of the Company and the individual performance of
the executive officer. When high levels of performance are achieved, the level
of cash compensation may exceed the median of the market. Conversely, when the
Company, business unit, or the individual falls short of the predetermined
goals, the level of cash compensation may be substantially below the market
median. The objective of this mix is to deliver total cash compensation
competitive with compensation offered at other companies facing similar
challenges for similar positions, while simultaneously linking the payment of
the cash incentive to the achievement of specific objectives in the Company's
annual operating plan as approved by the Board. The performance incentive, when
awarded, is paid quarterly, semiannually and annually with respect to the
preceding fiscal period. The award and size of the performance incentive are
based upon; (i) the executive officer's performance against individual goals;
(ii) the performance of the executive officer's unit within the Company against
that unit's goals; and (iii) the performance of the Company against Company
goals. Goals vary from year to year and from unit to unit and, with regard to
individual goals of executive officers, usually include both quantitative and
qualitative factors.
STOCK OPTION GRANTS. The Committee believes that stock option grants
serve as a desirable long-term method of compensation because they closely ally
the interests of management with the preservation and enhancement and
realization of stockholder value and serve as an additional incentive to promote
the success of the Company. Stock options are generally granted when an
executive joins the Company, with additional stock options granted from time to
time in connection with promotions and performance. The initial options granted
to an executive vest over four years. The Committee believes that stock option
participation provides a method of retention and motivation for the senior level
executives of the Company and aligns senior management's objectives with
long-term stock price appreciation. Executives, together with other employees of
the Company, are also eligible to participate in the Company's 1996 Employee
Stock Purchase Plan pursuant to which stock may be purchased at 85% of the
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average market price at the beginning or end of each six-month period (up to a
maximum stock value of $25,000 per calendar year or 10 percent of total
compensation, whichever is less). For purposes of the Employee Stock Purchase
Plan, the term "average market price" on any date means (i) the closing sale
price (on the applicable date) of the Common Stock on the Nasdaq National Market
or (ii) the average of the closing bid and asked prices last quoted (on the
applicable date) by an established quotation service for over-the-counter
securities, if the Common Stock is not reported on the Nasdaq National Market.
In fiscal 1998, the Committee approved the grant of 67,162 stock options to the
Company's executive officers and 393,732 stock options to other employees.
TOTAL COMPENSATION PROGRAM. The Committee believes that the total
compensation program for executives of the Company (cash compensation,
incentives and stock option grants) is on a level with the compensation programs
provided by other companies facing similar challenges. The Committee believes
that any amounts paid under the incentive plan will be appropriately related to
corporate and individual performance, yielding awards that are directly linked
to the annual financial and operational results of the Company within the
framework of the challenges faced. The Committee also believes that the 1996
Stock Plan provides opportunities to participants that are consistent with the
returns that are generated on behalf of the Company's shareholders.
COMPENSATION OF CEO
Paul J. Zoukis has served as President and Chief Operating Officer
since February 1998. He was elected Chief Executive Officer in July, 1998. In
fixing Mr. Zoukis's salary and target incentive levels, as well as determining
the size of stock options, if any, the Committee and the Board reviewed
the strategic direction and financial performance of the Company, including
the material uncertainties surrounding the company as a result of the
proposed restatement and financial considerations. In addition, the
Committee reviewed Mr. Zoukis's performance as President and Chief Operating
Officer at PSI International, Inc. and his importance to the Company and his
leadership and strategic vision.
Messrs. Zoukis's and Charnock's compensation package in fiscal 1998
consisted of the same benefits program as other executive officers, as set forth
above, including base salary, cash incentive, stock options and other employee
benefit programs. Neither received any material compensation or benefits in
fiscal 1998 not provided to all executive officers.
INTERNAL REVENUE CODE SECTION 162 (m)
The Committee has considered the potential impact of Section 162(m)
Internal Revenue Code of 1986, as amended, and the regulations thereunder (the
"Section"). The Section disallows a tax deduction for any publicly-traded
corporation for individual compensation which is in excess of $1,000,000 in any
taxable year for any of the executive officers, unless such compensation is
performance-based. Since the cash compensation of each executive officer is
below the $1,000,000 threshold and the Committee believes that any of the
options granted under the 1996 Stock Plan will meet the requirements of being
performance-based, the Committee believes that the Section will not reduce the
tax deduction available to the Company. The Company's policy is to qualify, to
the extent reasonable, its executive officers' compensation for deductibility
under applicable tax laws. However, the Committee believes that its primary
responsibility is to provide a compensation program that will attract, retain
and reward the executive talent necessary to the Company's success.
Consequently, the Committee recognizes that the loss of a tax deduction could be
necessary in some circumstances.
<PAGE>
-12-
Other elements of executive compensation include participation in a
Company-wide life insurance program, including a long-term disability insurance
program. Executives are also eligible for Company-wide medical benefits and
participation in a 401(k) plan under which the Company currently provides a
percentage matching contribution.
Compensation Committee of the Board of Directors
Thomas A. Smith
Charles A. Johnson
Paul J. Palmer
STOCK PERFORMANCE GRAPH
The following graph compares the percentage change in the cumulative
total stockholder return on the Company's Common Stock since December 12, 1996
(the date the Company first became subject to reporting requirements and the
Securities and Exchange Act of 1934, as amended) through March 12, 1998, with
the cumulative total return for the Nasdaq Stock Market Index and the Nasdaq
Combined Computer Composite Stock Index (the "Nasdaq Computer Index"). The
comparison assumes $100 was invested on December 12, 1996, the date of the
Company's initial public offering, in the Company's Common Stock at the $15.00
initial offering price and in each of the foregoing indices and assumes
reinvestment of dividends, if any. Nasdaq halted trading of the Company's Common
Stock on March 12, 1998. Trading resumed on May 5, 1998 contingent upon the
Company's attainment of net tangible assets of $10 million by June 30, 1998. On
July 20, 1998, the Nasdaq delisted the Company's Common Stock. On July 21, 1998,
the Company's Common Stock began trading on the OTC Bulletin Board. See
"Business -- Recent Developments." To date, the Company has paid no cash
dividends on its Common Stock. Historical stock price performance should not be
relied upon as indicative of future stock price performance.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG
VERSATILITY INC., NASDAQ STOCK MARKET INDEX
AND NASDAQ COMBINED COMPUTER INDEX (1) (2)
[Graph appears here -- see plot points below]
<TABLE>
<CAPTION>
NASDAQ NASDAQ
U.S. COMBINED &
VERSATILITY COMPANIES COMPUTER
<S><C>
December 12, 1996 100 100 100
January 31, 1997 88.333 107.389 110.976
April 30, 1997 73.333 98.12 102.785
July 31, 1997 70.867 124.041 132.790
October 31, 1997 57.53 124.025 124.317
January 31, 1998 39.20 126.039 128.649
March 12, 1998(3) 16.667 136.669 139.827
</TABLE>
- --------------
(1) Prior to December 12, 1996, the Company's Common Stock was not publicly
traded. Comparative data is provided only for the period since that date. This
chart is not "solicited material", is not deemed filed with the Securities and
Exchange Commission and is not to be incorporated by reference in any filings of
the Company under the Securities Act of 1933, as amended or the Securities
Exchange Act of 1934, as amended, whether made before or after the date hereof
and irrespective of any general incorporation language in any such filing.
(2) The stock price performance shown on the graph is not necessarily indicative
of future price performance. Information used on this graph was obtained from
the Nasdaq Stock Market and the Nasdaq Stock Market and the Nasdaq Computer
indices were prepared for Nasdaq by the Center for Research in Security Prices
at the University of Chicago, a source believed to be
<PAGE>
-13-
reliable, although the Company is not responsible for any errors or omissions in
such information.
(3) The Company's trading in Common Stock was halted on March 12,1998, and
trading resumed May 5, 1998.
Prior to January 1996, the Company had no separate Compensation
Committee or other board committee performing equivalent functions, and these
functions were performed by the Company's Board. In January 1996, the Company
established a Compensation Committee which consisted of Messrs., Smith and
Johnson. In September 1996, the Board established a new Compensation Committee
which consists of Messrs., Smith, Johnson and Palmer, each of whom are
non-employee directors. See "Certain Relationships and Related Transactions" for
information regarding certain relationships and transactions between the Company
and certain members of the Board.
COMPENSATION OF DIRECTORS
During fiscal 1998, one director who was not employed by the Company
received a annual retainer of $6,000, and a $750 stipend for each regular Board
meeting attended, and the reimbursement of certain expenses incurred with
attendance at Board meetings.
<PAGE>
-14-
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
The following table provides information as to options exercised in fiscal 1998
by the Named Executive Officers, the value realized upon such exercise and the
value of options held by such officers and year-end based on the closing price
of the Company's Common Stock on May 5, 1998. (1)
<TABLE>
<CAPTION>
Value of
Number of Unexercised Unexercised
Shares Options at In-the-Money Options at
Acquired on Value Year End April 30, 1998 ($)(2)
Name Exercise Realized Exercisable / Unexercisable Exercisable / Unexercisable
- ----------------------------------------------------------------------------------------------------------------------
<S><C>
Paul J. Zoukis -- -- --/-- --/--
James Dellamore -- -- --/-- --/--
Kenneth T. Nelson -- -- --/-- --/--
Ronald R. Charnock* -- -- --/-- --/--
Marcus W. Heth* -- -- --/-- --/--
Donald C. Yount, Jr.* 4,040 $13,433 --/-- --/--
Stephen P. Winings* -- -- 15,819/27,459 --/--
</TABLE>
- ----------------
*Individual was not an executive officer at the end of the last complete fiscal
year.
(1) Trading in the Company's Common Stock was halted on March 12, 1998 and
resumed trading on May 5, 1998.
(2) Value is based on the difference between the option exercise price and
$1.875, the fair market value at May 5, 1998, the date the Company's Common
Stock resumed trading on the Nasdaq National Market), multiplied by the
number of shares underlying the option.
<PAGE>
-15-
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth as of August 26, 1998: (i) the name of
each person who, to the knowledge of the Company, owned beneficially more than
5% of the Common Stock of the Company outstanding at such date; (ii) the name of
each director; (iii) the name of each executive officers identified in the
Summary Compensation Table set forth above under "Compensation and Other
Information Concerning Directors and Officers;" and (iv) the number of shares
owned by each of such persons and all officers, directors and nominees as a
group and the percentage of the outstanding shares represented thereby.
<TABLE>
<CAPTION>
Amount and Nature of
Name and Address of Beneficial Owner Ownership (1) Percent of Class (2)
- ------------------------------------ ------------- --------------------
<S><C>
Edison Venture Fund III, L.P.(9)
997 Lenox Drive, #3 516,957 6.8%
Lawrenceville, NJ 08648
Noro-Moseley Partners III, L.P.(9)
4200 North Side Parkway, NW, Building 9 376,468 5.0%
Atlanta, GA 30327
Keith D. Roberts(9) 922,000 12.1%
Paul J. Zoukis (3) 94,000 1.2%
Kenneth T. Nelson (4) 56,000 *
James Dellamore(4) 56,000 *
Ronald R. Charnock(9) 1,359,000 17.9%
Thomas A. Smith (5)(9) 516,957 6.8%
Charles A. Johnson (6)(9) 376,468 5.0%
Paul J. Palmer (7) 14,000 *
Donald C. Yount -- *
Marcus W. Heth(9) 1,000,000 13.2%
Stephen P. Winnings(8) 15,819 *
Oracle Corporation(9)
500 Oracle Parkway
Redwood Shores, CA 94065 4,424,675 58.3%
All officers, directors and nominees as a group
(13 persons) (3)(4)(5)(6)(7)(8)(9)
</TABLE>
<PAGE>
-16-
- ----------------
*Less than 1%
(1) Except as otherwise noted, each person or entity named in the table has
sole voting and investment power with respect to the shares. The
inclusion herein of any shares of Common Stock deemed beneficially
owned does not constitute an admission of beneficial ownership of those
shares.
(2) Applicable percentage of ownership as of August 26, 1998 is based upon
7,595,009 shares of Common Stock outstanding on such date. Beneficial
ownership is determined in accordance with the rules of the Securities
and Exchange Commission (the "Commission"), and includes voting and
investment power with respect to shares. Shares of Common Stock subject
to options currently exercisable or exercisable within 60 days of the
Record Date are deemed outstanding for computing the percentage
ownership of the person holding such options, but are not deemed
outstanding for computing the percentage of any other person.
(3) Consists of 94,000 shares of Common Stock issuable pursuant to stock
options exercisable within 60 days of August 26, 1998.
(4) Consists of 56,000 shares of Common Stock issuable pursuant to
outstanding stock options exercisable within 60 days of August 26,
1998.
(5) Consists of 516,957 shares of Common Stock held by Edison Venture Fund
III, L.P. of which Mr. Smith is a general partner. Mr. Smith may be
deemed to share voting and investment power with respect to these
shares. Mr. Smith disclaims beneficial ownership of such shares.
(6) Consists of 376,468 shares of Common Stock held by Noro-Moseley
Partners III, L.P. of which Mr. Johnson is a general partner. Mr.
Johnson may be deemed to share voting and investment power with respect
to these shares. Mr. Johnson disclaims beneficial ownership of such
shares.
(7) Consists of 14,000 shares of Common Stock issuable pursuant to stock
options exercisable within 60 days of August 26, 1998.
(8) Consists of 15,819 shares of Common Stock issuable pursuant to stock
options exercisable within 60 days of August 26, 1998.
(9) Edison Venture Fund III, L.P., Noro-Moseley Partners III, L.P. and
Messrs. Charnock, Heth, and Roberts each entered into Support
Agreements with the Company and Oracle Corporation whereby each gave
Oracle a proxy to vote the shares beneficially owned by them in favor
of a merger of the Company with a wholly-owned subsidiary of Oracle
pursuant to the Merger Agreement. See "Recent Developments."
<PAGE>
-17-
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain Relationships and Related Transactions
Prior to October 31, 1996, the Company was the 1% general partner of
Serenity Real Properties Limited Partnership (the "Partnership") of which Mr.
Ronald R. Charnock, the Company's former President and Chief Executive Officer,
Mr. Marcus W. Heth, the Company's Senior Vice President, Technologies, and Mr.
Keith D. Roberts, the Company's Director of Product Development, were the
limited partners holding the remaining 99% of the partnership interests (the
"Limited Partners"). The Partnership is the owner of an office building in
Alexandria, Virginia (the "Property"), which was the Company's headquarters
until October 1994 and which was leased by the Company under a lease expiring in
April 1997, and providing for monthly rental payments of $10,000. In addition,
the Company had guaranteed a mortgage loan made by a commercial bank to the
Partnership, which had an outstanding balance of $614,000 at September 30, 1996.
This loan was also guaranteed by each of the Limited Partners and was secured by
a mortgage on the Property.
On October 31, 1996, the Company sold its general partnership interest
in the Partnership, for consideration equal to its capital account of $3,131 to
Serenity L.L.C., whose members are the Limited Partners. In connection with the
sale of its general partnership interest in the Partnership, the Company made to
the Partnership a loan of $519,305 evidenced by a Deed of Trust Note which bears
interest at the prime rate and is payable upon the earliest of (i) the sale of
the Property, (ii) demand by the Company and each of its Limited Partners and
(iii) October 31, 1997. As of April 30, 1998, this loan has been paid in full.
In prior fiscal years, the Company had extended loans to Mr. Charnock,
the Company's former President and Chief Executive Officer, with principal and
accrued interest totaling $127,364 at April 30, 1998. Such loans are evidenced
by a promissory note, are payable on the earliest of (i) demand and (ii)
November 6, 1997, and bear interest at the prime rate. These loans have not been
repaid and as of July 31, 1998, the principal and accrued interest totals
$129,766.
The Company has adopted a policy whereby all future transactions
between the Company and its officers, directors and affiliates will be on terms
no less favorable to the Company than could be obtained from unaffiliated third
parties and will be approved by a majority of the disinterested members of the
Board.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report:
3. Exhibits
<PAGE>
-18-
Exhibit Number Description of Exhibit
-------------- ----------------------
2.1* Agreement and Plan of Merger
dated as of August 21, 1998,
by and among Versatility
Inc., Oracle Corporation and
AQX Acquisition Corporation
10.1* Form of Support Agreement
10.2* License Agreement dated as of
August 21, 1998, by and between
Versatility Inc. and Oracle
Corporation
10.3* Loan Modification and Extension of
Forbearance Agreement dated August
20, 1998 by and among Versatility
Inc., Oracle Corporation and Silicon
Valley Bank
10.4 Amended and Restated Severance
Agreement dated April 15, 1998 by and
between Versatility Inc. and Paul J.
Zoukis
10.5 Amended and Restated Severance
Agreement dated April 15, 1998 by and
between Versatility Inc. and James J.
Dellamore
10.6 Amended and Restated Severance
Agreement dated April 15, 1998 by and
between Versatility Inc. and Kenneth
T. Nelson
10.7 Indemnification Agreement dated
April 15, 1998 by and between
Versatility Inc. and Paul J. Zoukis
10.8 Indemnification Agreement dated
April 15, 1998 by and between
Versatility Inc. and James J.
Dellamore
10.9 Indemnification Agreement dated
April 15, 1998 by and between
Versatility Inc. and Kenneth T. Nelson
* Incorporated by reference from Form 8-K filed with the Commission on
August 25, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this Amendment to the Annual Report on Form 10-K to be
signed on its behalf by the undersigned thereunto duly authorized, in the Town
of Framingham, Commonwealth of Massachusetts, on the 26th day of August, 1998.
VERSATILITY INC.
___________________________________
By:
Paul J. Zoukis
President and Chief
Operating Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Amendment to the Annual Report on Form 10-K report has been signed below by
the following persons in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
____________________ Director, President and August 28, 1998
Paul J. Zoukis Chief Executive Officer
(Principal Executive
Officer)
____________________ Chief Financial Officer August 28, 1998
Kenneth T. Nelson (Principal Financial
and Accounting Officer)
____________________ Director August 28, 1998
Thomas A. Smith
____________________ Director August 28, 1998
Charles A. Johnson
____________________ Director August 28, 1998
Paul J. Palmer
Exhibit 10.4
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT (this "Agreement") made as of the 15th day of
April, 1998 by and between Versatility Inc., a Delaware corporation (the
"Company"), and Paul J. Zoukis (the "Executive").
WHEREAS, the Board of Directors of the Company (the "Board") desires to
set forth the nature and amount of compensation and other benefits to be
provided to Executive and any of the rights of the Executive in the event of his
termination of employment with the Company;
WHEREAS, the Executive is willing to commit himself to continue to
serve the Company, on the terms and conditions herein provided; and
WHEREAS, in order to effect the foregoing, the Company and the
Executive wish to enter into this Agreement under the terms and conditions set
forth below.
NOW, THEREFORE, in consideration of the foregoing, of the mutual
promises and the respective covenants and agreements of the parties herein
contained, the parties hereto intending to be legally bound, hereby agree as
follows:
1. Employment. The Company hereby agrees to continue to employ the
Executive, and the Executive hereby agrees to continue to serve the Company, on
the terms and conditions set forth herein.
2. Term. This Agreement shall continue in effect through December 31,
2003; provided, however, that commencing on January 1, 2003 and each January 1
thereafter, the term of this Agreement shall automatically be extended for one
additional year unless, not later than September 30 of the preceding year, the
Company or the Executive shall have given written notice that such party does
not wish to extend the term of this Agreement; provided, further, if a Change in
Control of the Company shall have occurred during the original or extended term
of this Agreement, the term of this Agreement shall continue in effect for a
period of twenty-four (24) months beyond the month in which such Change in
Control occurred.
3. Position and Duties. The Executive shall serve as President and
Chief Operating Officer of the Company and shall have such responsibilities and
authority as may normally be exercised by a president and chief operating
officer of a company.
4. Place of Performance. The Executive shall be based at the current
principal executive offices of the Company in Fairfax, Virginia, or in the
Company's headquarters, provided that such headquarters is not more than 35
miles from the location of the Company's principal executive offices on the date
hereof.
5. Compensation and Related Matters.
(a) Base Salary. During the Executive's employment with the
Company, the Company shall pay to the Executive a salary at a rate of not less
than Two Hundred and Fifty Thousand Dollars ($250,000) per annum in equal
installments as nearly as practicable on the normal payroll periods for
employees of the Company generally (the "Base Salary"). The Base Salary may be
increased from time to time and, if so increased, shall not thereafter be
decreased during the term of this Agreement.
(b) Stock Options. The Executive shall receive options to
purchase Four Hundred and Seventy Thousand (470,000) shares of the Company's
Common Stock, par value $.01 per share ("Company Shares"), at an exercise price
equal to the lesser of (x) the average of the closing price of the Company
Shares as traded on the NASDAQ for the first five trading days after the
reinstatement of trading for the
<PAGE>
Company's Common Stock and (y) the lowest per share purchase price, conversion
price or exchange price for the Company's Common Stock in any equity financing
completed by the Company within six (6) months of the date hereof. The options
granted to the Executive pursuant to this Section shall provide for
anti-dilution protection effective through December 31, 1998 to insure the
Executive's right to maintain the ratio of Company Shares subject to such option
and shares of Common Stock outstanding.
(c) Bonus. During the Executive's employment with the Company,
the Executive shall be eligible to receive periodic bonuses payable under the
Company's Executive Incentive Compensation Plan, or such successor plan or plans
which provide the Executive substantially the same level of incentive
compensation; provided, however, that the Executive's minimum bonus per annum
shall be equal to at least 50% of Base Salary.
(d) Expenses. During the Executive's employment with the
Company, the Executive shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive in performing services, including
all expenses of travel and living expenses while away from home on business or
at the request of and in the service of the Company, provided that such expenses
are incurred and accounted for in accordance with the policies and procedures
established by the Company.
(e) Benefits. During the Executive's employment with the
Company, the Company shall maintain in full force and effect, and the Executive
shall be entitled to continue to participate in, all of its employee benefit
plans and arrangements in effect on the date hereof in which the Executive
participates or receives benefits, or plans or arrangements providing the
Executive with at least equivalent benefits thereunder. The Company shall not
make any changes in such plans and arrangements which would adversely affect the
Executive's rights or benefits thereunder, unless such change occurs pursuant to
a program applicable to all officers of the Company and does not result in a
proportionately greater reduction in the rights of or benefits to the Executive
as compared with any other officers of the Company. The Executive shall be
entitled to participate in or receive benefits under any employee benefit plan
or arrangement made available by the Company in the future to its officers and
key management employees, subject to and on a basis consistent with the terms,
conditions and overall administration of such plans and arrangements. Nothing
paid to the Executive under any plan or arrangement presently in effect or made
available in the future shall be deemed to be in lieu of any amounts payable to
the Executive pursuant to this Section 5.
(f) Automobile. During the Executive's employment with the
Company, the Company shall provide to the Executive an allowance of Six Hundred
Dollars ($600) per month for automobile expenses. In the event that the
Executive's employment shall terminate for any reason other than for Cause, the
Company shall, after such termination, pay to, or for the benefit of, the
Executive an amount necessary to discharge the indebtedness or obligation to
finance the purchase or leasing of such automobile.
(g) Vacation. The Executive shall be initially entitled to
three (3) weeks vacation for the first twelve months of this Agreement, and four
(4) weeks vacation for each twelve month period thereafter. The Executive's
vacation shall be administered in accordance with the Company's vacation policy.
The amount of vacation may be increased from time to time and, if so increased,
shall not thereafter be decreased during the term of this Agreement.
6. Termination.
(a) The Executive's employment with the Company may be
terminated by the Company (i) at any time for Cause or without Cause; (ii) if,
as a result of the Executive's incapacity due to physical or mental illness, the
Executive shall have been absent from the full-time performance of the
Executive's duties with the Company for six (6) consecutive months (a
"Disability"); or (iii) upon the death of the Executive. During the term of this
Agreement, the Executive's employment with the Company may be terminated at any
time by the Executive for Good Reason or without Good Reason.
<PAGE>
(b) Any purported termination of the Executive's employment
(other than by reason of death) shall be communicated by written Notice of
Termination from one party hereto to the other in accordance with Section 15
hereof. A "Notice of Termination" shall mean a notice which shall indicate the
specific termination provision in this Agreement relied upon and shall set forth
in reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated.
(c) The "Date of Termination" with respect to any purported
termination of the Executive's employment shall mean (i) if the Executive's
employment is terminated for Disability, thirty (30) days after Notice of
Termination is given (provided that the Executive shall not have returned to the
full-time performance of the Executive's duties during such thirty (30) day
period), (ii) if the Executive's employment is terminated by reason of death,
then the date thereof, and (iii) if the Executive's employment is terminated for
any other reason, the date specified in the Notice of Termination (which, in the
case of a termination by the Company shall not be less than thirty (30) days,
(except in the case of termination for Cause) and in the case of a termination
by the Executive, shall not be less than fifteen (15) nor more than sixty (60)
days, respectively, from the date such Notice of Termination is given).
7. Severance Payments.
(a) The Company shall pay the Executive the payments set forth
in Section 7(b) upon any termination of the Executive's employment, unless such
termination is (x) by the Company for Cause, (y) by reason of death or
Disability or (z) by the Executive without Good Reason. Such payments shall be
in addition to the payments and benefits set forth in Section 8 hereof.
(b) In the event of any termination of the Executive's
employment other than pursuant to clauses (x), (y) or (z) of Section 7(a):
(i) in lieu of any further salary payments to
the Executive for periods subsequent to the Date of Termination, the Company
shall pay as severance pay to the Executive a lump sum severance payment in cash
equal to the sum of (x) two times the Executive's Base Salary in effect
immediately prior to the occurrence of the circumstance giving rise to the
Notice of Termination given in respect thereof and (y) two times the maximum
bonus or incentive compensation that the Executive could potentially be awarded
in the fiscal year in which the Date of Termination occurs;
(ii) notwithstanding any provision of any bonus
or compensation plan, the Company shall pay to the Executive a lump sum amount
in cash equal to the sum of (x) any bonus or incentive compensation which has
been allocated or awarded to the Executive for a fiscal year or other measuring
period preceding the Date of Termination under any bonus or compensation plan
but has not yet been paid, and (y) a pro rata portion, to the Date of
Termination, of the maximum bonus or incentive compensation that the Executive
could potentially be awarded in the fiscal year in which the Date of Termination
occurs;
(iii) notwithstanding the provisions of any
agreement or plan pursuant to which the Executive shall have been granted
options to purchase Company's Shares (the "Options"), all Options that are
vested as of the Date of Termination and all Options which would vest within 181
days thereof (or in the case of a Change of Control, all vested or unvested
Options), shall be deemed vested and immediately exercisable as of the Date of
Termination and shall not expire prior to the 181st day after the Date of
Termination, (or in the case of a Change of Control on the third anniversary of
the Change of Control);
(iv) for a twenty-four (24) month period after
the Date of Termination, the Company shall administer and pay for the
Executive's life, disability, accident and health insurance benefits, which
shall be substantially similar to those insurance benefits which the Executive
receives immediately prior to the Notice of Termination.
<PAGE>
(c) The payments provided in Section 7(b) shall be made not
later than the fifth day following the Date of Termination or, if the
Executive's termination is a result of a Change of Control, immediately after
the Change of Control.
(d) In lieu of exercising any outstanding Option by tendering
cash, the Executive may elect (in his sole discretion) to exercise any Option by
tendering Company Shares and/or Options with a value equal to the amount of the
exercise price of the Option. The per share value of each Company Share tendered
in accordance with this Section 7(d) shall be the last closing price preceding
the Date of Termination of Company Shares on the nationally recognized exchange
or quotation system on which trading volume in Company Shares is highest (or, if
the Company Shares are not listed or traded on a nationally recognized exchange
or quotation system, the highest per share price actually paid for Company
Shares on or prior to the Date of Termination). The per Option value of each
Option tendered in accordance with this Section 7(d) shall be the excess of the
per share value of the Company Shares (as determined in accordance with the
preceding sentence) over the exercise price for the Option.
8. Compensation Other Than Severance Payments.
(a) For any period that the Executive fails to perform the
Executive's full-time duties with the Company as a result of incapacity due to
physical or mental illness, the Company shall pay the Executive's Base Salary to
the Executive at the rate in effect at the commencement of any such period,
together with all compensation and benefits payable to the Executive under the
terms of any compensation or benefit plan, program or arrangement maintained by
the Company during such period, until the Executive's employment is terminated
by the Company for Disability.
(b) If the Executive's employment shall be terminated for any
reason, the Company shall pay the Executive's full salary to the Executive
through the Date of Termination at the rate in effect at the time the Notice of
Termination is given, together with all compensation and benefits payable to the
Executive through the Date of Termination under the terms of any compensation or
benefit plan, program or arrangement during such period.
(c) If the Executive's employment shall be terminated for any
reason during the term of this Agreement, the Company shall pay the Executive's
normal post-termination compensation and benefits to the Executive (excluding
any cash severance based upon salary and years of service) as such payments
become due. Such post-termination compensation and benefits shall be determined
under and paid in accordance with, the Company's retirement, insurance and other
compensation or benefit plans, programs or arrangements during such period.
9. Certain Definitions.
(a) Cause. A termination for "Cause" shall mean termination of
the Executive's employment by the Company resulting from theft or dishonesty in
the conduct of the Company's business or conviction of a felony, in each case
having a material adverse effect on the business of the Company.
(b) Change in Control. A "Change in Control" shall be deemed
to have occurred if (i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")),
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company (not
including any securities acquired directly from the Company) representing more
than 30% of the combined voting power of the Company's then outstanding
securities; (ii) during any period of two (2) consecutive years during the term
of this Agreement, individuals who at the beginning of such period constitute
the Board cease for any reason to constitute at least a majority thereof, unless
the election of each director who was not a director at the beginning of such
period has been approved in advance by directors representing at least
two-thirds of the directors then in office who were directors at the beginning
of the period, (iii) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (x) a
<PAGE>
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 66 2/3% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation, or (y) a merger or consolidation effected to
implement a recapitalization of the Company in which no person acquires more
than 30% of the combined voting power of the Company and outstanding securities;
(iv) the shareholders of the Company approve a plan of complete liquidation of
the Company or an agreement for the sale or disposition by the Company of all or
substantially all the Company's assets; or (v) the Company's insolvency, general
assignment for the benefit of creditors, or the commencement by or against the
Company of any case, proceeding, or other action seeking reorganization,
arrangement, adjustment, liquidation, dissolution, or composition of the
Company's debts under any law relating to bankruptcy, insolvency, or
reorganization, or relief of debtors, or seeking appointment of a receiver,
trustee, custodian, or other similar official for the Company or for all or any
substantial part of the Company's assets. Notwithstanding anything in the
foregoing to the contrary, no Change in Control of the Company shall be deemed
to have occurred for purposes of this Agreement by virtue of any transaction
which results in the Executive, or a group of persons which includes the
Executive, acquiring, directly or indirectly, more than 25% of the combined
voting power of the Company's then outstanding securities.
(c) Good Reason. "Good Reason" shall mean the occurrence,
without the Executive's express written consent, of any of the following
circumstances unless, in the case of paragraphs (i) or (iv), such circumstances
are fully corrected prior to the Date of Termination specified in the Notice of
Termination given in respect thereof:
(i) the assignment to the Executive of any
duties inconsistent in any respect with the Executive's position, authority,
duties or responsibilities (including status, offices, effective titles and
reporting structures) in effect immediately prior to such assignment, or any
other action by the Company which results in the diminishment of such position,
authority, duties or responsibilities;
(ii) a reduction by the Company in the
Executive's Base Salary as in effect on the date hereof or as the same may be
increased from time to time;
(iii) the relocation of the Company's principal
executive offices to a location more than 35 miles from the location as of the
date hereof or the Company's requiring the Executive to be based anywhere other
than the Company's principal executive offices, except for required travel on
the Company's business to an extent substantially consistent with the
Executive's present business travel obligations;
(iv) the failure by the Company, without the
Executive's consent, to pay to the Executive any portion of the Executive's then
Base Salary or allocated bonus, incentive or other form of compensation or to
pay to the Executive any portion of an installment of deferred compensation
under any deferred compensation program of the Company, within seven (7) days of
the date such compensation is due; or
(v) there shall have occurred a Change of
Control.
The Executive's right to terminate the Executive's employment for Good Reason
shall not be affected by the Executive's incapacity due to physical or mental
illness. The Executive's continued employment shall not constitute consent to,
or a waiver of rights with respect to, any circumstance constituting Good Reason
hereunder.
10. Counsel Fees. In the event that (i) the Company terminates, or
seeks to terminate, this Agreement, alleging as justification for such
termination a material breach by the Executive or Cause or (ii) the Executive
elects to terminate his service hereunder pursuant to Section 6; and the Company
disputes its obligation to pay the Executive the severance amounts set forth in
Sections 7 and 8 hereof; the Company
<PAGE>
shall pay, or reimburse to the Executive, all reasonable costs incurred by him
in such dispute, including attorneys' fees and costs.
11. Cooperation. In the event that the Executive's employment is
terminated for whatever reason (other than death), for a period of one year
thereafter, and upon reasonable written notice by the Company, for reasonable
amounts of time, and at mutually agreed upon times and places, the Executive
agrees to cooperate with the Company and to be reasonably available to the
Company with respect to continuing and/or future matters arising out of this
Agreement or any other relationship with the Company, whether such matters are
business-related, legal or otherwise. With respect to each written request by
the Company for the Executive's cooperation or availability under this Section
11, the Company agrees to pay the Executive for each day the Executive actually
renders services to the Company pursuant to such request, $200 per hour, but in
no case less than $1,600 per day, and to reimburse the Executive for the
Executive's reasonable expenses (including attorneys' fees) incurred in
complying with the terms of this Section 11.
12. No Mitigation. The Company agrees that, if the Executive's
employment is terminated during the term of this Agreement, the Executive is not
required to seek other employment or to attempt in any way to reduce any amounts
payable to the Executive by the Company. Further, the amount of any payment
provided hereunder shall not be reduced by any compensation earned by the
Executive.
13. Covenants Not to Compete or Hire Employees. It is recognized and
understood by the parties hereto that the Executive, through the Executive's
association with the Company as an employee, shall acquire a considerable amount
of knowledge and goodwill with respect to the business of the Company, which
knowledge and goodwill are extremely valuable to the Company and which would be
extremely detrimental to the Company if used by the Executive to compete with
the Company. It is, therefore, understood and agreed by the parties hereto that,
because of the nature of the business of the Company, it is necessary to afford
fair protection to the Company from such competition by the Executive.
Consequently, as a material inducement to the Company to enter into this
Agreement, the Executive covenants and agrees that for the period commencing
with the date hereof and ending one (1) year after the Date of Termination, the
Executive shall not engage, directly, indirectly or in concert with any other
person or entity, in the geographical area of the contiguous forty-eight (48)
states of the United States, in the provision of customer care solutions of the
type then being marketed or actively planned by the Company. The Executive
further covenants and agrees that for the period commencing on the Date of
Termination for any reason whatsoever and ending one (1) year after the Date of
Termination, the Executive shall not, directly or indirectly, hire or engage or
attempt to hire or engage any individual who is an employee of the Company,
whether for or on behalf of the Executive or for any entity in which the
Executive shall have a direct or indirect interest (or any subsidiary or
affiliate of any such entity), whether as a proprietor, partner, co-venturer,
financier, investor or stockholder, director, officer, employer, employee,
servant, agent, representative or otherwise; provided, however, such restriction
shall be inapplicable with respect to former officers of the Company who have
terminated their employment with the Company for Good Reason.
14. Successors; Binding Agreement.
(a) Successors. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company, by
agreement in form and substance satisfactory to the Executive, to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which executes and delivers the agreement provided for in this Section
14 or which otherwise becomes bound by all the terms and provisions of this
Agreement by operation of law.
(b) Binding Agreement. This Agreement and all rights of the
Executive hereunder shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any
<PAGE>
amounts would still be payable to him hereunder if he had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the Executive's devisee, legatee, or other
designee or, if there be no such designee, to the Executive's estate.
15. Notice. All notices and other communications provided for herein
shall be in writing and shall be deemed to have been duly given, delivered and
received (a) if delivered personally or (b) if sent by registered or certified
mail (return receipt requested) postage prepaid, or by courier guaranteeing next
day delivery, in each case to the party to whom it is directed at the following
addresses (or at such other address for any party as shall be specified by
notice given in accordance with the provisions hereof, provided that notices of
a change of address shall be effective only upon receipt thereof). Notices
delivered personally shall be effective on the day so delivered, notices sent by
registered or certified mail shall be effective three days after mailing, and
notices sent by courier guaranteeing next day delivery shall be effective on the
earlier of the second business day after timely delivery to the courier or the
day of actual delivery by the courier:
If to the Executive: Mr. Paul J. Zoukis
10301 Forest Maple Road
Vienna, VA 22182
If to the Company: Versatility Inc.
11781 Lee Jackson Memorial Highway
Fairfax, VA 22033
Attn: Chairman of the Board of Directors
16. Prior Agreement. All prior agreements between the Company and the
Executive with respect to the employment of the Executive (other than the
Indemnification Agreement between the Company and Executive dated as of April
15, 1998 which shall remain in full force and effect), including, but not
limited to, the Severance Agreement dated February 20, 1998 by and between the
Executive and the Company, are hereby superseded and terminated effective as of
the date hereof and shall be without further force or effect.
17. Miscellaneous. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and duly authorized officer of the Company.
No waiver by either party hereto at any time of any breach by the other hereto
of, or compliance with, any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not set forth expressly in this Agreement. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the Commonwealth of Virginia.
18. Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
19. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
<PAGE>
[SPACE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first above written.
VERSATILITY, INC., a Delaware corporation
/s/ Kenneth T. Nelson
___________________________________________
By: Kenneth T. Nelson
Title:
EXECUTIVE:
/s/ Paul J. Zoukis
___________________________________________
Paul J. Zoukis
EXHIBIT 10.5
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT (this "Agreement") made as of the 15th day of
April, 1998 by and between Versatility Inc., a Delaware corporation (the
"Company"), and James J. Dellamore (the "Executive").
WHEREAS, the Board of Directors of the Company (the "Board") desires to
set forth the nature and amount of compensation and other benefits to be
provided to Executive and any of the rights of the Executive in the event of his
termination of employment with the Company;
WHEREAS, the Executive is willing to commit himself to continue to
serve the Company, on the terms and conditions herein provided; and
WHEREAS, in order to effect the foregoing, the Company and the
Executive wish to enter into this Agreement under the terms and conditions set
forth below.
NOW, THEREFORE, in consideration of the foregoing, of the mutual
promises and the respective covenants and agreements of the parties herein
contained, the parties hereto intending to be legally bound, hereby agree as
follows:
20. Employment. The Company hereby agrees to continue to employ the
Executive, and the Executive hereby agrees to continue to serve the Company, on
the terms and conditions set forth herein.
<PAGE>
21. Term. This Agreement shall continue in effect through December 31,
2003; provided, however, that commencing on January 1, 2003 and each January 1
thereafter, the term of this Agreement shall automatically be extended for one
additional year unless, not later than September 30 of the preceding year, the
Company or the Executive shall have given written notice that such party does
not wish to extend the term of this Agreement; provided, further, if a Change in
Control of the Company shall have occurred during the original or extended term
of this Agreement, the term of this Agreement shall continue in effect for a
period of twenty-four (24) months beyond the month in which such Change in
Control occurred.
22. Position and Duties. The Executive shall serve as Senior Vice
President - Operations of the Company and shall have such responsibilities and
authority as may normally be exercised by a senior vice president of a company.
23. Place of Performance. The Executive shall be based at the current
principal executive offices of the Company in Fairfax, Virginia, or in the
Company's headquarters, provided that such headquarters is not more than 35
miles from the location of the Company's principal executive offices on the date
hereof.
24. Compensation and Related Matters.
(a) Base Salary. During the Executive's employment with the
Company, the Company shall pay to the Executive a salary at a rate of not less
than Two Hundred Thousand Dollars ($200,000) per annum in equal installments as
nearly as practicable on the normal payroll periods for employees of the Company
generally (the "Base Salary"). The Base Salary may be increased from time to
time and, if so increased, shall not thereafter be decreased during the term of
this Agreement.
(b) Stock Options. The Executive shall receive options to
purchase Two Hundred and Eighty Thousand (280,000) shares of the Company's
Common Stock, par value $.01 per share ("Company Shares"), at an exercise price
equal to the lesser of (x) the average of the closing price of the Company
Shares as traded on the NASDAQ for the first five trading days after the
reinstatement of trading for the Company's Common Stock and (y) the lowest per
share purchase price, conversion price or exchange price for the Company's
Common Stock in any equity financing completed by the Company within six (6)
months of the date hereof. The options granted to the Executive pursuant to this
Section shall provide for anti-dilution protection effective through December
31, 1998 to insure the Executive's right to maintain the ratio of Company Shares
subject to such option and shares of Common Stock outstanding.
(c) Bonus. During the Executive's employment with the Company,
the Executive shall be eligible to receive periodic bonuses payable under the
Company's Executive Incentive Compensation Plan, or such successor plan or plans
which provide the Executive substantially the same level of incentive
compensation; provided, however, that the Executive's minimum bonus per annum
shall be equal to at least 50% of Base Salary.
(d) Expenses. During the Executive's employment with the
Company, the Executive shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive in performing services, including
all expenses of travel and living expenses while away from home on business or
at the request of and in the service of the Company, provided that such expenses
are incurred and accounted for in accordance with the policies and procedures
established by the Company.
(e) Benefits. During the Executive's employment with the
Company, the Company shall maintain in full force and effect, and the Executive
shall be entitled to continue to participate in, all of its employee benefit
plans and arrangements in effect on the date hereof in which the Executive
participates or receives benefits, or plans or arrangements providing the
Executive with at least equivalent benefits thereunder. The Company shall not
make any changes in such plans and arrangements which would adversely affect the
Executive's rights or benefits thereunder, unless such change occurs pursuant to
a program applicable to all officers of the Company and does not result in a
proportionately greater reduction in the rights of or benefits to the Executive
as compared with any other officers of the Company. The
<PAGE>
Executive shall be entitled to participate in or receive benefits under any
employee benefit plan or arrangement made available by the Company in the future
to its officers and key management employees, subject to and on a basis
consistent with the terms, conditions and overall administration of such plans
and arrangements. Nothing paid to the Executive under any plan or arrangement
presently in effect or made available in the future shall be deemed to be in
lieu of any amounts payable to the Executive pursuant to this Section 5.
(f) Automobile. During the Executive's employment with the
Company, the Company shall provide to the Executive an allowance of Six Hundred
Dollars ($600) per month for automobile expenses. In the event that the
Executive's employment shall terminate for any reason other than for Cause, the
Company shall, after such termination, pay to, or for the benefit of, the
Executive an amount necessary to discharge the indebtedness or obligation to
finance the purchase or leasing of such automobile.
(g) Vacation. The Executive shall be initially entitled to
three (3) weeks vacation for the first twelve months of this Agreement, and four
(4) weeks vacation for each twelve month period thereafter. The Executive's
vacation shall be administered in accordance with the Company's vacation policy.
The amount of vacation may be increased from time to time and, if so increased,
shall not thereafter be decreased during the term of this Agreement.
25. Termination.
(a) The Executive's employment with the Company may be
terminated by the Company (i) at any time for Cause or without Cause; (ii) if,
as a result of the Executive's incapacity due to physical or mental illness, the
Executive shall have been absent from the full-time performance of the
Executive's duties with the Company for six (6) consecutive months (a
"Disability"); or (iii) upon the death of the Executive. During the term of this
Agreement, the Executive's employment with the Company may be terminated at any
time by the Executive for Good Reason or without Good Reason.
(b) Any purported termination of the Executive's employment
(other than by reason of death) shall be communicated by written Notice of
Termination from one party hereto to the other in accordance with Section 15
hereof. A "Notice of Termination" shall mean a notice which shall indicate the
specific termination provision in this Agreement relied upon and shall set forth
in reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated.
(c) The "Date of Termination" with respect to any purported
termination of the Executive's employment shall mean (i) if the Executive's
employment is terminated for Disability, thirty (30) days after Notice of
Termination is given (provided that the Executive shall not have returned to the
full-time performance of the Executive's duties during such thirty (30) day
period), (ii) if the Executive's employment is terminated by reason of death,
then the date thereof, and (iii) if the Executive's employment is terminated for
any other reason, the date specified in the Notice of Termination (which, in the
case of a termination by the Company shall not be less than thirty (30) days,
(except in the case of termination for Cause) and in the case of a termination
by the Executive, shall not be less than fifteen (15) nor more than sixty (60)
days, respectively, from the date such Notice of Termination is given).
26. Severance Payments.
(a) The Company shall pay the Executive the payments set forth
in Section 7(b) upon any termination of the Executive's employment, unless such
termination is (x) by the Company for Cause, (y) by reason of death or
Disability or (z) by the Executive without Good Reason. Such payments shall be
in addition to the payments and benefits set forth in Section 8 hereof.
(b) In the event of any termination of the Executive's
employment other than pursuant to clauses (x), (y) or (z) of Section 7(a):
<PAGE>
(i) in lieu of any further salary payments to
the Executive for periods subsequent to the Date of Termination, the Company
shall pay as severance pay to the Executive a lump sum severance payment in cash
equal to the sum of (x) two times the Executive's Base Salary in effect
immediately prior to the occurrence of the circumstance giving rise to the
Notice of Termination given in respect thereof and (y) two times the maximum
bonus or incentive compensation that the Executive could potentially be awarded
in the fiscal year in which the Date of Termination occurs;
(ii) notwithstanding any provision of any bonus
or compensation plan, the Company shall pay to the Executive a lump sum amount
in cash equal to the sum of (x) any bonus or incentive compensation which has
been allocated or awarded to the Executive for a fiscal year or other measuring
period preceding the Date of Termination under any bonus or compensation plan
but has not yet been paid, and (y) a pro rata portion, to the Date of
Termination, of the maximum bonus or incentive compensation that the Executive
could potentially be awarded in the fiscal year in which the Date of Termination
occurs;
(iii) notwithstanding the provisions of any agreement
or plan pursuant to which the Executive shall have been granted options to
purchase Company's Shares (the "Options"), all Options that are vested as of the
Date of Termination and all Options which would vest within 181 days thereof (or
in the case of a Change of Control, all vested or unvested Options), shall be
deemed vested and immediately exercisable as of the Date of Termination and
shall not expire prior to the 181st day after the Date of Termination, (or in
the case of a Change of Control on the third anniversary of the Change of
Control);
(iv) for a twenty-four (24) month period after
the Date of Termination, the Company shall administer and pay for the
Executive's life, disability, accident and health insurance benefits, which
shall be substantially similar to those insurance benefits which the Executive
receives immediately prior to the Notice of Termination.
(c) The payments provided in Section 7(b) shall be made not
later than the fifth day following the Date of Termination or, if the
Executive's termination is a result of a Change of Control, immediately after
the Change of Control.
(d) In lieu of exercising any outstanding Option by tendering
cash, the Executive may elect (in his sole discretion) to exercise any Option by
tendering Company Shares and/or Options with a value equal to the amount of the
exercise price of the Option. The per share value of each Company Share tendered
in accordance with this Section 7(d) shall be the last closing price preceding
the Date of Termination of Company Shares on the nationally recognized exchange
or quotation system on which trading volume in Company Shares is highest (or, if
the Company Shares are not listed or traded on a nationally recognized exchange
or quotation system, the highest per share price actually paid for Company
Shares on or prior to the Date of Termination). The per Option value of each
Option tendered in accordance with this Section 7(d) shall be the excess of the
per share value of the Company Shares (as determined in accordance with the
preceding sentence) over the exercise price for the Option.
27. Compensation Other Than Severance Payments.
(a) For any period that the Executive fails to perform the
Executive's full-time duties with the Company as a result of incapacity due to
physical or mental illness, the Company shall pay the Executive's Base Salary to
the Executive at the rate in effect at the commencement of any such period,
together with all compensation and benefits payable to the Executive under the
terms of any compensation or benefit plan, program or arrangement maintained by
the Company during such period, until the Executive's employment is terminated
by the Company for Disability.
(b) If the Executive's employment shall be terminated for any
reason, the Company shall pay the Executive's full salary to the Executive
through the Date of Termination at the rate in effect at the
<PAGE>
time the Notice of Termination is given, together with all compensation and
benefits payable to the Executive through the Date of Termination under the
terms of any compensation or benefit plan, program or arrangement during such
period.
(c) If the Executive's employment shall be terminated for any
reason during the term of this Agreement, the Company shall pay the Executive's
normal post-termination compensation and benefits to the Executive (excluding
any cash severance based upon salary and years of service) as such payments
become due. Such post-termination compensation and benefits shall be determined
under and paid in accordance with, the Company's retirement, insurance and other
compensation or benefit plans, programs or arrangements during such period.
28. Certain Definitions.
(a) Cause. A termination for "Cause" shall mean termination of
the Executive's employment by the Company resulting from theft or dishonesty in
the conduct of the Company's business or conviction of a felony, in each case
having a material adverse effect on the business of the Company.
(b) Change in Control. A "Change in Control" shall be deemed
to have occurred if (i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")),
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company (not
including any securities acquired directly from the Company) representing more
than 30% of the combined voting power of the Company's then outstanding
securities; (ii) during any period of two (2) consecutive years during the term
of this Agreement, individuals who at the beginning of such period constitute
the Board cease for any reason to constitute at least a majority thereof, unless
the election of each director who was not a director at the beginning of such
period has been approved in advance by directors representing at least
two-thirds of the directors then in office who were directors at the beginning
of the period, (iii) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (x) a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 66 2/3% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation, or (y) a merger or consolidation effected to
implement a recapitalization of the Company in which no person acquires more
than 30% of the combined voting power of the Company and outstanding securities;
(iv) the shareholders of the Company approve a plan of complete liquidation of
the Company or an agreement for the sale or disposition by the Company of all or
substantially all the Company's assets; or (v) the Company's insolvency, general
assignment for the benefit of creditors, or the commencement by or against the
Company of any case, proceeding, or other action seeking reorganization,
arrangement, adjustment, liquidation, dissolution, or composition of the
Company's debts under any law relating to bankruptcy, insolvency, or
reorganization, or relief of debtors, or seeking appointment of a receiver,
trustee, custodian, or other similar official for the Company or for all or any
substantial part of the Company's assets. Notwithstanding anything in the
foregoing to the contrary, no Change in Control of the Company shall be deemed
to have occurred for purposes of this Agreement by virtue of any transaction
which results in the Executive, or a group of persons which includes the
Executive, acquiring, directly or indirectly, more than 25% of the combined
voting power of the Company's then outstanding securities.
(c) Good Reason. "Good Reason" shall mean the occurrence,
without the Executive's express written consent, of any of the following
circumstances unless, in the case of paragraphs (i) or (iv), such circumstances
are fully corrected prior to the Date of Termination specified in the Notice of
Termination given in respect thereof:
(i) the assignment to the Executive of any
duties inconsistent in any respect with the Executive's position, authority,
duties or responsibilities (including status, offices, effective titles
<PAGE>
and reporting structures) in effect immediately prior to such assignment, or any
other action by the Company which results in the diminishment of such position,
authority, duties or responsibilities;
(ii) a reduction by the Company in the
Executive's Base Salary as in effect on the date hereof or as the same may be
increased from time to time;
(iii) the relocation of the Company's principal
executive offices to a location more than 35 miles from the location as of the
date hereof or the Company's requiring the Executive to be based anywhere other
than the Company's principal executive offices, except for required travel on
the Company's business to an extent substantially consistent with the
Executive's present business travel obligations;
(iv) the failure by the Company, without the
Executive's consent, to pay to the Executive any portion of the Executive's then
Base Salary or allocated bonus, incentive or other form of compensation or to
pay to the Executive any portion of an installment of deferred compensation
under any deferred compensation program of the Company, within seven (7) days of
the date such compensation is due; or
(v) there shall have occurred a Change of Control.
The Executive's right to terminate the Executive's employment for Good Reason
shall not be affected by the Executive's incapacity due to physical or mental
illness. The Executive's continued employment shall not constitute consent to,
or a waiver of rights with respect to, any circumstance constituting Good Reason
hereunder.
29. Counsel Fees. In the event that (i) the Company terminates, or
seeks to terminate, this Agreement, alleging as justification for such
termination a material breach by the Executive or Cause or (ii) the Executive
elects to terminate his service hereunder pursuant to Section 6; and the Company
disputes its obligation to pay the Executive the severance amounts set forth in
Sections 7 and 8 hereof; the Company shall pay, or reimburse to the Executive,
all reasonable costs incurred by him in such dispute, including attorneys' fees
and costs.
30. Cooperation. In the event that the Executive's employment is
terminated for whatever reason (other than death), for a period of one year
thereafter, and upon reasonable written notice by the Company, for reasonable
amounts of time, and at mutually agreed upon times and places, the Executive
agrees to cooperate with the Company and to be reasonably available to the
Company with respect to continuing and/or future matters arising out of this
Agreement or any other relationship with the Company, whether such matters are
business-related, legal or otherwise. With respect to each written request by
the Company for the Executive's cooperation or availability under this Section
11, the Company agrees to pay the Executive for each day the Executive actually
renders services to the Company pursuant to such request, $200 per hour, but in
no case less than $1,600 per day, and to reimburse the Executive for the
Executive's reasonable expenses (including attorneys' fees) incurred in
complying with the terms of this Section 11.
31. No Mitigation. The Company agrees that, if the Executive's
employment is terminated during the term of this Agreement, the Executive is not
required to seek other employment or to attempt in any way to reduce any amounts
payable to the Executive by the Company. Further, the amount of any payment
provided hereunder shall not be reduced by any compensation earned by the
Executive.
32. Covenants Not to Compete or Hire Employees. It is recognized and
understood by the parties hereto that the Executive, through the Executive's
association with the Company as an employee, shall acquire a considerable amount
of knowledge and goodwill with respect to the business of the Company, which
knowledge and goodwill are extremely valuable to the Company and which would be
extremely detrimental to the Company if used by the Executive to compete with
the Company. It is, therefore, understood and agreed by the parties hereto that,
because of the nature of the business of the Company, it is
<PAGE>
necessary to afford fair protection to the Company from such competition by the
Executive. Consequently, as a material inducement to the Company to enter into
this Agreement, the Executive covenants and agrees that for the period
commencing with the date hereof and ending one (1) year after the Date of
Termination, the Executive shall not engage, directly, indirectly or in concert
with any other person or entity, in the geographical area of the contiguous
forty-eight (48) states of the United States, in the provision of customer care
solutions of the type then being marketed or actively planned by the Company.
The Executive further covenants and agrees that for the period commencing on the
Date of Termination for any reason whatsoever and ending one (1) year after the
Date of Termination, the Executive shall not, directly or indirectly, hire or
engage or attempt to hire or engage any individual who is an employee of the
Company, whether for or on behalf of the Executive or for any entity in which
the Executive shall have a direct or indirect interest (or any subsidiary or
affiliate of any such entity), whether as a proprietor, partner, co-venturer,
financier, investor or stockholder, director, officer, employer, employee,
servant, agent, representative or otherwise; provided, however, such restriction
shall be inapplicable with respect to former officers of the Company who have
terminated their employment with the Company for Good Reason.
33. Successors; Binding Agreement.
(a) Successors. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company, by
agreement in form and substance satisfactory to the Executive, to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which executes and delivers the agreement provided for in this Section
14 or which otherwise becomes bound by all the terms and provisions of this
Agreement by operation of law.
(b) Binding Agreement. This Agreement and all rights of the
Executive hereunder shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amounts would still be payable to him hereunder if he had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Executive's devisee,
legatee, or other designee or, if there be no such designee, to the Executive's
estate.
34. Notice. All notices and other communications provided for herein
shall be in writing and shall be deemed to have been duly given, delivered and
received (a) if delivered personally or (b) if sent by registered or certified
mail (return receipt requested) postage prepaid, or by courier guaranteeing next
day delivery, in each case to the party to whom it is directed at the following
addresses (or at such other address for any party as shall be specified by
notice given in accordance with the provisions hereof, provided that notices of
a change of address shall be effective only upon receipt thereof). Notices
delivered personally shall be effective on the day so delivered, notices sent by
registered or certified mail shall be effective three days after mailing, and
notices sent by courier guaranteeing next day delivery shall be effective on the
earlier of the second business day after timely delivery to the courier or the
day of actual delivery by the courier:
If to the Executive: Mr. James J. Dellamore
12004 Berry Farm CT.
Oak Hill, VA 20171
If to the Company: Versatility Inc.
11781 Lee Jackson Memorial Highway
Fairfax, VA 22033
Attn: Chairman of the Board of Directors
<PAGE>
35. Prior Agreement. All prior agreements between the Company and the
Executive with respect to the employment of the Executive (other than the
Indemnification Agreement between the Company and Executive dated as of April
15, 1998 which shall remain in full force and effect), including, but not
limited to, the Severance Agreement dated February 20, 1998 by and between the
Executive and the Company, are hereby superseded and terminated effective as of
the date hereof and shall be without further force or effect.
36. Miscellaneous. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and duly authorized officer of the Company.
No waiver by either party hereto at any time of any breach by the other hereto
of, or compliance with, any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not set forth expressly in this Agreement. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the Commonwealth of Virginia.
37. Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
38. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
[SPACE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first above written.
VERSATILITY, INC., a Delaware corporation
/s/ Kenneth T. Nelson
___________________________________________
By: Kenneth T. Nelson
Title:
EXECUTIVE:
/s/ James J. Dellamore
___________________________________________
James J. Dellamore
EXHIBIT 10.6
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT (this "Agreement") made as of the 15th day of
April, 1998 by and between Versatility Inc., a Delaware corporation (the
"Company"), and Kenneth T. Nelson (the "Executive").
WHEREAS, the Board of Directors of the Company (the "Board") desires to
set forth the nature and amount of compensation and other benefits to be
provided to Executive and any of the rights of the Executive in the event of his
termination of employment with the Company;
WHEREAS, the Executive is willing to commit himself to continue to
serve the Company, on the terms and conditions herein provided; and
WHEREAS, in order to effect the foregoing, the Company and the
Executive wish to enter into this Agreement under the terms and conditions set
forth below.
NOW, THEREFORE, in consideration of the foregoing, of the mutual
promises and the respective covenants and agreements of the parties herein
contained, the parties hereto intending to be legally bound, hereby agree as
follows:
39. Employment. The Company hereby agrees to continue to employ the
Executive, and the Executive hereby agrees to continue to serve the Company, on
the terms and conditions set forth herein.
<PAGE>
40. Term. This Agreement shall continue in effect through December 31,
2003; provided, however, that commencing on January 1, 2003 and each January 1
thereafter, the term of this Agreement shall automatically be extended for one
additional year unless, not later than September 30 of the preceding year, the
Company or the Executive shall have given written notice that such party does
not wish to extend the term of this Agreement; provided, further, if a Change in
Control of the Company shall have occurred during the original or extended term
of this Agreement, the term of this Agreement shall continue in effect for a
period of twenty-four (24) months beyond the month in which such Change in
Control occurred.
41. Position and Duties. The Executive shall serve as Senior Vice
President - Finance and Administration and Chief Financial Officer of the
Company and shall have such responsibilities and authority as may normally be
exercised by a senior vice president and chief financial officer of a company.
42. Place of Performance. The Executive shall be based at the current
principal executive offices of the Company in Fairfax, Virginia, or in the
Company's headquarters, provided that such headquarters is not more than 35
miles from the location of the Company's principal executive offices on the date
hereof.
43. Compensation and Related Matters.
(a) Base Salary. During the Executive's employment with the
Company, the Company shall pay to the Executive a salary at a rate of not less
than Two Hundred Thousand Dollars ($200,000) per annum in equal installments as
nearly as practicable on the normal payroll periods for employees of the Company
generally (the "Base Salary"). The Base Salary may be increased from time to
time and, if so increased, shall not thereafter be decreased during the term of
this Agreement.
(b) Stock Options. The Executive shall receive options to
purchase Two Hundred and Eighty Thousand (280,000) shares of the Company's
Common Stock, par value $.01 per share ("Company Shares"), at an exercise price
equal to the lesser of (x) the average of the closing price of the Company
Shares as traded on the NASDAQ for the first five trading days after the
reinstatement of trading for the Company's Common Stock and (y) the lowest per
share purchase price, conversion price or exchange price for the Company's
Common Stock in any equity financing completed by the Company within six (6)
months of the date hereof. The options granted to the Executive pursuant to this
Section shall provide for anti-dilution protection effective through December
31, 1998 to insure the Executive's right to maintain the ratio of Company Shares
subject to such option and shares of Common Stock outstanding.
(c) Bonus. During the Executive's employment with the Company,
the Executive shall be eligible to receive periodic bonuses payable under the
Company's Executive Incentive Compensation Plan, or such successor plan or plans
which provide the Executive substantially the same level of incentive
compensation; provided, however, that the Executive's minimum bonus per annum
shall be equal to at least 50% of Base Salary.
(d) Expenses. During the Executive's employment with the
Company, the Executive shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive in performing services, including
all expenses of travel and living expenses while away from home on business or
at the request of and in the service of the Company, provided that such expenses
are incurred and accounted for in accordance with the policies and procedures
established by the Company.
(e) Benefits. During the Executive's employment with the
Company, the Company shall maintain in full force and effect, and the Executive
shall be entitled to continue to participate in, all of its employee benefit
plans and arrangements in effect on the date hereof in which the Executive
participates or receives benefits, or plans or arrangements providing the
Executive with at least equivalent benefits thereunder. The Company shall not
make any changes in such plans and arrangements which would adversely affect the
Executive's rights or benefits thereunder, unless such change occurs pursuant to
a program applicable to all officers of the Company and does not result in a
proportionately greater reduction in the rights of or benefits to the Executive
as compared with any other officers of the Company. The
<PAGE>
Executive shall be entitled to participate in or receive benefits under any
employee benefit plan or arrangement made available by the Company in the future
to its officers and key management employees, subject to and on a basis
consistent with the terms, conditions and overall administration of such plans
and arrangements. Nothing paid to the Executive under any plan or arrangement
presently in effect or made available in the future shall be deemed to be in
lieu of any amounts payable to the Executive pursuant to this Section 5.
(f) Automobile. During the Executive's employment with the
Company, the Company shall provide to the Executive an allowance of Six Hundred
Dollars ($600) per month for automobile expenses. In the event that the
Executive's employment shall terminate for any reason other than for Cause, the
Company shall, after such termination, pay to, or for the benefit of, the
Executive an amount necessary to discharge the indebtedness or obligation to
finance the purchase or leasing of such automobile.
(g) Vacation. The Executive shall be initially entitled to
three (3) weeks vacation for the first twelve months of this Agreement, and four
(4) weeks vacation for each twelve month period thereafter. The Executive's
vacation shall be administered in accordance with the Company's vacation policy.
The amount of vacation may be increased from time to time and, if so increased,
shall not thereafter be decreased during the term of this Agreement.
44. Termination.
(a) The Executive's employment with the Company may be
terminated by the Company (i) at any time for Cause or without Cause; (ii) if,
as a result of the Executive's incapacity due to physical or mental illness, the
Executive shall have been absent from the full-time performance of the
Executive's duties with the Company for six (6) consecutive months (a
"Disability"); or (iii) upon the death of the Executive. During the term of this
Agreement, the Executive's employment with the Company may be terminated at any
time by the Executive for Good Reason or without Good Reason.
(b) Any purported termination of the Executive's employment
(other than by reason of death) shall be communicated by written Notice of
Termination from one party hereto to the other in accordance with Section 15
hereof. A "Notice of Termination" shall mean a notice which shall indicate the
specific termination provision in this Agreement relied upon and shall set forth
in reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated.
(c) The "Date of Termination" with respect to any purported
termination of the Executive's employment shall mean (i) if the Executive's
employment is terminated for Disability, thirty (30) days after Notice of
Termination is given (provided that the Executive shall not have returned to the
full-time performance of the Executive's duties during such thirty (30) day
period), (ii) if the Executive's employment is terminated by reason of death,
then the date thereof, and (iii) if the Executive's employment is terminated for
any other reason, the date specified in the Notice of Termination (which, in the
case of a termination by the Company shall not be less than thirty (30) days,
(except in the case of termination for Cause) and in the case of a termination
by the Executive, shall not be less than fifteen (15) nor more than sixty (60)
days, respectively, from the date such Notice of Termination is given).
45. Severance Payments.
(a) The Company shall pay the Executive the payments set forth
in Section 7(b) upon any termination of the Executive's employment, unless such
termination is (x) by the Company for Cause, (y) by reason of death or
Disability or (z) by the Executive without Good Reason. Such payments shall be
in addition to the payments and benefits set forth in Section 8 hereof.
(b) In the event of any termination of the Executive's
employment other than pursuant to clauses (x), (y) or (z) of Section 7(a):
<PAGE>
(i) in lieu of any further salary payments to
the Executive for periods subsequent to the Date of Termination, the Company
shall pay as severance pay to the Executive a lump sum severance payment in cash
equal to the sum of (x) two times the Executive's Base Salary in effect
immediately prior to the occurrence of the circumstance giving rise to the
Notice of Termination given in respect thereof and (y) two times the maximum
bonus or incentive compensation that the Executive could potentially be awarded
in the fiscal year in which the Date of Termination occurs;
(ii) notwithstanding any provision of any bonus
or compensation plan, the Company shall pay to the Executive a lump sum amount
in cash equal to the sum of (x) any bonus or incentive compensation which has
been allocated or awarded to the Executive for a fiscal year or other measuring
period preceding the Date of Termination under any bonus or compensation plan
but has not yet been paid, and (y) a pro rata portion, to the Date of
Termination, of the maximum bonus or incentive compensation that the Executive
could potentially be awarded in the fiscal year in which the Date of Termination
occurs;
(iii) notwithstanding the provisions of any
agreement or plan pursuant to which the Executive shall have been granted
options to purchase Company's Shares (the "Options"), all Options that are
vested as of the Date of Termination and all Options which would vest within 181
days thereof (or in the case of a Change of Control, all vested or unvested
Options), shall be deemed vested and immediately exercisable as of the Date of
Termination and shall not expire prior to the 181st day after the Date of
Termination, (or in the case of a Change of Control on the third anniversary of
the Change of Control);
(iv) for a twenty-four (24) month period after
the Date of Termination, the Company shall administer and pay for the
Executive's life, disability, accident and health insurance benefits, which
shall be substantially similar to those insurance benefits which the Executive
receives immediately prior to the Notice of Termination.
(c) The payments provided in Section 7(b) shall be made not
later than the fifth day following the Date of Termination or, if the
Executive's termination is a result of a Change of Control, immediately after
the Change of Control.
(d) In lieu of exercising any outstanding Option by tendering
cash, the Executive may elect (in his sole discretion) to exercise any Option by
tendering Company Shares and/or Options with a value equal to the amount of the
exercise price of the Option. The per share value of each Company Share tendered
in accordance with this Section 7(d) shall be the last closing price preceding
the Date of Termination of Company Shares on the nationally recognized exchange
or quotation system on which trading volume in Company Shares is highest (or, if
the Company Shares are not listed or traded on a nationally recognized exchange
or quotation system, the highest per share price actually paid for Company
Shares on or prior to the Date of Termination). The per Option value of each
Option tendered in accordance with this Section 7(d) shall be the excess of the
per share value of the Company Shares (as determined in accordance with the
preceding sentence) over the exercise price for the Option.
46. Compensation Other Than Severance Payments.
(a) For any period that the Executive fails to perform the
Executive's full-time duties with the Company as a result of incapacity due to
physical or mental illness, the Company shall pay the Executive's Base Salary to
the Executive at the rate in effect at the commencement of any such period,
together with all compensation and benefits payable to the Executive under the
terms of any compensation or benefit plan, program or arrangement maintained by
the Company during such period, until the Executive's employment is terminated
by the Company for Disability.
(b) If the Executive's employment shall be terminated for any
reason, the Company shall pay the Executive's full salary to the Executive
through the Date of Termination at the rate in effect at the
<PAGE>
time the Notice of Termination is given, together with all compensation and
benefits payable to the Executive through the Date of Termination under the
terms of any compensation or benefit plan, program or arrangement during such
period.
(c) If the Executive's employment shall be terminated for any
reason during the term of this Agreement, the Company shall pay the Executive's
normal post-termination compensation and benefits to the Executive (excluding
become due. Such post-termination compensation and benefits shall be determined
any cash severance based upon salary and years of service) as such payments
under and paid in accordance with, the Company's retirement, insurance and other
compensation or benefit plans, programs or arrangements during such period.
47. Certain Definitions.
(a) Cause. A termination for "Cause" shall mean termination of
the Executive's employment by the Company resulting from theft or dishonesty in
the conduct of the Company's business or conviction of a felony, in each case
having a material adverse effect on the business of the Company.
(b) Change in Control. A "Change in Control" shall be deemed
to have occurred if (i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")),
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company (not
including any securities acquired directly from the Company) representing more
than 30% of the combined voting power of the Company's then outstanding
securities; (ii) during any period of two (2) consecutive years during the term
of this Agreement, individuals who at the beginning of such period constitute
the Board cease for any reason to constitute at least a majority thereof, unless
the election of each director who was not a director at the beginning of such
period has been approved in advance by directors representing at least
two-thirds of the directors then in office who were directors at the beginning
of the period, (iii) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (x) a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 66 2/3% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation, or (y) a merger or consolidation effected to
implement a recapitalization of the Company in which no person acquires more
than 30% of the combined voting power of the Company and outstanding securities;
(iv) the shareholders of the Company approve a plan of complete liquidation of
the Company or an agreement for the sale or disposition by the Company of all or
substantially all the Company's assets; or (v) the Company's insolvency, general
assignment for the benefit of creditors, or the commencement by or against the
Company of any case, proceeding, or other action seeking reorganization,
arrangement, adjustment, liquidation, dissolution, or composition of the
Company's debts under any law relating to bankruptcy, insolvency, or
reorganization, or relief of debtors, or seeking appointment of a receiver,
trustee, custodian, or other similar official for the Company or for all or any
substantial part of the Company's assets. Notwithstanding anything in the
foregoing to the contrary, no Change in Control of the Company shall be deemed
to have occurred for purposes of this Agreement by virtue of any transaction
which results in the Executive, or a group of persons which includes the
Executive, acquiring, directly or indirectly, more than 25% of the combined
voting power of the Company's then outstanding securities.
(c) Good Reason. "Good Reason" shall mean the occurrence,
without the Executive's express written consent, of any of the following
circumstances unless, in the case of paragraphs (i) or (iv), such circumstances
are fully corrected prior to the Date of Termination specified in the Notice of
Termination given in respect thereof:
(i) the assignment to the Executive of any
duties inconsistent in any respect with the Executive's position, authority,
duties or responsibilities (including status, offices, effective titles
<PAGE>
and reporting structures) in effect immediately prior to such assignment, or any
other action by the Company which results in the diminishment of such position,
authority, duties or responsibilities;
(ii) a reduction by the Company in the
Executive's Base Salary as in effect on the date hereof or as the same may be
increased from time to time;
(iii) the relocation of the Company's principal
executive offices to a location more than 35 miles from the location as of the
date hereof or the Company's requiring the Executive to be based anywhere other
than the Company's principal executive offices, except for required travel on
the Company's business to an extent substantially consistent with the
Executive's present business travel obligations;
(iv) the failure by the Company, without the
Executive's consent, to pay to the Executive any portion of the Executive's then
Base Salary or allocated bonus, incentive or other form of compensation or to
pay to the Executive any portion of an installment of deferred compensation
under any deferred compensation program of the Company, within seven (7) days of
the date such compensation is due; or
(v) there shall have occurred a Change of
Control.
The Executive's right to terminate the Executive's employment for Good Reason
shall not be affected by the Executive's incapacity due to physical or mental
illness. The Executive's continued employment shall not constitute consent to,
or a waiver of rights with respect to, any circumstance constituting Good Reason
hereunder.
48. Counsel Fees. In the event that (i) the Company terminates, or
seeks to terminate, this Agreement, alleging as justification for such
termination a material breach by the Executive or Cause or (ii) the Executive
elects to terminate his service hereunder pursuant to Section 6; and the Company
disputes its obligation to pay the Executive the severance amounts set forth in
Sections 7 and 8 hereof; the Company shall pay, or reimburse to the Executive,
all reasonable costs incurred by him in such dispute, including attorneys' fees
and costs.
49. Cooperation. In the event that the Executive's employment is
terminated for whatever reason (other than death), for a period of one year
thereafter, and upon reasonable written notice by the Company, for reasonable
amounts of time, and at mutually agreed upon times and places, the Executive
agrees to cooperate with the Company and to be reasonably available to the
Company with respect to continuing and/or future matters arising out of this
Agreement or any other relationship with the Company, whether such matters are
business-related, legal or otherwise. With respect to each written request by
the Company for the Executive's cooperation or availability under this Section
11, the Company agrees to pay the Executive for each day the Executive actually
renders services to the Company pursuant to such request, $200 per hour, but in
no case less than $1,600 per day, and to reimburse the Executive for the
Executive's reasonable expenses (including attorneys' fees) incurred in
complying with the terms of this Section 11.
50. No Mitigation. The Company agrees that, if the Executive's
employment is terminated during the term of this Agreement, the Executive is not
required to seek other employment or to attempt in any way to reduce any amounts
payable to the Executive by the Company. Further, the amount of any payment
provided hereunder shall not be reduced by any compensation earned by the
Executive.
51. Covenants Not to Compete or Hire Employees. It is recognized and
understood by the parties hereto that the Executive, through the Executive's
association with the Company as an employee, shall acquire a considerable amount
of knowledge and goodwill with respect to the business of the Company, which
knowledge and goodwill are extremely valuable to the Company and which would be
extremely detrimental to the Company if used by the Executive to compete with
the Company. It is, therefore, understood and agreed by the parties hereto that,
because of the nature of the business of the Company, it is
<PAGE>
necessary to afford fair protection to the Company from such competition by the
Executive. Consequently, as a material inducement to the Company to enter into
this Agreement, the Executive covenants and agrees that for the period
commencing with the date hereof and ending one (1) year after the Date of
Termination, the Executive shall not engage, directly, indirectly or in concert
with any other person or entity, in the geographical area of the contiguous
forty-eight (48) states of the United States, in the provision of customer care
solutions of the type then being marketed or actively planned by the Company.
The Executive further covenants and agrees that for the period commencing on the
Date of Termination for any reason whatsoever and ending one (1) year after the
Date of Termination, the Executive shall not, directly or indirectly, hire or
engage or attempt to hire or engage any individual who is an employee of the
Company, whether for or on behalf of the Executive or for any entity in which
the Executive shall have a direct or indirect interest (or any subsidiary or
affiliate of any such entity), whether as a proprietor, partner, co-venturer,
financier, investor or stockholder, director, officer, employer, employee,
servant, agent, representative or otherwise; provided, however, such restriction
shall be inapplicable with respect to former officers of the Company who have
terminated their employment with the Company for Good Reason.
52. Successors; Binding Agreement.
(a) Successors. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company, by
agreement in form and substance satisfactory to the Executive, to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which executes and delivers the agreement provided for in this Section
14 or which otherwise becomes bound by all the terms and provisions of this
Agreement by operation of law.
(b) Binding Agreement. This Agreement and all rights of the
Executive hereunder shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amounts would still be payable to him hereunder if he had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Executive's devisee,
legatee, or other designee or, if there be no such designee, to the Executive's
estate.
53. Notice. All notices and other communications provided for herein
shall be in writing and shall be deemed to have been duly given, delivered and
received (a) if delivered personally or (b) if sent by registered or certified
mail (return receipt requested) postage prepaid, or by courier guaranteeing next
day delivery, in each case to the party to whom it is directed at the following
addresses (or at such other address for any party as shall be specified by
notice given in accordance with the provisions hereof, provided that notices of
a change of address shall be effective only upon receipt thereof). Notices
delivered personally shall be effective on the day so delivered, notices sent by
registered or certified mail shall be effective three days after mailing, and
notices sent by courier guaranteeing next day delivery shall be effective on the
earlier of the second business day after timely delivery to the courier or the
day of actual delivery by the courier:
If to the Executive: Mr. Kenneth T. Nelson
10409 Stone Ridge Lane
Vienna, VA 22182
If to the Company: Versatility Inc.
11781 Lee Jackson Memorial Highway
Fairfax, VA 22033
Attn: Chairman of the Board of Directors
<PAGE>
54. Prior Agreement. All prior agreements between the Company and the
Executive with respect to the employment of the Executive (other than the
Indemnification Agreement between the Company and Executive dated as of April
15, 1998 which shall remain in full force and effect), including, but not
limited to, the Severance Agreement dated January 21, 1998 by and between the
Executive and the Company, are hereby superseded and terminated effective as of
the date hereof and shall be without further force or effect.
55. Miscellaneous. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and duly authorized officer of the Company.
No waiver by either party hereto at any time of any breach by the other hereto
of, or compliance with, any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not set forth expressly in this Agreement. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the Commonwealth of Virginia.
56. Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
57. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
[SPACE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first above written.
VERSATILITY, INC., a Delaware corporation
/s/ Paul J. Zoukis
__________________________________________
By: Paul J. Zoukis
Title:
EXECUTIVE:
/s/ Kenneth T. Nelson
__________________________________________
Kenneth T. Nelson
EXHIBIT 10.7
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (this "Agreement") is made as of the 15th
day of April, 1998, by and between Versatility, Inc., a Delaware corporation
(the "Corporation"), and Paul Zoukis ("Indemnitee").
RECITALS
A. It is essential to the Corporation to retain and attract as
directors and officers of the Corporation the most capable persons available.
B. The substantial increase in corporate litigation subjects
directors and officers to expensive litigation risks at the same time that the
availability of directors' and officers' liability insurance has been severely
limited.
C. Pursuant to Article Tenth, Section 9 of the second amended and
restated certificate of incorporation of the Corporation, it is the desire of
the Corporation to indemnify directors and officers of the Corporation so as to
provide them with the maximum possible protection permitted by law.
AGREEMENTS
NOW, THEREFORE, the Corporation and Indemnitee do hereby agree as
follows:
1. Agreement to Serve. Indemnitee agrees to serve or continue to
serve as a director and/or an officer of the Corporation for so long as he is
duly elected or appointed or until such time as he tenders his resignation in
writing.
2. Definitions. As used in this Agreement:
(a) The term "Proceeding" shall include any threatened, pending
or completed action, suit, investigation or proceeding, and any appeal thereof,
whether brought by or in the right of the Corporation or otherwise and whether
civil, criminal, administrative or investigative, and/or any inquiry or
investigation, in which Indemnitee may be or may have been involved as a party
or otherwise, or that Indemnitee in good faith believes might lead to the
institution of any such Proceeding, by reason of the fact that Indemnitee is or
was a director or an officer of the Corporation, by reason of any action taken
by him or of any inaction on his part while acting as such a director or an
officer, or by reason of the fact that he is or was serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise; in each case
whether or not he is acting or serving in any such capacity at the time any
liability or expense is incurred for which indemnification or reimbursement can
be provided under this Agreement.
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(b) The term "Expenses" shall include, without limitation,
expenses, costs and obligations, paid or incurred, of investigations, judicial
or administrative proceedings or appeals, amounts paid in settlement by or on
behalf of Indemnitee, attorneys' fees and disbursements and any expenses
reasonably and actually incurred in establishing a right to indemnification
under Sections 9(b) and 18 of this Agreement, including, without limitation,
those incurred in investigating, defending, being a witness in or participating
in (including on appeal), or preparing to defend with respect to any claim,
issue or matter relating thereto or in connection therewith.
(c) A "Change in Control" shall be deemed to have occurred if,
after the date hereof, there is any transaction or series of transactions within
any twelve (12) month period, including, without limitation, a merger,
consolidation or exchange of securities, in which the holders of all of the
Corporation's outstanding voting securities immediately prior to the
consummation of such transaction or the first transaction of such series of
transactions do now own, directly or indirectly, a majority of the combined
voting power of the Corporation's outstanding securities upon consummation of
such transaction or series of such transactions.
(d) The term "Independent Legal Counsel" shall include any
attorney or firm of attorneys, selected in accordance with Section 5 hereof, who
shall not have otherwise performed services for the Corporation or Indemnitee
within the five (5) years prior to the date of selection (other than with
respect to matters concerning the rights of Indemnitee under this Agreement, or
of other Indemnitees under similar indemnification agreements).
(e) References to "other enterprise" shall include employee
benefit plans; references to "fines" shall include any excise tax assessed with
respect to any employee benefit plan; and references to "serving at the request
of the Corporation" shall include any service as a director, officer, employee
or agent of the Corporation or any subsidiary which imposes duties on, or
involves services by, such director, officer, employee, or agent with respect to
an employee benefit plan, its participants or beneficiaries.
3. Indemnification in Third-Party Proceedings. The Corporation
shall indemnify Indemnitee in accordance with the provisions of this Agreement
if Indemnitee is party to or threatened to be made a party to any Proceeding
(other than a Proceeding by or in the right of the Corporation or any subsidiary
of the Corporation to procure a judgment in its favor), against all Expenses,
judgments, fines and penalties actually and reasonably incurred by Indemnitee in
connection with the defense or settlement of such Proceeding, but only if he
acted in good faith and in a manner which he reasonably believed to be (in the
case of conduct in his official capacity) in the best interests of the
Corporation or (in all other cases) not opposed to the best interests of the
Corporation, and, in the case of a criminal Proceeding, in addition, had no
reasonable cause to believe that his conduct was unlawful. The termination of
any such Proceeding by judgment, order of court, settlement, conviction, or upon
a plea of nolo contendere, or its equivalent, shall not, of itself, create a
presumption (i) that Indemnitee did not act in good faith and in a manner which
he reasonably believed to be in or not opposed to the best interests of the
Corporation or (ii) that Indemnitee did not meet any other particular
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standard of conduct or have any other particular belief or (iii) that a court
has determined that indemnification is not permitted by applicable law, and (iv)
with respect to any criminal Proceeding, that Indemnitee had reasonable cause to
believe that his conduct was unlawful.
4. Indemnification in Proceedings by or in the Right of the
Corporation. The Corporation shall indemnify Indemnitee in accordance with the
provisions of this Agreement if Indemnitee is a party to or threatened to be
made a party to any Proceeding by or in the right of the Corporation or any
subsidiary of the Corporation, against all Expenses actually and reasonably
incurred by Indemnitee in connection with the defense or settlement of such
Proceeding, but only if he acted in good faith and in a manner which he
reasonably believed to be (in the case of conduct in his official capacity) in
the best interests of the Corporation or (in all other cases) not opposed to the
best interests of the Corporation, except that no indemnification for Expenses
shall be made under this Section 4, in respect of any Proceeding as to which
Indemnitee shall have been adjudged to be liable to the Corporation.
Notwithstanding the foregoing, Indemnitee shall have no right to indemnification
for Expenses and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended.
5. Change in Control. The Corporation agrees that in the event of a
Change in Control, and with respect to all matters thereafter concerning the
rights of Indemnitee to indemnification and payment of Expenses under this
Agreement or any other agreement to which the Corporation and Indemnitee are
parties or the Bylaws of the Corporation or any subsidiary as hereafter in
effect relating to indemnification of directors and/or officers of the
Corporation or any such subsidiary, the Corporation shall seek legal advice only
from the Independent Legal Counsel selected by Indemnitee and approved by the
Corporation (which approval shall not be unreasonably withheld). Such counsel,
among other things, shall render a written opinion to the Corporation and
Indemnitee as to whether and to what extent Indemnitee would be permitted to be
indemnified under applicable law. The Corporation agrees to pay the reasonable
fees of the Independent Legal Counsel referred to above and to indemnify fully
such counsel against any and all expenses (including attorney's fees), claims,
liabilities and damages arising out of or relating to this Agreement or its
engagement pursuant hereto.
6. Indemnification Prohibited. Notwithstanding the provisions of
Sections 3 and 4, no indemnification shall be made in connection with any
Proceeding charging improper personal benefit to Indemnitee, whether or not
involving action in his official capacity, in which he was adjudged liable on
the basis that personal benefit was improperly received by Indemnitee.
7. Indemnification of Expenses of Successful Party. Notwithstanding
any other provision of this Agreement whatsoever, to the extent that Indemnitee
has been successful on the merits or otherwise (including a settlement) in
defense of any Proceeding or in defense of any claim, issue or matter therein,
including dismissal without prejudice, Indemnitee shall be indemnified against
all Expenses reasonably and actually incurred in connection therewith.
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8. Advances of Expenses. Expenses incurred by Indemnitee pursuant
to Sections 3 and 4 in any Proceeding shall be paid by the Corporation in
advance as soon as practicable but not later than three (3) business days after
receipt of the written request of Indemnitee provided that Indemnitee shall (i)
affirm in such written request that he acted in good faith and in a manner which
he reasonably believed to be (in the case of conduct in his official capacity)
in the best interests of the Corporation or (in all other cases) not opposed to
the best interests of the Corporation and (ii) undertake to repay such amount to
the extent that it is determined in such Proceeding or otherwise by a court of
competent jurisdiction and such determination shall have become final that
Indemnitee is not entitled to indemnification, and further provided that the
Corporation has determined that the facts then known would not preclude
indemnification pursuant to the terms of this Agreement.
9. Right of Indemnitee to Indemnification Upon Application;
Procedure Upon Application.
(a) Any indemnification under Sections 3, 4 and 7 shall be made
as soon as practicable but in any event no later than thirty (30) days after
receipt by the Corporation of the written request of Indemnitee. The provisions
of Article Tenth, Section 4 of the second amended and restated certificate of
incorporation, and as amended hereafter, shall not be applicable to
indemnification under this agreement.
(b) The right to indemnification or advances as provided by
this Agreement shall be enforceable by Indemnitee in an action in any court of
competent jurisdiction. The burden of proving that indemnification or advances
are not appropriate shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or
stockholders) to have made a determination prior to the commencement of such
action that indemnification or advances are proper in the circumstances because
Indemnitee has met the applicable standard of conduct, nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel, or stockholders) that Indemnitee has not met such applicable
standard conduct, shall be a defense to the action or create a presumption that
Indemnitee has not met the applicable standard of conduct. Indemnitee's expenses
reasonably incurred in connection with any Proceeding which establishes
Indemnitee's right to indemnification or advances, in whole or in part, in any
such Proceeding shall also be indemnified by the Corporation.
(c) The Corporation shall not be liable under this Agreement to
make any payment in connection with any claim made against Indemnitee to the
extent Indemnitee has otherwise actually received payment (under any Corporation
insurance policy, Bylaw or otherwise) of the amounts otherwise indemnifiable.
10. Indemnification Hereunder Not Exclusive.
(a) Notwithstanding any other provision of this Agreement, the
Corporation hereby agrees to indemnify Indemnitee to the full extent permitted
by law, whether or not such indemnification is specifically authorized by the
other provisions of this Agreement, the Corporation's Certificate of
Incorporation, the Bylaws, or by statute.
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In the event of any changes, after the date of this Agreement, in any applicable
law, statute, or rule which expand the right of a Delaware corporation to
indemnify a member of its Board of Directors or any officer, such changes shall
be, ipso facto, within the purview of Indemnitee's rights, and the Corporation's
obligations, under this Agreement. In the event of any changes in any applicable
law, statute, or rule which narrow the right of a Delaware corporation to
indemnify a member of its Board of Directors or any officer, such changes, to
the extent not otherwise required by such law, statute or rule to be applied to
this Agreement, shall have no effect on this Agreement or the parties' rights
and obligations hereunder.
(b) The indemnification provided by this Agreement shall not be
deemed exclusive of any other rights to which Indemnitee may be entitled under
the Certificate of Incorporation, the Bylaws, any agreement, any vote of
shareholders or disinterested Directors, the laws of the State of Delaware or
otherwise, both as to actions in his official capacity and as to actions in
another capacity while holding such office.
11. Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Corporation for some or a
portion of the Expenses, judgments, fines or penalties actually and reasonably
incurred by him in the investigation, defense, appeal or settlement of any
Proceeding but not, however, for the total amount thereof, the Corporation shall
nevertheless indemnify Indemnitee for the portion of such Expenses, judgments,
fines or penalties to which Indemnitee is entitled.
12. Effect of Federal Law. Both the Corporation and Indemnitee
acknowledge that in certain instances federal law would override Delaware law
and prohibit the Corporation from indemnifying its officers and Directors. In
such case, the Corporation shall be released from its obligations hereunder to
the extent its performance thereof is prohibited by federal law. For example,
the Corporation and Indemnitee acknowledge that the Securities and Exchange
Commission has taken the position that indemnification is not permissible for
liabilities arising under certain federal securities laws, and federal law
prohibits indemnifications for certain violations of the Employee Retirement
Income Security Act.
13. Liability Insurance.
(a) The Corporation shall from time to time make a good faith
determination whether or not it is practicable for the Corporation to obtain and
maintain a policy or policies of insurance with reputable insurance companies
providing the directors and officers with coverage for losses from wrongful
acts, or to ensure the Corporation's performance of its indemnification
obligations under this Agreement. Among other considerations, the Corporation
will weigh the costs of obtaining such insurance against the protection
afforded by such coverage.
(b) Indemnitee hereby releases the Corporation and its respective
authorized representatives from any claims for indemnification hereunder if and
to the extent that Indemnitee receives proceeds from any liability insurance
policy or other third-party source in payment or reimbursement for such claims.
Indemnitee hereby agrees to assign all proceeds Indemnitee receives under any
such insurance policy or third-party
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agreement to the extent of the amount of indemnification made to Indemnitee by
the Corporation under the terms of this Agreement.
14. Saving Clause. Nothing in this Agreement is intended to require
or shall be construed as requiring the Corporation to do or fail to do any act
in violation of applicable law. The provisions of this Agreement (including any
provisions within a single section, paragraph or sentence) shall be severable in
accordance with this Section 14. If this Agreement or any portion thereof shall
be invalidated on any ground by any court of competent jurisdiction, the
Corporation shall nevertheless indemnify Indemnitee as to Expenses, judgments,
fines and penalties with respect to any Proceeding to the full extent permitted
by any applicable portion of this Agreement that shall not have been invalidated
or by any other applicable law, and this Agreement shall remain enforceable to
the fullest extent permitted by law.
15. Notice. Indemnitee shall, as a condition precedent to his right
to be indemnified under this Agreement, give to the Corporation notice in
writing as soon as practicable of any claim made against him for which indemnity
will or could be sought under this Agreement. Notice to the Corporation shall be
directed to Versatility Inc., 11781 Lee Jackson Memorial Highway, Seventh Floor,
Fairfax, Virginia 22033, Attention: President (or such other address as the
Corporation shall designate in writing to Indemnitee). All notices, requests,
demands and other communications shall be deemed received (i) on the date of
delivery if delivered by hand and receipted for by the party to whom such notice
or other communication shall have been directed, or (ii) three (3) days after
the date postmarked if sent by prepaid mail, properly addressed. In addition,
Indemnitee shall give the Corporation such information and cooperation as it may
reasonably require and shall be within Indemnitee's power.
16. Governing Law. This Agreement shall be governed by and construed
in accordance with the substantive laws of the State of Delaware without giving
effect to its rules on conflicts of laws.
17. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the parties and their respective
successors and assigns (including any direct or indirect successors by purchase,
merger, consolidation or otherwise to all or substantially all of the business
and/or assets of the Corporation), spouses, heirs, and personal and legal
representatives. The Corporation shall require and cause any successor (whether
direct or indirect by purchase, merger, consolidation or otherwise) to all,
substantially all or a substantial part, of the business and/or assets of the
Corporation, by written agreement in form and substance satisfactory to
Indemnitee, expressly to assume and agree to perform this Agreement in the same
manner and to the same extent that the Corporation would be required to perform
if no such succession had taken place. This Agreement shall continue in effect
regardless of whether Indemnitee continues to serve as a director or an officer
of the Corporation or of any other enterprise.
18. Attorneys' Fees. In the event that any action is instituted by
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees and disbursements, incurred by Indemnitee with
respect to such action,
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unless as part of such action, a court of competent jurisdiction determines that
each of the material assertions made by Indemnitee as a basis for such action
were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Corporation under this Agreement or to
enforce or interpret any of the terms of this Agreement, Indemnitee shall be
entitled to be paid all court costs and expenses, including attorneys' fees and
disbursements, incurred by Indemnitee in defense of such action (including with
respect to Indemnitee's counterclaims and crossclaims made in such action),
unless as part of such action a court determines that each of Indemnitee's
material defenses to such action were made in bad faith or were frivolous.
19. Subsequent Instruments and Acts. The parties hereto agree that
they will execute any further instrument and perform any acts that may become
necessary from time to time to carry out the terms of this Agreement.
20. Limitations Period. No legal action shall be brought and no
cause of action shall be asserted by or in the right of the Corporation or any
affiliate of the Corporation against Indemnitee, Indemnitee's spouses, heirs,
executors or personal or legal representatives after the expiration of two years
from the date of accrual of such cause of action, and any claim or cause of
action of the Corporation or its affiliates shall be extinguished and deemed
released unless asserted by the timely filing of legal action within such
two-year period; provided, however, that if any shorter period of limitations is
otherwise applicable to any such cause of action shorter period shall govern.
IN WITNESS WHEREOF, the parties hereby have caused this Agreement to be
duly executed and signed as of the day and year first above written.
VERSATILITY INC.
a Delaware corporation
By: /s/ Kenneth T. Nelson
_________________________________
SVP Finance
INDEMNITEE:
/s/ Paul Zoukis
_____________________________________
Paul Zoukis
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EXHIBIT 10.8
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (this "Agreement") is made as of the 15th
day of April, 1998, by and between Versatility, Inc., a Delaware corporation
(the "Corporation"), and James Dellamore ("Indemnitee").
RECITALS
A. It is essential to the Corporation to retain and attract as
officers of the Corporation the most capable persons available.
B. The substantial increase in corporate litigation subjects
officers to expensive litigation risks at the same time that the availability of
directors' and officers' liability insurance has been severely limited.
C. Pursuant to Article Tenth, Section 9 of the second amended and
restated certificate of incorporation of the Corporation, it is the desire of
the Corporation to indemnify officers of the Corporation so as to provide them
with the maximum possible protection permitted by law.
AGREEMENTS
NOW, THEREFORE, the Corporation and Indemnitee do hereby agree as
follows:
1. Agreement to Serve. Indemnitee agrees to serve or continue to
serve as an officer of the Corporation for so long as he is duly appointed or
until such time as he tenders his resignation in writing.
2. Definitions. As used in this Agreement:
(a) The term "Proceeding" shall include any threatened, pending
or completed action, suit, investigation or proceeding, and any appeal thereof,
whether brought by or in the right of the Corporation or otherwise and whether
civil, criminal, administrative or investigative, and/or any inquiry or
investigation, in which Indemnitee may be or may have been involved as a party
or otherwise, or that Indemnitee in good faith believes might lead to the
institution of any such Proceeding, by reason of the fact that Indemnitee is or
was an officer of the Corporation, by reason of any action taken by him or of
any inaction on his part while acting as such an officer, or by reason of the
fact that he is or was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise; in each case whether or not he is acting or serving
in any such capacity at the time any liability or expense is incurred for which
indemnification or reimbursement can be provided under this Agreement.
(b) The term "Expenses" shall include, without limitation,
expenses, costs and obligations, paid or incurred, of investigations, judicial
or administrative proceedings or appeals, amounts paid in settlement by or on
behalf of Indemnitee, attorneys' fees and disbursements and any expenses
reasonably and actually incurred in establishing a right to indemnification
under Sections 9(b) and 18 of this Agreement, including, without limitation,
those incurred in investigating, defending, being
<PAGE>
a witness in or participating in (including on appeal), or preparing to defend
with respect to any claim, issue or matter relating thereto or in connection
therewith.
(c) A "Change in Control" shall be deemed to have occurred if,
after the date hereof, there is any transaction or series of transactions within
any twelve (12) month period, including, without limitation, a merger,
consolidation or exchange of securities, in which the holders of all of the
Corporation's outstanding voting securities immediately prior to the
consummation of such transaction or the first transaction of such series of
transactions do now own, directly or indirectly, a majority of the combined
voting power of the Corporation's outstanding securities upon consummation of
such transaction or series of such transactions.
(d) The term "Independent Legal Counsel" shall include any
attorney or firm of attorneys, selected in accordance with Section 5 hereof, who
shall not have otherwise performed services for the Corporation or Indemnitee
within the five (5) years prior to the date of selection (other than with
respect to matters concerning the rights of Indemnitee under this Agreement, or
of other Indemnitees under similar indemnification agreements).
(e) References to "other enterprise" shall include employee
benefit plans; references to "fines" shall include any excise tax assessed with
respect to any employee benefit plan; and references to "serving at the request
of the Corporation" shall include any service as a director, officer, employee
or agent of the Corporation or any subsidiary which imposes duties on, or
involves services by, such director, officer, employee, or agent with respect to
an employee benefit plan, its participants or beneficiaries.
3. Indemnification in Third-Party Proceedings. The Corporation
shall indemnify Indemnitee in accordance with the provisions of this Agreement
if Indemnitee is party to or threatened to be made a party to any Proceeding
(other than a Proceeding by or in the right of the Corporation or any subsidiary
of the Corporation to procure a judgment in its favor), against all Expenses,
judgments, fines and penalties actually and reasonably incurred by Indemnitee in
connection with the defense or settlement of such Proceeding, but only if he
acted in good faith and in a manner which he reasonably believed to be (in the
case of conduct in his official capacity) in the best interests of the
Corporation or (in all other cases) not opposed to the best interests of the
Corporation, and, in the case of a criminal Proceeding, in addition, had no
reasonable cause to believe that his conduct was unlawful. The termination of
any such Proceeding by judgment, order of court, settlement, conviction, or upon
a plea of nolo contendere, or its equivalent, shall not, of itself, create a
presumption (i) that Indemnitee did not act in good faith and in a manner which
he reasonably believed to be in or not opposed to the best interests of the
Corporation or (ii) that Indemnitee did not meet any other particular standard
of conduct or have any other particular belief or (iii) that a court has
determined that indemnification is not permitted by applicable law, and (iv)
with respect to any criminal Proceeding, that Indemnitee had reasonable cause to
believe that his conduct was unlawful.
4. Indemnification in Proceedings by or in the Right of the
Corporation. The Corporation shall indemnify Indemnitee in accordance with the
provisions of this Agreement if Indemnitee is a party to or threatened to be
made a party to any Proceeding by or in the right of the Corporation or any
subsidiary of the Corporation, against all Expenses actually and reasonably
incurred by Indemnitee in connection with the defense or settlement of such
Proceeding, but only if he acted in good faith and in a manner which he
reasonably believed to be (in the case of conduct in his official capacity) in
the best interests of the Corporation or (in all other cases) not opposed to the
best interests of the Corporation, except that no indemnification for Expenses
shall be made under this Section 4, in
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respect of any Proceeding as to which Indemnitee shall have been adjudged to be
liable to the Corporation. Notwithstanding the foregoing, Indemnitee shall have
no right to indemnification for Expenses and the payment of profits arising from
the purchase and sale by Indemnitee of securities in violation of Section 16(b)
of the Securities Exchange Act of 1934, as amended.
5. Change in Control. The Corporation agrees that in the event of a
Change in Control, and with respect to all matters thereafter concerning the
rights of Indemnitee to indemnification and payment of Expenses under this
Agreement or any other agreement to which the Corporation and Indemnitee are
parties or the Bylaws of the Corporation or any subsidiary as hereafter in
effect relating to indemnification of directors and/or officers of the
Corporation or any such subsidiary, the Corporation shall seek legal advice only
from the Independent Legal Counsel selected by Indemnitee and approved by the
Corporation (which approval shall not be unreasonably withheld). Such counsel,
among other things, shall render a written opinion to the Corporation and
Indemnitee as to whether and to what extent Indemnitee would be permitted to be
indemnified under applicable law. The Corporation agrees to pay the reasonable
fees of the Independent Legal Counsel referred to above and to indemnify fully
such counsel against any and all expenses (including attorney's fees), claims,
liabilities and damages arising out of or relating to this Agreement or its
engagement pursuant hereto.
6. Indemnification Prohibited. Notwithstanding the provisions of
Sections 3 and 4, no indemnification shall be made in connection with any
Proceeding charging improper personal benefit to Indemnitee, whether or not
involving action in his official capacity, in which he was adjudged liable on
the basis that personal benefit was improperly received by Indemnitee.
7. Indemnification of Expenses of Successful Party. Notwithstanding
any other provision of this Agreement whatsoever, to the extent that Indemnitee
has been successful on the merits or otherwise (including a settlement) in
defense of any Proceeding or in defense of any claim, issue or matter therein,
including dismissal without prejudice, Indemnitee shall be indemnified against
all Expenses reasonably and actually incurred in connection therewith.
8. Advances of Expenses. Expenses incurred by Indemnitee pursuant
to Sections 3 and 4 in any Proceeding shall be paid by the Corporation in
advance as soon as practicable but not later than three (3) business days after
receipt of the written request of Indemnitee provided that Indemnitee shall (i)
affirm in such written request that he acted in good faith and in a manner which
he reasonably believed to be (in the case of conduct in his official capacity)
in the best interests of the Corporation or (in all other cases) not opposed to
the best interests of the Corporation and (ii) undertake to repay such amount to
the extent that it is determined in such Proceeding or otherwise by a court of
competent jurisdiction and such determination shall have become final that
Indemnitee is not entitled to indemnification, and further provided that the
Corporation has determined that the facts then known would not preclude
indemnification pursuant to the terms of this Agreement.
9. Right of Indemnitee to Indemnification Upon Application;
Procedure Upon Application.
(a) Any indemnification under Sections 3, 4 and 7 shall be made
as soon as practicable but in any event no later than thirty (30) days after
receipt by the Corporation of the written request of Indemnitee. The provisions
of Article Tenth, Section 4 of the second amended and restated certificate of
incorporation, and as amended hereafter, shall not be applicable to
indemnification under this agreement.
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(b) The right to indemnification or advances as provided by
this Agreement shall be enforceable by Indemnitee in an action in any court of
competent jurisdiction. The burden of proving that indemnification or advances
are not appropriate shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or
stockholders) to have made a determination prior to the commencement of such
action that indemnification or advances are proper in the circumstances because
Indemnitee has met the applicable standard of conduct, nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel, or stockholders) that Indemnitee has not met such applicable
standard conduct, shall be a defense to the action or create a presumption that
Indemnitee has not met the applicable standard of conduct. Indemnitee's expenses
reasonably incurred in connection with any Proceeding which establishes
Indemnitee's right to indemnification or advances, in whole or in part, in any
such Proceeding shall also be indemnified by the Corporation.
(c) The Corporation shall not be liable under this Agreement to
make any payment in connection with any claim made against Indemnitee to the
extent Indemnitee has otherwise actually received payment (under any Corporation
insurance policy, Bylaw or otherwise) of the amounts otherwise indemnifiable.
10. Indemnification Hereunder Not Exclusive.
(a) Notwithstanding any other provision of this Agreement, the
Corporation hereby agrees to indemnify Indemnitee to the full extent permitted
by law, whether or not such indemnification is specifically authorized by the
other provisions of this Agreement, the Corporation's Certificate of
Incorporation, the Bylaws, or by statute. In the event of any changes, after the
date of this Agreement, in any applicable law, statute, or rule which expand the
right of a Delaware corporation to indemnify any officer, such changes shall be,
ipso facto, within the purview of Indemnitee's rights, and the Corporation's
obligations, under this Agreement. In the event of any changes in any applicable
law, statute, or rule which narrow the right of a Delaware corporation to
indemnify any officer, such changes, to the extent not otherwise required by
such law, statute or rule to be applied to this Agreement, shall have no effect
on this Agreement or the parties' rights and obligations hereunder.
(b) The indemnification provided by this Agreement shall not be
deemed exclusive of any other rights to which Indemnitee may be entitled under
the Certificate of Incorporation, the Bylaws, any agreement, any vote of
shareholders or disinterested Directors, the laws of the State of Delaware or
otherwise, both as to actions in his official capacity and as to actions in
another capacity while holding such office.
11. Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Corporation for some or a
portion of the Expenses, judgments, fines or penalties actually and reasonably
incurred by him in the investigation, defense, appeal or settlement of any
Proceeding but not, however, for the total amount thereof, the Corporation shall
nevertheless indemnify Indemnitee for the portion of such Expenses, judgments,
fines or penalties to which Indemnitee is entitled.
12. Effect of Federal Law. Both the Corporation and Indemnitee
acknowledge that in certain instances federal law would override Delaware law
and prohibit the Corporation from indemnifying its officers and Directors. In
such case, the Corporation shall be released from its obligations hereunder to
the extent its performance thereof is prohibited by federal law. For example,
the Corporation and Indemnitee acknowledge that the Securities and Exchange
Commission has taken the
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position that indemnification is not permissible for liabilities arising under
certain federal securities laws, and federal law prohibits indemnification for
certain violations of the Employee Retirement Income Security Act.
13. Liability Insurance.
(a) The Corporation shall from time to time make a good faith
determination whether or not it is practicable for the Corporation to obtain and
maintain a policy or policies of insurance with reputable insurance companies
providing the directors with coverage for losses from wrongful acts, or to
ensure the Corporation's performance of its indemnification obligations under
this Agreement. Among other considerations, the Corporation will weigh the costs
of obtaining such insurance against the protection afforded by such coverage.
(b) Indemnitee hereby releases the Corporation and its respective
authorized representatives from any claims for indemnification hereunder if and
to the extent that Indemnitee receives proceeds from any liability insurance
policy or other third-party source in payment or reimbursement for such claims.
Indemnitee hereby agrees to assign all proceeds Indemnitee receives under any
such insurance policy or third-party agreement to the extent of the amount of
indemnification made to Indemnitee by the Corporation under the terms of this
Agreement.
14. Saving Clause. Nothing in this Agreement is intended to require
or shall be construed as requiring the Corporation to do or fail to do any act
in violation of applicable law. The provisions of this Agreement (including any
provisions within a single section, paragraph or sentence) shall be severable in
accordance with this Section 14. If this Agreement or any portion thereof shall
be invalidated on any ground by any court of competent jurisdiction, the
Corporation shall nevertheless indemnify Indemnitee as to Expenses, judgments,
fines and penalties with respect to any Proceeding to the full extent permitted
by any applicable portion of this Agreement that shall not have been invalidated
or by any other applicable law, and this Agreement shall remain enforceable to
the fullest extent permitted by law.
15. Notice. Indemnitee shall, as a condition precedent to his right
to be indemnified under this Agreement, give to the Corporation notice in
writing as soon as practicable of any claim made against him for which indemnity
will or could be sought under this Agreement. Notice to the Corporation shall be
directed to Versatility Inc., 11781 Lee Jackson Memorial Highway, Seventh Floor,
Fairfax, Virginia 22033, Attention: President (or such other address as the
Corporation shall designate in writing to Indemnitee). All notices, requests,
demands and other communications shall be deemed received (i) on the date of
delivery if delivered by hand and receipted for by the party to whom such notice
or other communication shall have been directed, or (ii) three (3) days after
the date postmarked if sent by prepaid mail, properly addressed. In addition,
Indemnitee shall give the Corporation such information and cooperation as it may
reasonably require and shall be within Indemnitee's power.
16. Governing Law. This Agreement shall be governed by and construed
in accordance with the substantive laws of the State of Delaware without giving
effect to its rules on conflicts of laws.
17. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the parties and their respective
successors and assigns (including any direct or indirect successors by purchase,
merger, consolidation or otherwise to all or substantially all of the business
and/or assets of the Corporation), spouses, heirs, and personal and legal
representatives.
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The Corporation shall require and cause any successor (whether direct or
indirect by purchase, merger, consolidation or otherwise) to all, substantially
all or a substantial part, of the business and/or assets of the Corporation, by
written agreement in form and substance satisfactory to Indemnitee, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place. This Agreement shall continue in effect regardless of whether
Indemnitee continues to serve as an officer of the Corporation or of any other
enterprise.
18. Attorneys' Fees. In the event that any action is instituted by
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees and disbursements, incurred by Indemnitee with
respect to such action, unless as part of such action, a court of competent
jurisdiction determines that each of the material assertions made by Indemnitee
as a basis for such action were not made in good faith or were frivolous. In the
event of an action instituted by or in the name of the Corporation under this
Agreement or to enforce or interpret any of the terms of this Agreement,
Indemnitee shall be entitled to be paid all court costs and expenses, including
attorneys' fees and disbursements, incurred by Indemnitee in defense of such
action (including with respect to Indemnitee's counterclaims and crossclaims
made in such action), unless as part of such action a court determines that each
of Indemnitee's material defenses to such action were made in bad faith or were
frivolous.
19. Subsequent Instruments and Acts. The parties hereto agree that
they will execute any further instrument and perform any acts that may become
necessary from time to time to carry out the terms of this Agreement.
20. Limitations Period. No legal action shall be brought and no
cause of action shall be asserted by or in the right of the Corporation or any
affiliate of the Corporation against Indemnitee, Indemnitee's spouses, heirs,
executors or personal or legal representatives after the expiration of two years
from the date of accrual of such cause of action, and any claim or cause of
action of the Corporation or its affiliates shall be extinguished and deemed
released unless asserted by the timely filing of legal action within such
two-year period; provided, however, that if any shorter period of limitations is
otherwise applicable to any such cause of action shorter period shall govern.
IN WITNESS WHEREOF, the parties hereby have caused this Agreement to be
duly executed and signed as of the day and year first above written.
VERSATILITY INC.
a Delaware corporation
By: /s/ Paul Zoukis
_________________________________
President
Chief Operating Officer
INDEMNITEE:
/s/ James Dellamore
_____________________________________
James Dellamore
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EXHIBIT 10.9
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (this "Agreement") is made as of the 15th
day of April, 1998, by and between Versatility, Inc., a Delaware corporation
(the "Corporation"), and Kenneth T. Nelson ("Indemnitee").
RECITALS
A. It is essential to the Corporation to retain and attract as
officers of the Corporation the most capable persons available.
B. The substantial increase in corporate litigation subjects
officers to expensive litigation risks at the same time that the availability of
directors' and officers' liability insurance has been severely limited.
C. Pursuant to Article Tenth, Section 9 of the second amended and
restated certificate of incorporation of the Corporation, it is the desire of
the Corporation to indemnify officers of the Corporation so as to provide them
with the maximum possible protection permitted by law.
AGREEMENTS
NOW, THEREFORE, the Corporation and Indemnitee do hereby agree as
follows:
1. Agreement to Serve. Indemnitee agrees to serve or continue to
serve as an officer of the Corporation for so long as he is duly elected or
appointed or until such time as he tenders his resignation in writing.
2. Definitions. As used in this Agreement:
(a) The term "Proceeding" shall include any threatened, pending
or completed action, suit, investigation or proceeding, and any appeal thereof,
whether brought by or in the right of the Corporation or otherwise and whether
civil, criminal, administrative or investigative, and/or any inquiry or
investigation, in which Indemnitee may be or may have been involved as a party
or otherwise, or that Indemnitee in good faith believes might lead to the
institution of any such Proceeding, by reason of the fact that Indemnitee is or
was an officer of the Corporation, by reason of any action taken by him or of
any inaction on his part while acting as such an officer, or by reason of the
fact that he is or was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise; in each case whether or not he is acting or serving
in any such capacity at the time any liability or expense is incurred for which
indemnification or reimbursement can be provided under this Agreement.
<PAGE>
(b) The term "Expenses" shall include, without limitation,
expenses, costs and obligations, paid or incurred, of investigations, judicial
or administrative proceedings or appeals, amounts paid in settlement by or on
behalf of Indemnitee, attorneys' fees and disbursements and any expenses
reasonably and actually incurred in establishing a right to indemnification
under Sections 9(b) and 18 of this Agreement, including, without limitation,
those incurred in investigating, defending, being a witness in or participating
in (including on appeal), or preparing to defend with respect to any claim,
issue or matter relating thereto or in connection therewith.
(c) A "Change in Control" shall be deemed to have occurred if,
after the date hereof, there is any transaction or series of transactions within
any twelve (12) month period, including, without limitation, a merger,
consolidation or exchange of securities, in which the holders of all of the
Corporation's outstanding voting securities immediately prior to the
consummation of such transaction or the first transaction of such series of
transactions do now own, directly or indirectly, a majority of the combined
voting power of the Corporation's outstanding securities upon consummation of
such transaction or series of such transactions.
(d) The term "Independent Legal Counsel" shall include any
attorney or firm of attorneys, selected in accordance with Section 5 hereof, who
shall not have otherwise performed services for the Corporation or Indemnitee
within the five (5) years prior to the date of selection (other than with
respect to matters concerning the rights of Indemnitee under this Agreement, or
of other Indemnitees under similar indemnification agreements).
(e) References to "other enterprise" shall include employee
benefit plans; references to "fines" shall include any excise tax assessed with
respect to any employee benefit plan; and references to "serving at the request
of the Corporation" shall include any service as a director, officer, employee
or agent of the Corporation or any subsidiary which imposes duties on, or
involves services by, such director, officer, employee, or agent with respect to
an employee benefit plan, its participants or beneficiaries.
3. Indemnification in Third-Party Proceedings. The Corporation
shall indemnify Indemnitee in accordance with the provisions of this Agreement
if Indemnitee is party to or threatened to be made a party to any Proceeding
(other than a Proceeding by or in the right of the Corporation or any subsidiary
of the Corporation to procure a judgment in its favor), against all Expenses,
judgments, fines and penalties actually and reasonably incurred by Indemnitee in
connection with the defense or settlement of such Proceeding, but only if he
acted in good faith and in a manner which he reasonably believed to be (in the
case of conduct in his official capacity) in the best interests of the
Corporation or (in all other cases) not opposed to the best interests of the
Corporation, and, in the case of a criminal Proceeding, in addition, had no
reasonable cause to believe that his conduct was unlawful. The termination of
any such Proceeding by judgment, order of court, settlement, conviction, or upon
a plea of nolo contendere, or its equivalent, shall not, of itself, create a
presumption (i) that Indemnitee did not act in good faith and in a manner which
he reasonably believed to be in or not opposed to the best interests of the
Corporation or (ii) that Indemnitee did not meet any other particular standard
of conduct or have any other particular belief or (iii) that a court has
determined that indemnification is not permitted by applicable law, and (iv)
with respect to any criminal Proceeding, that Indemnitee had reasonable cause to
believe that his conduct was unlawful.
4. Indemnification in Proceedings by or in the Right of the
Corporation. The Corporation shall indemnify Indemnitee in accordance with the
provisions of this Agreement if Indemnitee is a party to or threatened to be
made a party to any Proceeding by or in the right of the Corporation or any
subsidiary of the Corporation, against all Expenses actually and reasonably
incurred by Indemnitee in connection with the defense or settlement of such
Proceeding, but only if he acted in good faith and in a manner which he
reasonably believed to be (in the case of conduct in his official capacity) in
the best interests of the Corporation or (in all other cases) not opposed to the
best interests of the Corporation, except that no indemnification for Expenses
shall be made under this Section 4, in
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respect of any Proceeding as to which Indemnitee shall have been adjudged to be
liable to the Corporation. Notwithstanding the foregoing, Indemnitee shall have
no right to indemnification for Expenses and the payment of profits arising from
the purchase and sale by Indemnitee of securities in violation of Section 16(b)
of the Securities Exchange Act of 1934, as amended.
5. Change in Control. The Corporation agrees that in the event of a
Change in Control, and with respect to all matters thereafter concerning the
rights of Indemnitee to indemnification and payment of Expenses under this
Agreement or any other agreement to which the Corporation and Indemnitee are
parties or the Bylaws of the Corporation or any subsidiary as hereafter in
effect relating to indemnification of directors and/or officers of the
Corporation or any such subsidiary, the Corporation shall seek legal advice only
from the Independent Legal Counsel selected by Indemnitee and approved by the
Corporation (which approval shall not be unreasonably withheld). Such counsel,
among other things, shall render a written opinion to the Corporation and
Indemnitee as to whether and to what extent Indemnitee would be permitted to be
indemnified under applicable law. The Corporation agrees to pay the reasonable
fees of the Independent Legal Counsel referred to above and to indemnify fully
such counsel against any and all expenses (including attorney's fees), claims,
liabilities and damages arising out of or relating to this Agreement or its
engagement pursuant hereto.
6. Indemnification Prohibited. Notwithstanding the provisions of
Sections 3 and 4, no indemnification shall be made in connection with any
Proceeding charging improper personal benefit to Indemnitee, whether or not
involving action in his official capacity, in which he was adjudged liable on
the basis that personal benefit was improperly received by Indemnitee.
7. Indemnification of Expenses of Successful Party. Notwithstanding
any other provision of this Agreement whatsoever, to the extent that Indemnitee
has been successful on the merits or otherwise (including a settlement) in
defense of any Proceeding or in defense of any claim, issue or matter therein,
including dismissal without prejudice, Indemnitee shall be indemnified against
all Expenses reasonably and actually incurred in connection therewith.
8. Advances of Expenses. Expenses incurred by Indemnitee pursuant
to Sections 3 and 4 in any Proceeding shall be paid by the Corporation in
advance as soon as practicable but not later than three (3) business days after
receipt of the written request of Indemnitee provided that Indemnitee shall (i)
affirm in such written request that he acted in good faith and in a manner which
he reasonably believed to be (in the case of conduct in his official capacity)
in the best interests of the Corporation or (in all other cases) not opposed to
the best interests of the Corporation and (ii) undertake to repay such amount to
the extent that it is determined in such Proceeding or otherwise by a court of
competent jurisdiction and such determination shall have become final that
Indemnitee is not entitled to indemnification, and further provided that the
Corporation has determined that the facts then known would not preclude
indemnification pursuant to the terms of this Agreement.
9. Right of Indemnitee to Indemnification Upon Application;
Procedure Upon Application.
(a) Any indemnification under Sections 3, 4 and 7 shall be made
as soon as practicable but in any event no later than thirty (30) days after
receipt by the Corporation of the written request of Indemnitee. The provisions
of Article Tenth, Section 4 of the second amended and restated certificate of
incorporation, and as amended hereafter, shall not be applicable to
indemnification under this agreement.
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<PAGE>
(b) The right to indemnification or advances as provided by
this Agreement shall be enforceable by Indemnitee in an action in any court of
competent jurisdiction. The burden of proving that indemnification or advances
are not appropriate shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or
stockholders) to have made a determination prior to the commencement of such
action that indemnification or advances are proper in the circumstances because
Indemnitee has met the applicable standard of conduct, nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel, or stockholders) that Indemnitee has not met such applicable
standard conduct, shall be a defense to the action or create a presumption that
Indemnitee has not met the applicable standard of conduct. Indemnitee's expenses
reasonably incurred in connection with any Proceeding which establishes
Indemnitee's right to indemnification or advances, in whole or in part, in any
such Proceeding shall also be indemnified by the Corporation.
(c) The Corporation shall not be liable under this Agreement to
make any payment in connection with any claim made against Indemnitee to the
extent Indemnitee has otherwise actually received payment (under any Corporation
insurance policy, Bylaw or otherwise) of the amounts otherwise indemnifiable.
10. Indemnification Hereunder Not Exclusive.
(a) Notwithstanding any other provision of this Agreement, the
Corporation hereby agrees to indemnify Indemnitee to the full extent permitted
by law, whether or not such indemnification is specifically authorized by the
other provisions of this Agreement, the Corporation's Certificate of
Incorporation, the Bylaws, or by statute. In the event of any changes, after the
date of this Agreement, in any applicable law, statute, or rule which expand the
right of a Delaware corporation to indemnify any officer, such changes shall be,
ipso facto, within the purview of Indemnitee's rights, and the Corporation's
obligations, under this Agreement. In the event of any changes in any applicable
law, statute, or rule which narrow the right of a Delaware corporation to
indemnify any officer, such changes, to the extent not otherwise required by
such law, statute or rule to be applied to this Agreement, shall have no effect
on this Agreement or the parties' rights and obligations hereunder.
(b) The indemnification provided by this Agreement shall not be
deemed exclusive of any other rights to which Indemnitee may be entitled under
the Certificate of Incorporation, the Bylaws, any agreement, any vote of
shareholders or disinterested Directors, the laws of the State of Delaware or
otherwise, both as to actions in his official capacity and as to actions in
another capacity while holding such office.
11. Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Corporation for some or a
portion of the Expenses, judgments, fines or penalties actually and reasonably
incurred by him in the investigation, defense, appeal or settlement of any
Proceeding but not, however, for the total amount thereof, the Corporation shall
nevertheless indemnify Indemnitee for the portion of such Expenses, judgments,
fines or penalties to which Indemnitee is entitled.
12. Effect of Federal Law. Both the Corporation and Indemnitee
acknowledge that in certain instances federal law would override Delaware law
and prohibit the Corporation from indemnifying its officers and Directors. In
such case, the Corporation shall be released from its obligations hereunder to
the extent its performance thereof is prohibited by federal law. For example,
the Corporation and Indemnitee acknowledge that the Securities and Exchange
Commission has taken the
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position that indemnification is not permissible for liabilities arising under
certain federal securities laws, and federal law prohibits indemnification for
certain violations of the Employee Retirement Income Security Act.
13. Liability Insurance.
(a) The Corporation shall from time to time make a good faith
determination whether or not it is practicable for the Corporation to obtain and
maintain a policy or policies of insurance with reputable insurance companies
providing the officers with coverage for losses from wrongful acts, or to ensure
the Corporation's performance of its indemnification obligations under this
Agreement. Among other considerations, the Corporation will weigh the costs of
obtaining such insurance against the protection afforded by such coverage.
(b) Indemnitee hereby releases the Corporation and its respective
authorized representatives from any claims for indemnification hereunder if and
to the extent that Indemnitee receives proceeds from any liability insurance
policy or other third-party source in payment or reimbursement for such claims.
Indemnitee hereby agrees to assign all proceeds Indemnitee receives under any
such insurance policy or third-party agreement to the extent of the amount of
indemnification made to Indemnitee by the Corporation under the terms of this
Agreement.
14. Saving Clause. Nothing in this Agreement is intended to require
or shall be construed as requiring the Corporation to do or fail to do any act
in violation of applicable law. The provisions of this Agreement (including any
provisions within a single section, paragraph or sentence) shall be severable in
accordance with this Section 14. If this Agreement or any portion thereof shall
be invalidated on any ground by any court of competent jurisdiction, the
Corporation shall nevertheless indemnify Indemnitee as to Expenses, judgments,
fines and penalties with respect to any Proceeding to the full extent permitted
by any applicable portion of this Agreement that shall not have been invalidated
or by any other applicable law, and this Agreement shall remain enforceable to
the fullest extent permitted by law.
15. Notice. Indemnitee shall, as a condition precedent to his right
to be indemnified under this Agreement, give to the Corporation notice in
writing as soon as practicable of any claim made against him for which indemnity
will or could be sought under this Agreement. Notice to the Corporation shall be
directed to Versatility Inc., 11781 Lee Jackson Memorial Highway, Seventh Floor,
Fairfax, Virginia 22033, Attention: President (or such other address as the
Corporation shall designate in writing to Indemnitee). All notices, requests,
demands and other communications shall be deemed received (i) on the date of
delivery if delivered by hand and receipted for by the party to whom such notice
or other communication shall have been directed, or (ii) three (3) days after
the date postmarked if sent by prepaid mail, properly addressed. In addition,
Indemnitee shall give the Corporation such information and cooperation as it may
reasonably require and shall be within Indemnitee's power.
16. Governing Law. This Agreement shall be governed by and construed
in accordance with the substantive laws of the State of Delaware without giving
effect to its rules on conflicts of laws.
17. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the parties and their respective
successors and assigns (including any direct or indirect successors by purchase,
merger, consolidation or otherwise to all or substantially all of the business
and/or assets of the Corporation), spouses, heirs, and personal and legal
representatives.
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The Corporation shall require and cause any successor (whether direct or
indirect by purchase, merger, consolidation or otherwise) to all, substantially
all or a substantial part, of the business and/or assets of the Corporation, by
written agreement in form and substance satisfactory to Indemnitee, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place. This Agreement shall continue in effect regardless of whether
Indemnitee continues to serve as an officer of the Corporation or of any other
enterprise.
18. Attorneys' Fees. In the event that any action is instituted by
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees and disbursements, incurred by Indemnitee with
respect to such action, unless as part of such action, a court of competent
jurisdiction determines that each of the material assertions made by Indemnitee
as a basis for such action were not made in good faith or were frivolous. In the
event of an action instituted by or in the name of the Corporation under this
Agreement or to enforce or interpret any of the terms of this Agreement,
Indemnitee shall be entitled to be paid all court costs and expenses, including
attorneys' fees and disbursements, incurred by Indemnitee in defense of such
action (including with respect to Indemnitee's counterclaims and crossclaims
made in such action), unless as part of such action a court determines that each
of Indemnitee's material defenses to such action were made in bad faith or were
frivolous.
19. Subsequent Instruments and Acts. The parties hereto agree that
they will execute any further instrument and perform any acts that may become
necessary from time to time to carry out the terms of this Agreement.
20. Limitations Period. No legal action shall be brought and no
cause of action shall be asserted by or in the right of the Corporation or any
affiliate of the Corporation against Indemnitee, Indemnitee's spouses, heirs,
executors or personal or legal representatives after the expiration of two years
from the date of accrual of such cause of action, and any claim or cause of
action of the Corporation or its affiliates shall be extinguished and deemed
released unless asserted by the timely filing of legal action within such
two-year period; provided, however, that if any shorter period of limitations is
otherwise applicable to any such cause of action shorter period shall govern.
IN WITNESS WHEREOF, the parties hereby have caused this Agreement to be
duly executed and signed as of the day and year first above written.
VERSATILITY INC.
a Delaware corporation
By: /s/ Paul Zoukis
_________________________________
President
Chief Operating Officer
INDEMNITEE:
/s/ Kenneth T. Nelson
_____________________________________
Kenneth T. Nelson
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