<PAGE>
- -------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
/X/ Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended February 28, 1998
/ / Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
----------- -----------
Commission File Number 0-11791
GREENTREE SOFTWARE, INC.
------------------------
(Name of Small Business Issuer as Specified in Its Charter)
NEW YORK 13-2897997
- --------------------------------- ------------------------------------
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
7901 FLYING CLOUD DRIVE
SUITE 200
EDEN PRAIRIE, MN 55344
---------------------------------------
(Address of Principal Executive Offices)
(612) 941-1500
--------------
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 / /
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding at April 14, 1998
- ----------------------------- -----------------------------
COMMON SHARES, PAR VALUE 3,465,451 SHARES
$0.01 PER SHARE
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<PAGE>
GREENTREE SOFTWARE, INC.
INDEX
ITEM PAGE
NUMBER NUMBER
- ------ ------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of February 28, 1998 and May 31, 1997..... 3
Statements of Operations for the three months ended
February 28, 1998 and 1997 and for the nine months ended
February 28, 1998 and 1997.................................. 4
Statements of Cash Flows for the nine months ended
February 28, 1998 and 1997.................................. 5
Notes to the Financial Statements........................... 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation...................... 9-12
PART II. OTHER INFORMATION
Item 2. Changes in Securities....................................... 13
Item 6. Exhibits and Reports on Form 8-K............................ 14
Signatures........................................................... 15
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Company for which report is filed: Greentree Software, Inc.
(the "Company")
GREENTREE SOFTWARE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
February 28, 1998 May 31, 1997
----------------- ------------
(Unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 1,752 $ 245,649
Accounts receivable, net 118,599 164,556
Prepaid expenses and other current assets 803 30,204
---------------- --------------
Total Current Assets 121,154 440,409
---------------- --------------
Property and equipment 45,911 54,554
---------------- --------------
Other Assets:
Customer list 17,348 29,345
Capitalized software development costs 231,724 526,372
Security deposits 9,124 9,124
Other -- 76,261
---------------- --------------
Total Other Assets 258,196 641,102
---------------- --------------
Total Assets $ 425,261 $ 1,136,065
---------------- --------------
---------------- --------------
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities:
Accounts payable $ 517,878 $ 348,148
Note Payable Bank 50,000 --
Convertible notes payable 50,000 2,049,566
Accrued expenses 298,995 146,214
Deferred revenues 90,706 77,868
---------------- --------------
Total Current Liabilities 1,007,579 2,621,796
---------------- --------------
Commitments and Contingencies
Stockholders' Equity (deficit):
Common stock, $0.01 par value, authorized
15,000,000 shares issued and outstanding,
3,132,118 and 1,610,610 shares, respectively 31,321 16,106
Additional paid-in capital 15,584,048 13,231,268
Accumulated deficit (16,108,655) (14,644,073)
---------------- --------------
(493,286) (1,396,699)
Less treasury stock (4,780 shares) at cost (89,032) (89,032)
---------------- --------------
Total Stockholders' Equity (deficit) (582,318) (1,485,731)
---------------- --------------
Total Liabilities and Stockholders'
Equity (Deficit) $ 425,261 $ 1,136,065
---------------- --------------
---------------- --------------
</TABLE>
See accompanying notes to financial statements
3
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GREENTREE SOFTWARE, INC.
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
----------------------------------- -----------------------------------
February 28, February 28, February 28, February 28,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Revenues:
Product $ 183,352 $ 328,077 $ 280,477 $ 404,420
Services 51,488 57,405 143,115 151,802
--------------- --------------- --------------- ---------------
Total Net Revenues 234,840 385,482 423,592 556,222
--------------- --------------- --------------- ---------------
Costs and Expenses:
Cost of revenues 162,868 126,532 420,273 349,464
Selling expenses 117,140 161,848 390,713 363,899
General and administrative 373,019 226,714 1,065,174 844,376
--------------- --------------- --------------- ---------------
Total Costs and Expenses 653,027 515,094 1,876,160 1,557,739
--------------- --------------- --------------- ---------------
Operating Loss (418,187) (129,612) (1,452,568) (1,001,517)
Interest Expense, net (5,438) (711) (12,014) (711)
--------------- --------------- --------------- ---------------
Loss Before Income Taxes (423,625) (130,323) (1,464,582) (1,002,228)
Income Taxes -- -- -- --
--------------- --------------- --------------- ---------------
Net Loss $ (423,625) $ (130,323) $ (1,464,582) $ (1,002,228)
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Net loss per common share (Basic) $ (0.14) $ (0.08) $ (0.56) $ (0.63)
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Weighted average shares outstanding 3,094,967 1,610,610 2,617,159 1,592,832
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
GREENTREE SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
--------------------------------
February 28, February 28,
1998 1997
---- ----
<S> <C> <C>
Cash Flow From Operating Activities:
Net loss $(1,464,582) $(1,002,228)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 28,580 76,330
Amortization of deferred software costs 370,010 341,466
Decrease (increase) in accounts receivable 45,957 (82,581)
Decrease in inventories -- 4,854
Decrease (increase) in prepaid expenses 29,401 (134,494)
Decrease in other assets 4,753 5,588
Increase (decrease) in accounts payable 169,730 (26,886)
Increase (decrease) in accrued expenses 187,328 (242,317)
Increase (decrease) in deferred revenue 12,838 (79,564)
----------- -----------
Cash Used in Operating Activities (615,985) (1,139,832)
----------- -----------
Cash Flow From Investing Activities:
Additions to property and equipment (7,940) (12,629)
Additions to capitalized software
Development costs (75,361) (168,160)
----------- -----------
Cash (Used) in Investing Activities (83,301) (180,789)
----------- -----------
Cash Flow From Financing Activities:
Net proceeds from private placement of shares 385,389 1,109,000
Net proceeds from private placement of convertible note 50,000 --
Bank Financing 50,000 --
Payment of notes payable (30,000) --
----------- -----------
Cash Provided by Financing Activities 455,389 1,109,000
----------- -----------
(Decrease) in Cash (243,897) (211,621)
Cash balance - beginning 245,649 249,525
----------- -----------
Cash balance - ending $ 1,752 $ 37,904
----------- -----------
----------- -----------
Supplemental disclosure of cash
flow information:
Cash paid for interest $ 4,797 $ 711
Cash paid for income taxes $ -- $ --
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to financial statements
5
<PAGE>
GREENTREE SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1998
NOTE 1. GENERAL INFORMATION:
The Financial Statements included herein have been prepared by the Company
without audit except the May 31, 1997 balance sheet, which was audited. The
Statements have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission and reflect all adjustments, consisting of
only normal recurring accruals which are, in the opinion of management,
necessary for a fair statement of the results of operations for the periods
shown. These statements do not include all information required by Generally
Accepted Accounting Principles to be included in a full set of Financial
Statements. These Financial Statements should be read in conjunction with the
Financial Statements and notes thereto included in the Company's latest report
on Form 10-KSB, dated May 31, 1997.
The accompanying financial statements of the Company have been presented on
the basis that the Company is a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. The Company reported a net loss of $1,464,582 for the nine month
period ended February 28, 1998, and $1,823,200 for the year ended May 31, 1997.
Additionally, at February 28, 1998, the Company had a working capital deficit of
$886,425 and a stockholders' deficit of $582,318.
The Company's continued existence is dependent upon its ability to raise
capital and subsequently market its Windows-based purchasing applications--GT
Purchase PRO. Historically, the Company has been successful in raising funds
from outside sources through private placement or other means. While the
Company believes that its most recent version of GT Purchase PRO has demand in
the marketplace, the Company, however, provides no assurances that significant
revenues will be generated. The above matters raise substantial doubt about the
Company's ability to continue as a going concern.
The Company is considered a Small Business (SB) filer pursuant to
Securities and Exchange Commission (SEC) regulations. As such, the accompanying
financial statements, are not intended to, nor do they, include all disclosures
required by the SEC's Regulation S-X.
6
<PAGE>
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES:
(a) Accounting Estimates
Management is required to make estimates and assumptions during the
preparation of financial statements in conformity with Generally Accepted
Accounting Principles. These estimates and assumptions affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements. They also affect the
reported amounts of net income (loss) during the period. Actual results could
differ materially from these estimates and assumptions.
(b) Revenue Recognition
The Company generally recognizes product revenue at the time products are
delivered, provided that no significant Company obligation remains outstanding
and collection of the resulting receivable is deemed probable by management.
Insignificant obligations remaining at the time of shipment are accrued. For
those shipments, where a license agreement does not exist and the probability of
collection and the existence of remaining obligations could not be determined,
the sale has not been recorded and revenue has not been recognized.
Service revenues are comprised primarily of revenues derived from
maintenance agreements. Maintenance fees are recorded as deferred revenue and
recognized over the maintenance period which is usually 12 months. Also
included in deferred revenue are deferred product revenues which, based on their
terms, will be recognized as revenue when the various terms are met.
(c) Accounts Receivable
Accounts receivable is presented net of allowance for uncollectible
accounts of $30,960 at February 28, 1998, and $57,100 at May 31, 1997.
(d) Software Development Costs
The Company is engaged in research and development activities in the area
of computer software. In accordance with Generally Accepted Accounting
Principles, costs incurred prior to determination of technological feasibility
are considered research and development and treated as a period cost and,
accordingly, charged to operations. Once technological feasibility has been
established, development costs are capitalized and amortized over the shorter of
an economic life of one to three years or the proportion of current period
product revenues to total expected product revenues.
(e) Property and Equipment
Property and equipment are stated at cost, less accumulated
depreciation. Depreciation is charged to operations over the estimated lives
of the related assets, generally five to seven years, using the straight-line
method. Maintenance and repairs are charged to expense as incurred.
Improvements and betterments that extend the useful life of the assets are
capitalized. Depreciation was $16,583 and $44,205 for the nine months ended
February 28, 1998 and 1997, respectively.
7
<PAGE>
(f) Customer List
During the year ended May 31, 1994, the Company acquired the customer list
of one of its resellers for $80,000. This reseller subsequently became employed
as the president of the Company. These costs are being amortized using the
straight-line method over five years. Amortization expense related to this
intangible asset was approximately $12,000 for both the nine months ended
February 28, 1998 and 1997.
(g) Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of 90 days or less to be cash equivalents for financial statement
purposes. Included in cash equivalents at May 31, 1997, was a money market
account totaling approximately $200,000.
(h) Income Taxes
The Company accounts for income taxes in accordance with the provisions of
the Financial Accounting Standards Board Statement of Financial Accounting
Standard No. 109 (SFAS 109), Accounting for Income Taxes. SFAS 109 requires
that deferred income taxes reflect the tax consequences on future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts.
(i) Loss Per Common Share
Net loss per common share is computed by dividing net loss by the weighted
average number of shares outstanding during the year. For the nine month period
ended February 28, 1998, and 1997, common stock options and warrants were
anti-dilutive and were not included in the weighted average of common shares
used in determining per share amounts.
(j) Recently Issued Accounting Standards
In March 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share" (SFAS No. 128). SFAS No. 128 applies to entities
with publicly held common stock or potential common stock and is effective for
financial statements issued for periods ending after December 15, 1997. Under
SFAS No. 128 the presentation of primary earnings per share is replaced with a
presentation of basic earnings per share.
SFAS No. 128 requires dual presentation of basic and diluted earnings
per share for entities with complex capital structures. Basic earnings per
share includes no dilution and is computed by dividing net income (loss)
available to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted earnings per share reflects the
potential dilution of securities that could share in the earnings of an
entity, similar to fully diluted earnings per share. Management believes the
adoption of SFAS No. 128 will not have a material effect on the financial
statements.
8
<PAGE>
(k) Reclassification and Stock Split
Certain prior year balances have been reclassified to conform with current
year presentation. There was no impact on the prior year's net loss or total
stockholders' equity from the reclassification.
The Company effected a one-for-six reverse stock split effective July 22,
1997. All shares and per share amounts contained in the financial statements
and notes thereto reflect the retroactive application of such reverse stock
split for all periods presented.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Except for the historical information contained herein, this Quarterly
Report on Form 10-QSB may contain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including but not limited to the potential for future
orders and the existence of expressions of interest in the GT Purchase PRO
product. Investors are cautioned that forward-looking statements are inherently
uncertain. Actual performance and results of operations may differ materially
from those projected or suggested in the forward-looking statements due to
certain risks and uncertainties, including but not limited to, the following
risks and uncertainties: (i) the Company's history of losses and accumulated
deficit, inconsistent revenues and the uncertainty of future profitability; (ii)
the Company's capital requirements and the uncertainty of additional funding;
(iii) the uncertainty of market acceptance of GT Purchase PRO software; (iv) new
management and the need to recruit sales, service and implementation personnel;
(v) the intense competition in the software field; and (vi) the dependence on
one product and rapid technological change in the industry. Additional
information concerning certain risks and uncertainties that would cause actual
results to differ materially from those projected or suggested in the
forward-looking statements is contained in the Company's filings with the
Commission, including those risks and uncertainties discussed under the caption
"Risk Factors" in the Company's Annual Report on Form 10-KSB for the year ended
May 31, 1997. The forward-looking statements contained herein represent the
Company's judgment as of the date of this Quarterly Report on Form 10-QSB, and
the Company cautions readers not to place undue reliance on such statements.
9
<PAGE>
RESULTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED FEBRUARY 28, 1998 AND 1997
Total revenues for the three months ended February 28, 1998 were $234,840
compared to revenue of $385,482 for the three months ended February 28, 1997.
Product revenues for the three months ended February 28, 1998, were $183,352
compared to revenues of $328,077 for the three months ended February 28, 1997.
Service revenues were $51,488 for the three months ended February 28, 1998,
compared to $57,405 for the three months ended February 28, 1997.
Total revenues for the nine months ended February 28, 1998 were $423,592
compared to revenues of $556,222 for the nine months ended February 28, 1997.
Product revenues for the nine months ended February 28, 1998, were $280,477
compared to revenues of $404,420 for the nine months ended February 28, 1997.
Service revenues were $143,115 for the nine months ended February 28, 1998,
compared to $151,802 for the nine months ended February 28, 1997.
The cost of revenues for the three months ended February 28, 1998 was
$162,868 compared to $126,532 for the three months ended February 28, 1997, an
increase of $36,336 or 28.7%. This increase was primarily due to expensing
rather than capitalizing software development costs during the quarter.
The cost of revenues for the nine months ended February 28, 1998 was
$420,273 compared to $349,464 for the nine months ended February 28, 1997, an
increase of $70,809 or 20.2%. This increase resulted from increased
amortization costs over the same period last year and the expensing of
development costs in the third quarter of fiscal 1998 as mentioned in the above
paragraph.
Selling expense for the three months ended February 28, 1998 was $117,140
compared to $161,848 for the three months ended February 28, 1997, a decrease of
$44,708 or 27.6%. This decrease was the result of lower advertising and
promotion costs.
Selling expense for the nine months ended February 28, 1998 was $390,713
compared to $363,899 for the nine months ended February 28, 1997, an increase of
$26,814 or 7.4%. This increase was primarily due to increased personnel and
marketing expenses.
General and administrative expense for the three months ended February 28,
1998 was $373,019 compared to $226,714 for the three months ended February 28,
1997, an increase of $146,305 or 64.5%. This increase was primarily due to
increased compensation expense due to increased staffing for administrative
management and consulting fees associated with the Company's capital raising
activities.
General and administrative expense for the nine months ended February 28,
1998 was $1,065,174 compared to $844,376 for the nine months ended February 28,
1997, an increase of $220,798 or 26.1%. This increase was primarily due to
increased compensation expense due to increased staffing for administrative
management, consulting fees associated with the Company's capital raising
activities and offset in part by a reduction in outside professional fees.
10
<PAGE>
For the three months ended February 28, 1998, the Company reported a net
loss of $423,625 (or $.14 per share) as compared to a net loss of $130,323 (or
$.08 per share) for the prior year. This loss was caused by the continuation of
low revenues which were not sufficient to cover operating costs. The loss for
the three months ended February 28, 1998 was worse than the loss for the same
period ended February 28, 1997 primarily due to lower sales volume for the three
month period ended February 28, 1998 as well as higher costs during this same
period, as described in the discussion of expenses.
For the nine months ended February 28, 1998, the Company reported a net
loss of $1,464,582 (or $.56 per share) as compared to a net loss of $1,002,228
(or $.63 per share) for the nine month period ended February 28, 1997. This
loss was caused by the continuation of low revenues which were not sufficient to
cover operating costs. The loss for the nine months ended February 28, 1998 was
worse than the loss for the same period ended February 28, 1997 primarily due to
lower sales volume during the nine month period ended February 28, 1998 as well
as increased expenses during this same period primarily in the area of personnel
expense to support future potential revenue growth. The per share loss for the
nine month period ended February 28, 1998 decreased while the total net loss
increased, due to the increase in the number of issued and outstanding shares.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficit of $886,425 at February 28, 1998
as compared to a deficit of $2,181,387 at May 31, 1997, a decrease in the
working capital deficit of $1,294,962. The primary reason for the decrease was
the conversion of convertible notes payable during the three month period ended
August 31, 1997 and the sale through a private placement during the first nine
months of the year of 900,648 shares of the Company's Common Shares which raised
gross proceeds of $635,389. This was offset by the loss for the nine month
period. As a result, cash decreased from $245,649 at May 31, 1997, to $1,752 at
February 28, 1998.
Beginning in October 1997, the Company began a private placement of its
Common Shares and as of February 28, 1998, had sold 567,315 shares of Common
Shares and raised $385,389 in gross proceeds.
On December 19, 1997, the Company issued a convertible note in the original
principal amount of $50,000 to an accredited investor. This convertible debt
was issued at face value, has a ninety day term, is convertible into Common
Shares at holder's option at the lesser of $.6875 per share or 70% of the
average bid price of the Common Shares for the five days preceding the
conversion. If holder does not convert, holder will be issued 10,000 Common
Shares in lieu of interest. On March 18, 1998, this note was renewed for an
additional sixty days at an annual interest rate of ten percent.
On February 19, 1998, the Company issued a note to F&M Alliance Bank in the
original principal amount of $50,000. This note was issued at face value has a
sixty day term and bears annual interest at 2% over the index rate, which was
8.5% on February 19, 1998. The Company's Accounts Receivable and Work in
Process was used as collateral for the note. This note was paid in full on
March 25, 1998.
On March 11, 1998, the Company issued a convertible note in the original
principal amount of $25,000 to an accredited investor. This convertible debt
was issued at face value
11
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and matures the earlier of March 1, 2000 or upon the raising of a minimum of
$2,500,000 of additional financing by the Company. Interest is payable
semi-annually and is payable in shares of the Company's Shares at its option.
At the Lender's option, the note may be converted into shares of the
Company's Common Shares at the rate of 1.33 shares per $1.00 of face amount
of the note. The Lender will receive 3,333 warrants with an exercise price of
$1.50. The warrants expire on March 11, 2000.
On March 26, 1998, the Company sold 333,333 shares of Common Shares and
raised $250,000 in gross proceeds. One hundred twenty five thousand Warrants
were issued in conjunction with this transaction. Each Warrant has an exercise
price of $1.50 and can be called by the Company if the bid price of the Common
Shares trades at or above $2.00 per share for ten consecutive trading days.
The Warrants expire on March 26, 2000.
The Company currently anticipates that it will require additional and
ongoing funding to continue operating until such time that the Company is
able to generate product sales sufficient to offset its working capital
deficit and ongoing operating expenses. There can be no assurance that the
Company will be successful in securing outside funding or, if available, upon
what terms.
12
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities
Beginning in October 1997, the Company began a private placement of its
Common Shares and as of February 28, 1998 had sold 567,315 shares of Common
Shares and raised $385,389 in gross proceeds. The issuance and sale of the
Common Shares in this offering were made in reliance on Rule 506 of Regulation D
promulgated under the Securities Act of 1933, as amended, and Section 4(2) of
the Securities Act.
On December 19, 1997, the Company issued a convertible note in the
original principal amount of $50,000 to an accredited investor. This
convertible debt was issued at face value, has a ninety day term, is
convertible into Common Shares at holder's option at the lesser of $.6875 per
share or 70% of the average bid price of the Common Shares for the five days
preceding the conversion. If holder does not convert, holder will be issued
10,000 Common Shares in lieu of interest. On March 18, 1998, this note was
renewed for an additional sixty days at an annual interest rate of ten
percent. The issuance and sale of the convertible note was made in reliance
on Section 4(2) of the Securities Act.
On March 11, 1998, the Company issued a convertible note in the original
principal amount of $25,000 to an accredited investor. This convertible debt
was issued at face value and matures the earlier of March 1, 2000 or upon the
raising of a minimum of $2,500,000 of additional financing by the Company.
Interest is payable semi-annually and is payable in shares of the Company's
Shares at its option. At the Lender's option, the note may be converted into
shares of the Company's Commons Shares at the rate of 1.33 shares per $1.00
of face amount of the note. The Lender will receive 3,333 Warrants with an
exercise price of $1.50. The Warrants expire on March 11, 2000. The issuance
and sale of the convertible note was made in reliance on Section 4(2) of the
Securities Act.
On March 26, 1998, the Company sold 333,333 shares of Common Shares and
raised $250,000 in gross proceeds. One hundred twenty five thousand Warrants
were issued in conjunction with this transaction. Each Warrant has an
exercise price of $1.50 and can be called by the Company if the bid price of
the Common Shares trades at or above $2.00 per share for ten consecutive
trading days. The Warrants expire on March 26, 2000. The issuance and sale
of the Common Shares in this offering were made in reliance on Rule 506 of
Regulation D promulgated under the Securities Act of 1933, as amended, and
Section 4(2) of the Securities Act.
13
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Executive Employment Agreement with Joseph Mooney
10.1(a) Amendment to Executive Employment Agreement with Joseph
Mooney
10.2 Executive Employment Agreement with Jeff Pinkerton
10.2(a) Amendment to Executive Employment Agreement with Jeff
Pinkerton
(b) Reports on Form 8-K
None
14
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GREENTREE SOFTWARE, INC.
Date: April 14, 1998 By: /s/ Joseph D. Mooney
---------------------------------------------
Name: Joseph D. Mooney
Title: Chairman of the Board of Directors and
Chief Executive Officer
By: /s/ Philip D. Wolf
---------------------------------------------
Name: Philip D. Wolf
Title: Treasurer and Chief Financial Officer
15
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EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT is made and entered into on this 2
day of February, 1998, but effective as of the 15th day of December, 1996
(the "Effective Date"), by and between GREENTREE SOFTWARE, INC., a New York
corporation with its principal business office in the State of Minnesota
(hereinafter the "Company"); and JOSEPH D. MOONEY, SR., a Minnesota resident
(hereinafter "Executive").
INTRODUCTION
A. Beginning in 1996, Executive was engaged as a consultant to the
Company and hereby acknowledges that he has received all compensation due him
for such consulting services. From and after the Effective Date, Executive
has been and is presently employed by the Company in the capacity of Chief
Executive Officer and serves as Chairman of its Board.
B. Executive possesses certain unique skills, talents, contacts,
judgment and knowledge of the Company business, strategies, ethics and
objectives.
C. In order to provide for continuity in the executive management of
the Company, which continuity is deemed to be vital to the continued growth
and success of the Company; and in order that the Company may continue to
avail itself of the unique skills, talents, contacts, judgment and knowledge
of Executive, the Company desires to ensure the retention of Executive in the
employ of the Company and to obtain his promises not to harm the Company, as
set forth in Article 7.
D. Executive desires to be assured of a secure tenure with the
Company; duties and responsibilities commensurate with Executive's education,
experience and background; and salary, bonus, incentive compensation, Company
stock options and other benefits and perquisites at levels that reflect
Executive's past contributions and anticipated future contributions to the
Company.
E. Section 3.7 describes the Deferred Employment Bonus that the
Company previously promised to pay Executive, states the portion thereof paid
through the date of execution of this Agreement and confirms the Company's
obligation to pay the balance thereof.
F. Articles 5 and 6 describes the severance compensation that the
Company intends to pay to the Executive if his employment with the Company
terminates under certain circumstances described therein, including without
limitation his employment in connection with a Change in Control (as defined
below).
AGREEMENT
NOW, THEREFORE, in consideration of the facts recited above, which are a
part of this Agreement, and the parties' mutual covenants and undertakings
contained in this Agreement, the Company and Executive agree as follows:
<PAGE>
ARTICLE 1
DEFINITIONS
Capitalized terms used in this Agreement shall have their defined
meaning throughout the Agreement. The following terms shall have the meanings
set forth below; unless the context clearly requires otherwise.
1.1 "Agreement" means this Executive Employment Agreement, as from time
to time amended.
1.2 "Base Salary" means the total annual cash compensation payable to
Executive on a regular periodic basis under Section 3.1, without regard to
any voluntary salary deferrals or reductions to fund employee benefits.
1.3 "Beneficiary" means the person or persons designated in writing to
the Company by Executive to receive benefits payable after Executive's death
pursuant to Sections 3.7 or 3.8. In the absence of any such designation or
in the event that all of the persons so designated predecease Executive,
Beneficiary means the executor, administrator or personal representative of
Executive's estate.
1.4 "Board" means the Board of Directors of the Company.
1.5 "Cause" has the meaning set forth in Section 5.2.
1.6 "Change in Control" has the meaning set forth in Section 6.1.
1.7 "Code" shall mean the Internal Revenue Code of 1986, as amended (or
any successor thereto); and any Treasury Regulations issued thereunder.
1.8 "Company" means all of the following, jointly and severally: (a)
Greentree Software, Inc., (b) any Subsidiary thereof and (c) any Successor
thereto.
1.9 "Company Stock" means the voting common stock of the Company.
1.10 "Confidential Information" means information that is proprietary to
the Company or proprietary to others and entrusted to the Company; whether or
not such information includes trade secrets. Confidential Information
includes, but is not limited to, information relating to the Company's
business plans and to its business as conducted or anticipated to be
conducted, and to its past or current or anticipated products. Confidential
Information also includes, without limitation, information concerning the
Company's research, development, purchasing, accounting, marketing, selling
and services. All information that Executive has a reasonable basis to
consider as confidential shall be Confidential Information, whether or not
originated by Executive and without regard to the manner in which Executive
obtains access to this and any other proprietary information of the Company.
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1.11 "Date of Termination" has the meaning set forth in Section 5.6(b).
1.12 "Deferred Employment Bonus" has the meaning set forth in Section
3.7.
1.13 "Disability" means the unwillingness or inability of Executive to
perform the essential functions of his position (with or without reasonable
accommodation) under this Agreement for a period of eighteen (18) consecutive
months because of his incapacity due to physical or mental illness, bodily
injury or disease, if within thirty (30) days after Notice of Termination is
thereafter given by the Company the Executive shall not have returned to the
full-time performance of the Executive's duties; provided, however, that if
Executive (or his legal representative, if applicable) does not agree with a
determination to terminate his employment hereunder because of Disability,
the question of Executive's Disability shall be subject to the certification
of a qualified medical doctor mutually agreed to by the Company and Executive
(or, in the event of the Executive's incapacity to designate a doctor, the
Executive's legal representative). In the absence of such agreement, each
party shall nominate a qualified medical doctor and the two doctors shall
select a third doctor, who shall make the determination as to Disability.
The decision of the designated physician shall be binding upon the parties
hereto.
1.14 "Executive" means Joseph D. Mooney.
1.15 "Good Reason" has the meaning set forth in Section 5.3.
1.16 "Notice of Termination" has the meaning set forth in Section 5.6(a).
1.17 "1934 Act" shall mean the Securities Exchange Act of 1934, as
amended (or any successor provision).
1.18 "Plan" means any bonus or incentive compensation agreement, plan,
program, policy or arrangement sponsored, maintained or contributed to by the
Company; to which the Company is a party or under which employees of the
Company are covered, including, without limitation, (a) any stock option,
restricted stock or any other equity-based compensation plan; (b) any annual
or long-term incentive (bonus) plan; (c) any employee benefit plan, such as a
thrift, pension, profit sharing, deferred compensation, medical, dental,
disability income, accident, life insurance, automobile allowance,
perquisite, fringe benefit, vacation, sick or parental leave, severance or
relocation plan or policy and (d) any other agreement, plan, program, policy
or arrangement intended to benefit employees or executive officers of the
Company.
1.19 "Subsidiary" means any corporation or other business entity that is
controlled by the Company.
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1.20 "Successor" has the meaning set forth in Section 8.2(a).
1.21 "Term" means the term of of this Agreement and the employment of
Executive under this Agreement, as described in Section 2.3.
ARTICLE 2
EMPLOYMENT, DUTIES AND TERM
2.1 EMPLOYMENT. Upon the terms and conditions set forth in this
Agreement, the Company hereby employs Executive, and Executive accepts such
employment as Chief Executive Officer; and shall serve as Chairman of the
Board. Except as expressly provided herein, termination of this Agreement by
either party or by mutual agreement of the parties shall also terminate
Executive's employment by the Company.
2.2 DUTIES. During the Term, and excluding any periods of vacation,
sick, Disability or other leave to which Executive is entitled, Executive
agrees to devote substantially all of his attention and time during normal
business hours to the business and affairs of the Company and, to the extent
necessary to discharge the responsibilities assigned to Executive hereunder
and under the Company's bylaws, as amended from time to time to use
Executive's reasonable best efforts to perform faithfully and efficiently
such responsibilities.
During the Term, it shall not be a violation of this Agreement for
Executive to serve on corporate, civic or charitable boards or committees,
deliver lectures, fulfill speaking engagements or teach at educational
institutions and manage personal investments, so long as such activities do
not significantly interfere with the performance of Executive's
responsibilities as an employee of the Company in accordance with this
Agreement. It is expressly understood and agreed that to the extent that any
such activities have been conducted by Executive prior to the Effective Date,
the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall
not thereafter be deemed to interfere with the performance of Executive's
responsibilities to the Company. Executive shall comply with the Company's
policies and procedures; provided, however, that to the extent such policies
and procedures are inconsistent with this Agreement, the provisions of this
Agreement shall control.
2.3 TERM. Subject to the termination provisions of Article 5, the
original Term of this Agreement and the employment of Executive under this
Agreement shall be a five (5) year period commencing on the Effective Date;
and such Term shall be automatically renewed and such employment continued
for additional successive one (1) year periods unless terminated by either
party as provided herein.
2.4 CERTAIN PROPRIETARY INFORMATION. If Executive possesses any
proprietary information of another person or entity as a result of any prior
employment or relationship, Executive shall honor any legal obligation that
Executive has with that person or entity with respect to such proprietary
information.
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2.5 OWNERSHIP OF COMPANY PROPERTY. Executive agrees that all property
in Executive's possession belonging to Company, including without limitation,
all documents, reports, manuals, memoranda, computer print-outs, customer
lists, credit cards, keys, identification, products, access cards,
automobiles and all other property relating in any way to the business of the
Company are the exclusive property of the Company, even if Executive
authored, created or assisted in authoring or creating, such property.
Executive shall return to the Company all such documents and property
immediately upon termination of his Company employment or at such earlier
time as the Company may reasonably request.
ARTICLE 3
COMPENSATION, BENEFITS AND EXPENSES
3.1 BASE SALARY. Subject to Section 5.7(a), during the Term and for as
long thereafter as may be required by Articles 5 and 6, the Company shall pay
Executive a Base Salary at an annual rate that is not less than Two Hundred
Thousand Dollars ($200,000.00) or such higher annual rate as may from time to
time be approved by the Board, such Base Salary to be paid in substantially
equal regular periodic payments in accordance with the Company's regular
payroll practices. If Executive's Base Salary is increased from time to time
during the Term, the increased amount shall become the Base Salary for the
remainder of the Term and for as long thereafter as may be required by
Articles 5 and 6, subject to any subsequent increases.
3.2 OTHER COMPENSATION AND BENEFITS. During the Term and for as long
thereafter as may be required by Articles 5 and 6:
(a) the Company shall continue in full force and effect all Plans
in which Executive is participating as of the Effective Date or in which
Executive becomes entitled to participate after the Effective Date (or
Plans providing Executive with at least substantially similar benefits)
other than as a result of the normal expiration of any such Plan
accordance with its terms as in effect as of the Effective Date or the
date as of which Executive first becomes entitled to participate in such
Plan, as the case may be; and
(b) the Company shall not take or omit to take any action that would
adversely affect Executive's continued participation in any such Plan on
at least as favorable a basis to Executive as is the case on the Effective
Date or the date as of which Executive first becomes entitled to
participate in such Plan, as the case may be; or that would materially
reduce Executive's benefits in the future under any such Plan or deprive
Executive of any material benefit enjoyed by Executive as of the Effective
Date or the date as of which Executive first becomes entitled to
participate in such Plan, as the case may be; provided, however, that
(c) the Company may in its sole discretion amend or terminate any
Plan that provides benefits generally to employees in addition to its
executive officers and, if it does so in a way that has a materially
adverse effect on Executive, the Company shall provide Executive with
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a separate benefit arrangement that substantially maintains for him the
benefits otherwise reduced or eliminated by such amendment or termination,
to the extent permitted by applicable law and insurance underwriting
practices.
Executive shall also be entitled to participate in or receive benefits
under any Plan made available by the Company in the future to its executives
and key management employees, subject to and on a basis consistent with the
terms, conditions and overall administration of such Plans and the preceding
provisions of this Section 3.2. Nothing paid to Executive under any Plan
presently in effect or made available in the future shall be deemed to be in
lieu of the Base Salary, bonuses, incentives or compensation of any other
nature otherwise payable to Executive.
3.3 VACATION. For the 1997 calendar year and each subsequent calendar
year that begins during the Term, and for each calendar year thereafter as
may be required pursuant to Articles 5 and 6, Executive shall be entitled to
at least twenty (20) paid vacation days, pro-rated for any partial calendar
year. The time or times at which such vacation days are to be taken shall be
reasonably determined by Executive consistent with Executive's duties and
obligations under this Agreement. Any such vacation days that are unused at
the end of any calendar year may be carried over and used in a subsequent
calendar year, in addition to the vacation days earned in such subsequent
year; provided, however, that if the number of such unused vacation days
exceeds forty (40) days at the end of any calendar year, such excess vacation
days shall be forfeited. The value of any accrued vacation days that remain
unused upon Executive's Date of Termination shall be payable by the Company
to him in cash pursuant to Articles 5 and 6.
3.4 BUSINESS EXPENSES AND INDEMNIFICATION. During the Term and as for
as long thereafter as may be required by Articles 5 and 6, the Company shall,
in accordance with, and to the extent of, its uniform policies in effect from
time to time, pay or reimburse all ordinary and necessary business expenses
incurred by Executive in performing Executive's duties as an executive
officer and director of the Company, including without limitation all travel
and living expenses while away from home on business in the service of the
Company, home telephone expenses, social and civic club membership and
participation expenses and entertainment expenses; provided, however, that
Executive accounts promptly for such expenses to the Company in the manner
reasonably prescribed from time to time by the Company. To facilitate
payment of such expenses, Executive shall be furnished with the use of a
corporate credit card.
The Company shall pay Executive's reasonable attorneys' fees and
expenses incurred in connection with drafting and negotiating this Agreement.
To the fullest extent permitted by applicable law, Executive shall have
no personal liability to the Corporation or its shareholders for any breach
of fiduciary duty or other duties as an officer, employee or director of the
Company. The Company shall defend and indemnify Executive, to the fullest
extent permitted by applicable law, against any claim, damages, loss, costs
or expenses (including fees of experts and attorneys employed by him)
resulting from any alleged breach of duty.
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<PAGE>
3.5 AUTOMOBILE ALLOWANCE. During the Term and for as long thereafter
as may be required by Articles 5 and 6, the Company shall pay Executive a
cash automobile allowance equal to Six Hundred Fifty Dollars ($650.00)
monthly, payable in the same manner as his Base Salary.
3.6 OFFICE AND FACILITIES. During the Term, the Company shall furnish
Executive with (a) office space at least equivalent in size, quality,
furnishings and in other respects to the office space provided him as of the
Effective Date; and (b) full-time secretarial service, together with such
other reasonable facilities and services as are suitable, necessary and
appropriate for his position.
3.7 DEFERRED EMPLOYMENT BONUS. To induce Executive to commence
employment with the Company before this Agreement was executed, the Company
promised to pay him a deferred employment bonus equal to One Hundred
Seventy-five Thousand Dollars ($175,000.00), either in cash or in the form of
Company Stock, whichever he elects after the Company notifies him from time
to time of the current value of Company Stock that may be used in payment of
such bonus (the "Deferred Employment Bonus"). Executive and the Company
hereby acknowledge that the Company has paid (and Executive has accepted)
$66,000 of such bonus in the form of 20,000 shares of Common Stock issued to
him in 1997, reducing the unpaid balance of the Deferred Employment Bonus to
$109,000. The Company hereby confirms that its obligation to pay such unpaid
balance of the Deferred Employment Bonus remains in effect, is not subject to
any risk of forfeiture by Executive and shall be performed as follows.
The balance of the Deferred Employment Bonus remaining unpaid from time
to time shall be payable in periodic installments of at least $50,000 each,
without interest, at such times as the Board determines in good faith that
the Company has that amount of cash available to pay an installment thereof;
and the entire unpaid balance shall be payable in cash upon the earliest of
(a) the second anniversary of the Effective Date, (b) the end of the Term,
(c) the occurrence of any Change in Control, or (d) any earlier payment date
that may be required by Article 5 or Article 6; provided, however, that
Executive shall retain the right to request that any such payment be made in
the form of Common Stock, if he accepts the current valuation of Common Stock
determined by the Board for such payment.
3.8 FACILITATOR'S FEE ON SALE. In the event that, at any time during
the Term or within one (1) year after Executive's Date of Termination, a
majority of the Company Stock or substantially all of its assets is sold or
exchanged in any transaction that results in the receipt, by those Company
shareholders who sell or exchange their Company Stock in (or as a result of)
that transaction, of consideration valued at an amount per share of Company
Stock transferred by them that is equal to or greater than the average
closing price of the Company Stock traded in the public market during the
period of twenty (20) consecutive trading days ended on the trading day
immediately preceding the closing date of such transaction (if no Company
Stock is traded on any trading day in such 20-day period, the closing price
per share for that day shall be deemed to be the closing price per share on
the last day on which Company Stock was traded), then Executive shall be
entitled to receive a facilitator's fee in an amount equal to the excess of
(a) two percent (2%) of the gross amount of such consideration, over (b) One
Hundred Seventy-five Thousand Dollars ($175,000.00); and such fee
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shall be payable by the Company upon the closing of such transaction, in
addition to any amounts due Executive under Articles 3, 4, 5 and 6 (as a
result of that transaction or otherwise).
3.9 LIMITATION ON RIGHT TO DEFERRED COMPENSATION. The rights of
Executive, or his beneficiaries or estate, to the unpaid portion of his
Deferred Employment Bonus or any other unpaid deferred compensation under
this Agreement shall be solely those of an unsecured creditor of the Company.
Neither Executive nor any of his beneficiaries or estate shall be entitled to
assign or transfer (except to the Company) any right to receive any part of
his unpaid Deferred Employment Bonus or any other deferred compensation
amounts hereunder and, in the event of any attempt to assign or transfer any
of such amounts, the Company shall have no further liability hereunder for
such amounts.
ARTICLE 4
STOCK OPTIONS
4.1 OPTION GRANTS. Subject to the terms and conditions of this
Agreement, the Company hereby irrevocably grants to Executive the following
rights and options (the "Options") to purchase all or any part of the
aggregate number of shares of Company Stock of the Company set forth in the
following table, opposite the date each such grant became effective (each of
such numbers being subject to adjustment as provided in Section 4.8, and each
of such Options being hereinafter referred to as the First Option or Second
Option, as applicable):
<TABLE>
<CAPTION>
Designation of Option Effective Date of Option Grant Number of Shares
--------------------- ------------------------------ ----------------
<S> <C> <C>
First Option August 7, 1997 166,666
Second Option Execution Date of this Agreement 200,000
Total Option Shares 366,666
</TABLE>
4.2 PURCHASE PRICES. The purchase price of the shares of Common Stock
covered by the First Option shall be One Dollar and Thirteen Cents ($1.13)
per share.
The purchase price of the shares of Common Stock covered by the Second
Option shall be One Dollar ($1.00) per share.
4.3 VESTING OF OPTIONS. Executive's right to exercise any or all of the
Options is entirely vested and may be exercised as provided in this
Agreement, at any time before such Option expires pursuant to this Agreement.
4.4 EXPIRATION OF OPTIONS. Except as otherwise provided in this
Agreement, each of the Options shall be exercisable for five (5) years from
the effective date of its grant as stated in the table set forth in Section
4.1; provided, however, that in the event that Executive ceases to be
employed
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by the Company, for any reason or no reason, with or without Cause, Executive
or his legal representative shall have no more than twelve (12) months from
his Date of Termination to exercise any of the Options pursuant to Section
4.3 of this Agreement. Each of the Options shall terminate and become null
and void upon the expiration of such 12-month period or, if earlier, upon the
expiration date of such Option, which shall be the last day of such 5-year
period.
4.5 MANNER OF EXERCISE. Each of the Options may be exercised, in whole
or in part, by giving written notice to the Company, specifying the Option to
be exercised and the number of shares of Common Stock to be purchased, and
accompanied by the full purchase price for such shares. The purchase price
shall be payable in United States dollars upon exercise of the Option and may
be paid in any of the following ways:
(a) by delivery of cash, uncertified or certified check, bank draft;
(b) by a written offer to release the Company from its obligation to
pay Executive (or, if he has died, the Option holder) a specified amount
and type of unpaid cash compensation earned by Executive and otherwise
payable as of the date of such exercise, that is equal to the purchase
price, except that such offer shall not include any amount of such
compensation that must be withheld by the Company to cover withholding
taxes required by applicable law, pursuant to Section 4.10 or otherwise;
(c) by delivery of shares of Common Stock in payment of all or any
part of the purchase price, which shares shall be valued for this purpose
at the Fair Market Value (as determined under Section 4.11) as of the date
such Option is exercised; or
(d) by instructing the Company to withhold from the shares of Common
Stock issuable upon exercise of the Option, shares of Common Stock, in
payment of all or any part of the purchase price, which shares shall be
valued for this purpose at their then Fair Market Value or in such other
manner as may be authorized from time to time by the Company.
4.6 RIGHTS AS OPTION HOLDER. Executive, as holder of any of the
Options, shall not have any of the rights of a shareholder with respect to
the shares covered by such Option, except to the extent that one or more
certificates for such shares shall be delivered to him upon the due exercise
of all or any part of such Option.
4.7 LIMITATIONS ON OPTION TRANSFERABILITY. None of the Options shall be
transferable otherwise than by will, other testamentary instrument or the
laws of descent and distribution; and each Option may be exercised, during
the lifetime of Executive, only by Executive; provided, however, that during
his lifetime Executive may assign any or all of the Options as follows: (a)
to his spouse or one or more of his children or other descendants (or any
combination thereof); or (b) any trust for the primary benefit of Executive
or any of the foregoing individuals. More particularly (but without limiting
the generality of the foregoing), except as permitted by the preceding
sentence, none of the Options may be assigned, transferred (except as
provided above), pledged or
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hypothecated in any way; shall not be assignable by operation of law and
shall not be subject to execution, attachment, or similar process. Any
attempted assignment, transfer, pledge, hypothecation or other disposition of
any of the Options contrary to the provisions hereof; and any levy of any
execution, attachment, or similar process upon any of the Options shall be
null and void and without effect.
Executive acknowledges that any transfer of an Option that is permitted
by the preceding paragraph may be a taxable event to the extent required by
applicable tax law, to the extent of any consideration received by Executive,
or any obligation of Executive that is satisfied, in connection with such
transfer.
4.8 ADJUSTMENT. In the event of any merger, consolidation or
reorganization of the Company with any other corporation or corporations,
there shall be substituted for each of the shares of Common Stock then
subject to the Options, the number and kind of shares of stock or other
securities to which the holders of the shares of Common Stock will be
entitled pursuant to such transaction. In the event of any recapitalization,
stock dividend, stock split, combination of shares, issuance of additional
shares without the Employer's receipt of fair consideration in cash or
property (as determined by the Board pursuant to applicable law), or any
other change in the Common Stock that would have a similar effect, the number
of shares of Common Stock then subject to the Options shall be adjusted in
proportion to the change in outstanding shares of Common Stock. In the event
of any such adjustments, the purchase prices of the Options and the shares of
Common Stock issuable pursuant to each of the Options shall be equitably
adjusted as and to the extent appropriate, in the discretion of the Board, to
provide Executive with the same relative rights before and after such
adjustment.
4.9 ADDITIONAL CONDITION. Notwithstanding anything in this Agreement to
the contrary:
(a) the Company may, if it shall determine it necessary or desirable
for any reason, at the time of the issuance of any shares of Common Stock
pursuant to an Option, require Executive, as a condition to the receipt of
shares of Common Stock issued pursuant thereto, to deliver to the Company
a written representation of present intention to acquire the shares of
Common Stock issued pursuant thereto for his own account for investment
and not for distribution; and
(b) if at any time the Company further determines, in its sole
discretion, that the listing, registration or qualification (or any
updating of any such document) of the shares of Common Stock issuable
pursuant thereto is necessary on any securities exchange or under any
federal or state securities or blue sky law, or that the consent or
approval of any governmental regulatory body is necessary or desirable as
a condition of, or in connection with the issuance of shares of Common
Stock pursuant thereto, or the removal of any restrictions imposed on such
shares, such shares of Common Stock shall not be issued or such
restrictions shall not be removed, as the case may be, in whole or in
part, unless such
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listing, registration, qualification, consent or approval shall have
been effected or obtained free of any conditions not acceptable to the
Company.
4.10 WITHHOLDING.
(a) The Company shall have the right to withhold from any payments
made under this Agreement, or to collect as a condition of payment, any
taxes required by law to be withheld. At any time when Executive is
required to pay to the Company an amount required to be withheld under
applicable income tax laws in connection with the issuance of Common Stock
upon exercise of an Option, Executive may satisfy this obligation in whole
or in part by electing (the "Election") to have the Company withhold from
the shares of Common Stock to be issued having a value up to the amount
required to be withheld. The value of the shares to be withheld shall be
based on the Fair Market Value of the Common Stock on the date that the
amount of tax to be withheld shall be determined ("Tax Date").
(b) Each Election must be made prior to the Tax Date. The Company
may disapprove of any Election or may suspend or terminate the right to
make Elections. An Election is irrevocable.
(c) An Election must comply with all of the requirements of the 1934
Act .
4.11 DEFINITION OF FAIR MARKET VALUE. Whenever "Fair Market Value" of
Common Stock shall be determined for purposes of this Article 4, it shall be
equal to the average trading price per share of Common Stock in the public
market during a period of twenty (20) consecutive trading days, based on the
average closing price for those days; provided, however, that if no Company
Stock is traded on any trading day in such 20-day period, the closing price
per share for that day shall be deemed to be the closing price per share on
the last day on which Company Stock was traded.
4.12 GENERAL. The Company shall at all times during the respective
terms of the Options reserve and keep available such number of shares of
Common Stock as will be sufficient to satisfy the requirements of this
Article 4.
ARTICLE 5
EARLY TERMINATION
5.1 EARLY TERMINATION. Subject to the respective continuing obligations
of the parties under Articles 6 and 7, this Article 5 sets forth the terms
for early termination of Executive's employment under this Agreement before
any Change in Control occurs.
5.2 TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate
this Agreement for Cause. For purposes of this Agreement, "Cause" means any
of the following, with respect to Executive's position of employment with the
Company:
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(a) an act or acts of personal dishonesty by Executive that is or
are intended to result in substantial personal enrichment of Executive at
the material expense of the Company;
(b) repeated violations by Executive of his obligations under
Section 2.2 (for reasons other than his Disability), which violations are
demonstrably willful and deliberate on Executive's part and are not
remedied within a reasonable period after Executive's receipt of notice of
such violations from the Company; or
(c) the willful engaging by Executive in illegal conduct that is
materially and demonstrably injurious to the Company.
For purposes of this Section 5.2, no act, or failure to act, on
Executive's part shall be considered "dishonest" "willful" or "deliberate"
unless done, or omitted to be done, by Executive in bad faith and without
reasonable belief that Executive's action or omission was in or not opposed
to, the best interest of the Company. Any act, or failure to act, based upon
authority given pursuant to a resolution duly adopted by the Board or based
upon the advice of counsel for the Company shall be conclusively presumed to
be done, or omitted to be done, by Executive in good faith and in the best
interests of the Company. Furthermore, the term "Cause" shall not include
ordinary negligence or failure to act, whether due to an error in judgment or
otherwise, if Executive has exercised substantial efforts in good faith to
perform the duties reasonably assigned or appropriate to the position.
Notwithstanding the foregoing, Executive shall not be deemed to have
been terminated for Cause unless and until there shall have been delivered to
Executive a copy of a resolution duly adopted by the affirmative vote of not
less than three quarters of the entire membership of the Board, at a meeting
of the Board called and held for the purpose (after reasonable notice to
Executive and an opportunity for Executive, together with Executive's
counsel, to be heard before the Board), finding that in the good faith
opinion of the Board, Executive was guilty of the conduct set forth above in
this Section 5.2 and specifying the particulars thereof in detail. Executive
shall not be entitled to vote as a member of the Board on any such resolution.
5.3 TERMINATION BY EXECUTIVE FOR GOOD REASON. Executive may terminate
his employment under this Agreement for Good Reason in accordance with the
following provisions of this Section 5.3. Termination by Executive for "Good
Reason" shall mean termination of employment based on any one or more of the
following:
(a) An adverse involuntary change in Executive's status or position
as an executive officer of the Company or as Chairman of the Board,
including, without limitation, (i) any adverse change in Executive's
status or position as a result of a material diminution in Executive's
duties, responsibilities or authority as of the Effective Date (or any
status or position to which Executive may be promoted after the date
hereof); (ii) the assignment to Executive of any duties or
responsibilities that, in Executive's reasonable judgment, are
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inconsistent with Executive's status or position; or (iv) any removal of
Executive from, or any failure to reappoint or reelect Executive to, such
positions (except in connection with a termination of Executive's
employment for Cause in accordance with Section 5.2 hereof or as a result
of his Disability or death in accordance with Section 5.4 hereof);
(b) A reduction by the Company in Executive's Base Salary as in
effect as of the Effective Date or as the same may be increased from time
to time; or a change in the eligibility requirements or performance
criteria under any Plan under which Executive is covered as of the
Effective Date, which adversely affects Executive and is not substantially
cured as provided in Section 3.2;
(c) Without replacement (as provided in Section 3.2) by a Plan
providing benefits to Executive equal to or greater than those
discontinued, the failure by the Company to continue in effect, within its
maximum stated term, any Plan in which Executive is participating as of
the Effective Date or the taking of any action by the Company that would
adversely affect Executive's participation or materially reduce
Executive's benefits under any Plan;
(d) The taking of any action by the Company that would materially
adversely affect the physical conditions existing as of the Effective Date
in or under which Executive performs his employment duties;
(e) The Company's requiring Executive to be based anywhere other
than where Executive's office is located as of the Effective Date, except
for required travel on the Company's business to an extent substantially
consistent with the business travel obligations that Executive undertook
on behalf of the Company as of the Effective Date;
(f) The failure by the Company to obtain from any Successor an
assumption of this Agreement as contemplated by Section 8.2;
(g) Any purported termination by the Company of this Agreement or
the employment of the Executive, that is not expressly authorized by this
Agreement; or any breach of this Agreement by the Company other than an
isolated, insubstantial and inadvertent failure not occurring in bad faith
and which is remedied by the Company within a reasonable period after the
Company's receipt of notice thereof from the Executive; or
(h) Any refusal by the Company to continue to allow Executive to
attend to matters or engage in activities not directly related to the
business of the Company that, prior to the Effective Date or any time
thereafter but prior to such refusal, Executive was permitted by the Board
to attend to or engage in.
5.4 TERMINATION IN THE EVENT OF DEATH OR DISABILITY. The Term, and
Executive's employment under this Agreement, shall end in the event of
Executive's death or Disability, as the applicable Date of Termination.
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5.5 TERMINATION BY MUTUAL AGREEMENT. The parties may terminate
Executive's employment under this Agreement at any time by mutual written
agreement; and the Term shall end as of such Date of Termination.
5.6 NOTICE OF TERMINATION; DATE OF TERMINATION; EMPLOYMENT OFFER.
(a) For purposes of this Agreement, a "Notice of Termination" shall
mean a notice that shall indicate the specific termination provisions in
this Agreement relied upon and shall set forth in reasonable detail the
facts and circumstances claimed to provide the basis for such termination.
Any purported termination by the Company or by Executive pursuant to this
Article 5 (other than his death or a termination by mutual agreement
pursuant to Section 5.5) shall be communicated by written Notice of
Termination to the other party hereto.
(b) For purposes of this Agreement, "Date of Termination" shall
mean: (i) if Executive's employment is terminated due to death, the last
day of the month first following the month during which Executive's death
occurs; (ii) if Executive's employment is to be terminated for Disability,
thirty (30) calendar days after Notice of Termination is given; (iii) if
Executive's employment is terminated by the Company for Cause or by
Executive for Good Reason, the date specified in the Notice of
Termination; (iv) if Executive's employment is terminated by mutual
agreement of the parties, the date specified in such agreement; or (v) if
Executive's employment is terminated for any other reason, the date
specified in the Notice of Termination, which in no event shall be a date
earlier than ninety (90) calendar days after the date on which a Notice of
Termination is given, unless an earlier date has been expressly agreed to
by Executive in writing either in advance of, or after, receiving such
Notice of Termination; provided, however, if within thirty (30) calendar
days after giving of a Notice of Termination the recipient of the Notice
of Termination notifies the other party that a dispute exists concerning
the termination, then the Date of Termination shall be the date on which
the dispute is finally determined, whether by mutual written agreement of
the parties, by final and binding arbitration or by final judgment, order
or decree of a court of competent jurisdiction (the time for appeal
therefrom having expired or no appeal having been perfected). During the
pendency of any such dispute and until the dispute is resolved in the
manner provided in the immediately preceding sentence, the Company will
continue to pay Executive all compensation and benefits to which he was
entitled pursuant to Articles 3 and 4 immediately prior to the time the
Notice of Termination is given.
If this Agreement is terminated other than by reason of (a) the
expiration of the original 5-year Term; (b) Executive's Disability or death;
(c) Executive's termination for Cause pursuant to Section 5.2, which
termination for Cause has been agreed to by Executive or has been determined
in a proceeding as provided in Section 8.3 to have been proper; or (d) by
mutual agreement of the parties pursuant to Section 5.5, Executive may, but
shall not be required to, not later than ten (10) days after the Date of
Termination, provide a written offer of continued employment with the
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Company in accordance with the terms of this Agreement which terms shall, in
the case of a termination by Executive for Good Reason pursuant to Section
5.3, include the Company taking any such steps as way be necessary to
eliminate in a manner reasonably satisfactory to Executive any conditions
which created the Good Reason for such termination. Within ten (10) days of
its receipt of such offer, the Company shall provide Executive with a written
acceptance or rejection of such offer. Failure of the Company to so accept
or reject such offer within such period shall be deemed to be a rejection of
such offer. The parties hereby acknowledge that Executive's failure to
provide such offer to the Company shall in no way impair, affect or
constitute a waiver of Executive's right to enforce the Company's obligations
under this Agreement; and the Company shall not assert such failure as a
defense in any action or proceeding by Executive to enforce the Company's
obligation under this Agreement.
5.7 COMPENSATION UPON TERMINATION, DEATH OR DURING DISABILITY.
(a) During any period that Executive fails to perform Executive's
duties hereunder as a result of his incapacity due to physical or mental
illness included in the definition of Disability, Executive shall continue
to receive all Base Salary and other compensation and benefits to which
Executive is otherwise entitled under this Agreement and any Plan through
Executive's Date of Termination, including without limitation any unpaid
balance of his Deferred Employment Bonus under Section 3.7.
(b) If Executive's employment under this Agreement is terminated on
account of Disability or death, the Company shall, within five (5)
calendar days following the Date of Termination, pay any amounts due to
Executive for Base Salary through the Date of Termination, together with
any other unpaid and pro rata amounts to which Executive is entitled as of
the Date of Termination pursuant to Articles 3 and 4, including without
limitation (i) any amounts which Executive is entitled under any Plan in
accordance with the terms of such Plan, (ii) a pro rata portion (prorated
through the Date of Termination) of any annual or long-term bonus or
incentive payments (for performance periods in effect at the Date of
Termination) to which Executive would have been entitled had Executive
remained continuously employed through the end of such performance periods
and continued to perform Executive's duties in the same manner as
performed immediately prior to the Executive's death or Disability and
(iii) any unpaid balance of his Deferred Employment Bonus under Section
3.7.
(c) If Executive's employment under this Agreement is terminated by
the Company for Cause or by Executive for other than Good Reason, the
Company shall pay Executive his Base Salary through the Date of
Termination, any amounts to which the Executive is entitled under any Plan
in accordance with the terms of such Plan and any unpaid balance of his
Deferred Employment Bonus under Section 3.7. The Company shall also pay
any retirement benefits to which Executive is or becomes entitled under
any Plan or otherwise under Section 3.2.
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(d) If Executive's employment under this Agreement is terminated by
the mutual agreement of the parties under Section 5.5, the Company shall
provide Executive with the compensation benefits described in paragraph
(b) of this Section 5.7, except as otherwise specified in that agreement.
(e) If, in breach of this Agreement, the Company terminates
Executive's employment hereunder (it being understood that a purported
termination for Disability or for Cause which is disputed and finally
determined not to have been proper shall be a termination by the Company
in breach of this Agreement), or if Executive terminates his employment
hereunder for Good Reason during the unexpired original 5-year Term,
unless earlier terminated pursuant to Section 5.4 or Section 5.5, the
Company shall, as damages for such breach:
(i) make the payments described in paragraph (b) of this
Section 5.7;
(ii) continue to pay any amounts due to Executive for Base
Salary in accordance with Section 3.1, at the annual rate in effect
thereunder immediately prior to the Date of Termination (but
determined without regard to any purported reduction in Base Salary
which gave rise to such termination of employment) in the same manner
as if Executive had remained continuously employed for a period of
twenty-four (24) months after the Date of Termination;
(iii) cause Executive's continued participation in all Plans in
accordance with Section 3.2, as if Executive remained continuously
employed with the Company throughout the 24-month period described
above for all purposes, including without limitation all grants,
awards, accruals and vesting thereunder; provided, that, if such
continued participation is not permissible under applicable law, the
Company shall at its sole cost and expense provide Executive with
benefits substantially similar to those to which Executive would have
been entitled for such period under those Plans in which Executive's
continued participation is not permissible;
(iv) continue to (A) provide Executive with paid vacation in
accordance with Article 3; (B) bear business expenses of Executive in
accordance with Article 3, with respect to matters reasonably
undertaken by Executive on behalf of the Company; (C) provide
Executive with the automobile allowance described in Article 3; and
(D) provide Executive with offices and facilities in accordance with
Article 3 and in the same manner as if Executive had remained
continuously employed throughout the 24-month period described above;
and
(v) pay any retirement and death benefits to which Executive is
or became entitled pursuant to Section 3.2, without regard to whether
any such compensation or benefits referred to in clauses (i) through
(iv) of this subparagraph (e) constitute excess parachute payments
for purposes of section 280G of the Code.
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(f) Executive shall not be required to mitigate the Company's
payment obligations under this Section 5.7 by making any efforts to secure
other employment for which Executive is reasonably qualified by education,
experience or background; provided, however that if, during any 24-month
period in which Executive is entitled to receive his Base Salary under
paragraph (e)(ii) of this Section 5.7, Executive commences substantially
full-time employment with any other employer, the Company's obligation to
make such Base Salary payments shall be reduced to the extent of any
compensation earned by Executive from the other employer for such period,
regardless of when such compensation is payable. If Executive accepts any
such employment during any such period, he shall provide to the Company
written documentation of his compensation from each new employer for such
period and, if he does not do so, such compensation shall be presumed to
exceed his Base Salary for the period of such employment.
ARTICLE 6
CHANGE IN CONTROL
6.1 DEFINITIONS RELATING TO A CHANGE IN CONTROL. The following terms
shall have the meanings set forth below; unless the context clearly requires
otherwise:
(a) "Beneficial Ownership" by a person or group of persons shall be
determined in accordance with Regulation 13D (or any similar successor
regulation) promulgated by the Securities and Exchange Commission pursuant
to the 1934 Act. Beneficial Ownership of an equity security may be
established by any reasonable method, but shall be presumed conclusively
as to any person who files a Schedule 13D report with the Securities and
Exchange Commission reporting such ownership.
(b) "Change in Control" of the Company shall mean that any of the
following has occurred:
(i) any person (as defined in sections 3 (a)(9) and 13(d)(3)
of the 1934 Act) becomes entitled to Beneficial Ownership, directly
or indirectly, of twenty-five percent (25%) or more of combined
voting power of the Company's outstanding equity securities then
entitled to vote for directors; provided, however, that if any such
person is now entitled to Beneficial Ownership of twenty-five
percent (25%) or more of such voting power as of the date of
execution of this Agreement, the present existence of such ownership
shall not constitute a "Change in Control" unless such person changes
in identity or composition or the same person becomes entitled to
Beneficial Ownership, directly or indirectly, of fifty percent (50%)
of such voting power;
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(ii) the occurrence, within any twelve (12) month period during
the Term, of a change in the Board with the result that the Incumbent
Members no longer constitute a majority of the Board;
(iii) the shareholders of the Company approve an agreement to
merge or consolidate with or into another corporation, but only if
such transaction results in an immediate change in the Board as
described in clause (ii); and, if the Board does not so change, the
resulting entity shall be deemed a Successor and shall thereafter be
liable for all of the Company's obligations hereunder; or
(iv) an agreement to sell or otherwise dispose of all or
substantially all of the Company's assets (including a plan of
liquidation).
(c) "Incumbent Members," with respect to any period, shall mean the
members of the Board on the date immediately preceding the commencement of
such period; provided, however, that any person becoming a member of the
Board during such period whose election or nomination for election was
supported by a majority of the Board members who, on the date of such
election or nomination for election, comprised the Incumbent Members shall
be considered one of the Incumbent Members with respect to such period.
(d) "Change in Control Termination" shall mean that a Change in
Control of the Company has occurred, and either of the following events
also occurs within the period beginning six (6) months immediately before
such Change in Control and ending two (2) years after such Change in
Control: (i) the Company terminates the Executive's employment or this
Agreement for any reason other than for Cause, his death or his Disability
(it being understood that a purported termination for Disability or for
Cause that is finally determined not to have been proper shall not be a
termination for Disability or for Cause); or (ii) Executive terminates his
employment for Good Reason, and any termination by Executive of his
employment for any reason during the thirty (30) day period immediately
following such Change in Control shall be deemed to be for Good Reason.
6.2 BENEFITS UPON A CHANGE IN CONTROL TERMINATION. If a Change in
Control Termination occurs with respect to Executive, he shall be entitled to
the following benefits; provided, however, that to the extent he has already
received the same type of benefits under Article 5 as a result of his Change in
Control Termination, his benefits under this Section 6.2 shall be reduced to
prevent duplication of benefits hereunder:
(a) all of the payments and benefits that Executive would have been
entitled to receive if the Change in Control Termination were described in
Section 5.7(e), except that in lieu of any further Base Salary payments to
Executive for periods subsequent to the Date of Termination, the Company
shall pay to Executive an amount equal to the product of (i) the sum of
(A) Executive's annual Base Salary in effect as of the Date of Termination
and (B) the amount that otherwise would be earned under any executive
compensation Plan in
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which Executive is then participating for the year in which occurs such
Date of Termination, assuming all such funds under such Plan had been
earned, multiplied by (ii) the number 2.99; such payment to be made in a
lump sum on or before the fifth calendar day following the Date of
Termination;
(b) for a period of not less than twenty-four (24) months following
Executive's Date of Termination, the Company will reimburse Executive for
all reasonable expenses incurred by him (but not including any arrangement
by which Executive prepays expenses for a period of greater than thirty
(30) days) in seeking employment with another employer, including the fees
of a reputable out placement organization;
(c) as of the date of the Change in Control Termination, all of
Executive's Options granted under Section 4.1 shall become entirely vested
and immediately exercisable, notwithstanding any contrary provisions of
Section 4.3, except to the extent any of the Options has already become
vested, been exercised or expired according to the terms of this
Agreement;
(d) if the payments provided under paragraph (b) above in lieu of
continuing Base Salary (the "Contract Payment") or any other portion of
the Total Payments (as defined in paragraph (i) below) will be subject to
the tax (the "Excise Tax") imposed by section 4999 of the Code, the
Company shall pay Executive on or before the fifth calendar day following
the Date of Termination, an additional amount (the "Gross-Up Payment")
such that the net amount retained by Executive, after deduction of any
Excise Tax on the Contract Payment and such other Total Payments and any
federal and state and local income tax and Excise Tax upon the payment
provided for by this paragraph (d), shall be equal to the Contract Payment
and such other Total Payments. For purposes of determining whether any of
the payments will be subject to the Excise Tax and determining the amount
of such Excise Tax, the following rules shall apply:
(i) any other payments or benefits received or to be received
by Executive in connection with a Change in Control or Executive's
termination of employment, whether payable pursuant to the terms of
this Agreement or any other plan, arrangement or agreement with the
Company, its Successors, any person whose actions resulted in a
Change in Control or any corporation affiliated (or which, as a
result of the completion of a transaction causing a Change in
Control, will become affiliated) with the Company within the meaning
of Section 1504 of the Code (together with the Contract Payment, the
"Total Payments") shall be treated as "parachute payments" within the
meaning of section 280G(b) (2) of the Code; and all "excess parachute
payments" within the meaning of section 280G(b) (1) shall be treated
as subject to the Excise Tax, unless in the opinion of tax counsel
selected by the Company's independent auditors and acceptable to
Executive the Total Payments (in whole or in part) do not constitute
such parachute payments, or such excess parachute payments (in whole
or in part) represent "reasonable compensation" for
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services actually rendered within the meaning of section 280G(b)(4)
of the Code either in their entirety or in excess of the "base
amount" within the meaning of section 280G(b)(3) of the Code, or
are otherwise not subject to the Excise Tax;
(ii) the amount of the Total Payments that shall be treated as
subject to the Excise Tax shall be equal to the lesser of (A) the
total amount of the Total Payments or (B) the amount of excess
parachute payments within the meaning of section 280G(b)(l) (after
applying paragraph (i) above); and
(iii) the value of any non-cash benefits or any deferred payment
or benefit shall be determined by the Company's independent auditors
in accordance with the principles of sections 280G(d)(3) and (4) of
the Code.
For purposes of determining the amount of the Gross-Up Payment,
Executive shall be deemed to pay federal income taxes at the highest
marginal rate of federal income taxation in the calendar year in which the
Gross-Up Payment is to be made, and state and local income taxes at the
highest marginal rate of taxation in the state and locality of Executive's
residence on the Date of Termination, net of the maximum reduction in
federal income taxes that could be obtained from deduction of such state
and local taxes. In the event that the Excise Tax is subsequently
determined to be less than the amount taken into account hereunder as of
the Date of Termination, Executive shall repay to the Company (at the time
that the amount of such reduction in Excise Tax is finally determined) the
portion of the Gross-Up Payment attributable to such reduction (plus the
portion of the Gross-Up Payment attributable to the Excise Tax and federal
and state and local income tax imposed on the Gross-Up Payment being
repaid by Executive if such repayment results in a reduction in Excise Tax
and/or a federal and state and local income tax deduction), plus interest
on the amount of such repayment at the applicable rate provided in section
1274(d) of the Code. In the event that the Excise Tax is determined to
exceed the amount taken into account hereunder as of the Date of
Termination (including by reason of any payment the existence or amount of
which cannot be determined at the time of the Gross-Up Payment), the
Company shall make an additional Gross-up Payment in respect of such
excess at the time that the amount of such excess is finally determined.
Executive shall not be required to mitigate the Company's payment
obligations under this Section 6.2 by making any efforts to secure other
employment for which Executive is reasonably qualified by education,
experience or background; and Executive's commencement of employment with
another employer shall not reduce the obligations of the Company pursuant to
this Section 6.2.
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ARTICLE 7
CONFIDENTIAL INFORMATION AND COMPETITION
7.1 CONFIDENTIAL INFORMATION. Executive shall not, during the Term or
subsequent to the termination of Executive's employment under this Agreement,
use or disclose, other than in connection with Executive's employment with
the Company, any Confidential Information to any person not employed by the
Company or not authorized by the Company to receive such Confidential
Information, without the prior written consent of the Company. Executive will
use reasonable and prudent care to safeguard and protect and prevent the
unauthorized use and disclosure of Confidential Information. The obligations
contained in this Section 7.1 will survive for as long as the Company in its
sole judgment considers the information to be Confidential Information.
The obligations under this Section 7.1 will not apply to any
Confidential Information that is now or becomes generally available to the
public through no fault of Executive or to Executive's disclosure of any
Confidential Information required by law or judicial or administrative
process.
7.2 NON-COMPETITION. Subject to Sections 7.3 and 7.4, Executive agrees
that, during the Term and for a period of one (1) year following his
termination of Company employment for any reason, Executive will not directly
or indirectly, alone or as an officer, director, shareholder, partner,
member, employee or consultant of any other corporation or any partnership,
limited liability company, firm or other business entity, engage in any
business or commercial activity in competition with any part of the Company's
business as conducted during the Term or as of Executive's Date of
Termination or with any part of the Company's contemplated business with
respect to which Executive has Confidential Information governed by Section
7.1. For purposes of this paragraph, "shareholder" shall not include
beneficial ownership of less than five percent (5%) of the combined voting
power of all issued and outstanding voting securities of a publicly held
corporation whose stock is traded on a major stock exchange or quoted on
NASDAQ.
7.3 COMPETITION AFTER EARLY TERMINATION. Notwithstanding Section 7.2, if
Executive's employment terminates under circumstances which entitle him to
receive damages for breach of this Agreement pursuant to Section 5.7(e) or
benefits under Section 6.2, and the Company fails to provide Executive with
any compensation or benefits due him pursuant to Section 5.7(e) or Section
6.2 and does not remedy such failure within ten (10) days after receipt of
notice of such failure from Executive, the restrictions set forth in Section
7.2 shall cease to apply to Executive for the remainder of the period to
which such restrictions would otherwise apply, notwithstanding any subsequent
remedy of such failure by the Company.
7.4 OPTION TO REVISE. At its sole option, the Company may, by written
notice given to Executive within thirty (30) days after his Date of
Termination, waive or limit the time and/or geographic area in which
Executive is prohibited from engaging in competitive activity under Section
7.2.
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ARTICLE 8
GENERAL PROVISIONS
8.1 NO ADEQUATE REMEDY. Notwithstanding Sections 5.7 and 6.2, the
parties declare that it is impossible to accurately measure in money the
damages which wilt accrue to either party by reason of a failure to perform
any of the obligations under this Agreement. Therefore, if either party
institutes any action or proceeding to enforce the provisions hereof, other
than a claim by Executive for a payment pursuant to Section 5.7 or 6.2, the
party against whom such action or proceeding is brought hereby waives the
claim or defense that such party has an adequate remedy at law, and such
party shall not assert in any such action or proceeding the claim or defense
that such party has an adequate remedy at law.
8.2 SUCCESSORS AND ASSIGNS.
(a) For purposes of this Agreement, "Successor" shall mean any
corporation, individual, group, association, partnership, limited
liability company, firm, venture or other entity or person that,
subsequent to the date hereof, succeeds to the actual or practical ability
to control (either immediately or with the passage of time), or
substantially all of the Company and/or the Company's business and/or
assets, directly or indirectly, by merger, consolidation,
recapitalization, purchase, liquidation, redemption, assignment, similar
corporate transaction, operation of law or otherwise.
(b) This Agreement shall be binding upon and inure to the benefit of
any Successor of the Company and each Subsidiary, and any such Successor
shall absolutely and unconditionally assume all of the Company's and any
Subsidiary's obligations hereunder. Upon Executive's written request, the
Company will seek to have any Successor, by agreement in form and
substance satisfactory to Executive, assent to the fulfillment by the
Company of their obligations under this Agreement. Failure to obtain such
assent at least three (3) business days prior to the time a person or
entity becomes a Successor (or where the Company does not have at least
three (3) business days advance notice that a person or, entity may become
a Successor, within one (1) business day after having notice that such
person or entity may become or has become a Successor) shall constitute
Good Reason for termination by Executive of employment pursuant to Section
5.3.
(c) This Agreement and all rights of Executive hereunder shall inure
to the benefit of and be enforceable by Executive's personal or legal
representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees and any assignees permitted hereunder.
If Executive should die while any amounts would still be payable to
Executive hereunder if Executive had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to Executive's devise, legatee or other designee
or, if there be no such designee, to Executive's estate. Executive may
not assign this Agreement, in whole or in any part, without the prior
written consent of the Company.
8.3 DISPUTES. Any dispute, controversy or claim for damages arising
under or in connection with this Agreement shall, in Executive's sole
discretion, be settled exclusively by such
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judicial remedies as Executive may seek to pursue or by arbitration in
Minneapolis, Minnesota by a panel of three (3) arbitrators in accordance with
the Commercial Arbitration Rules of the American Arbitration Association (as
then in effect for expedited proceedings). Notwithstanding the foregoing, no
disputant shall be required to seek arbitration regarding any cause of action
that would entitle such disputant to injunctive relief. Each of the
disputants shall be entitled to present evidence and argument to the
arbitrators. The arbitrators shall have the right only to interpret and
apply the provisions of this Agreement (including other applicable
agreements) and may not change any of such provisions. The arbitrators shall
permit reasonable pre-hearing discovery of facts, to the extent necessary to
establish a claim or a defense to a claim, subject to supervision by the
arbitrators.
The determination of the arbitrator shall be conclusive and binding upon
the parties and judgment may be entered on the arbitrators' award by any
court having competent jurisdiction thereof; provided, however; that
Executive shall be entitled to seek specific performance of Executive's right
to be paid until the Date of Termination during the pendency of any dispute
or controversy arising under or in connection with this Agreement. The
Company shall bear all costs and expenses, including attorney's fees, arising
in connection with any arbitration proceeding pursuant to this Section 8.3.
The Company shall be entitled to seek an injunction or restraining order in a
court of competent jurisdiction to enforce the provisions of Article 7.
8.4 LITIGATION EXPENSE. If any party is made or shall become a party to
any litigation (including arbitration) commenced by or against the other
party involving the enforcement of any of the rights or remedies of such
party, or arising on account of a default of the other party in its
performance of any of the other party's obligations hereunder, then the
prevailing party in such litigation shall receive from the other party all
costs incurred by the prevailing party in such litigation, plus reasonable
attorneys' fees to be fixed by the court or arbitrator (as applicable), with
interest thereon from the date of judgment or arbitrator's decision at the
rate of ten percent (10%) or, if less, the maximum rate permitted by law.
8.5 NO OFFSETS. In no event shall any amount payable to Executive
pursuant to this Agreement be reduced for purposes of offsetting, either
directly or indirectly any indebtedness or liability of Executive to the
company.
8.6 NOTICES. All notices, requests and demands given to or made
pursuant hereto shall, except as otherwise specified herein, be in writing
and be personally delivered or mailed postage prepaid, registered or
certified U. S. mail, to any party as its address set forth on the last page
of this Agreement. Either party may, by notice hereunder, designate a changed
address. Any notice hereunder shall be deemed effectively given and received:
(a) if personally delivered, upon delivery; or (b) if mailed, on the
registered date or the date stamped on the certified mail receipt.
8.7 CAPTIONS. The various headings or captions in this Agreement are
for convenience only and shall not affect the meaning or interpretation of
this Agreement. When used herein, the terms "Article" and "Section" mean an
Article or Section of this Agreement, except as otherwise stated.
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8.8 GOVERNING LAW. The validity, interpretation, construction,
performance, enforcement and remedies of or relating to this Agreement, and
the rights and obligations of the parties hereunder, shall be governed by the
substantive laws of the State of Minnesota (without regard to the conflict of
laws rules or statutes of any jurisdiction), and any and every legal
proceeding arising out of or in connection with this Agreement shall be
brought in the appropriate courts of the State of Minnesota, each of the
parties hereby consenting to the exclusive jurisdiction of said courts for
this purpose.
8.9 CONSTRUCTION. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by
or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity without invalidating the
remainder of such provision or the remaining provisions of this Agreement.
8.10 WAIVER. No failure on the part of either party to exercise, and
no delay in exercising, any right or remedy hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any right or
remedy hereunder preclude any other or further exercise thereof or the
exercise of any other right or remedy granted hereby or by any related
document or by law.
8.11 MODIFICATION. This Agreement may not be modified or amended except
by written instrument signed by the parties hereto.
8.12 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
and understanding between the parties hereto in reference to all the matters
herein agreed upon. This Agreement replaces in full all prior employment
agreements or understandings of the parties hereto, and any and all such
prior agreements or understandings are hereby rescinded by mutual agreement.
8.13 SURVIVAL. The parties expressly acknowledge and agree that the
provisions of this Agreement which by their express or implied terms extend
(a) beyond the termination of Executive's employment hereunder, including
without limitation Sections 3.2 (relating to any Plan benefits), 5.7
(relating to severance compensation) and Section 6.2 (relating to effects of
a Change in Control); or (b) beyond the termination of this Agreement,
including, without limitation Article 7 (relating to confidential information
and non-competition), shall continue in full force and effect notwithstanding
Executive's termination of employment hereunder or the termination of this
Agreement, respectively.
[The balance of this page is intentionally left blank.]
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IN WITNESS WHEREOF, the parties hereto have caused this Executive
Employment Agreement to be duly executed and delivered on the day and year
first above written, but effective retroactively as of the Effective Date.
COMPANY: GREENTREE SOFTWARE, INC.
By /s/ Brad Markowitz
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Its Director
-----------------------------
Company's Address: 7901 Flying Cloud Drive, Suite 150
Eden Prairie, Minnesota 55344
EXECUTIVE: /s/ Joseph D. Mooney, Sr.
---------------------------------
Joseph D. Mooney, Sr.
Executive's Address: 4100 Lotus Drive
Minnetrista, Minnesota 55331
COMPANY: GREENTREE SOFTWARE, INC.
By /s/ Jeff B. Pinkerton
------------------------------
Jeff B. Pinkerton
Its President
-----------------------------
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<PAGE>
FIRST AMENDMENT TO THE
EXECUTIVE EMPLOYMENT AGREEMENT OF
JOSEPH D. MOONEY
This Amendment and Correction to the Executive Employment Agreement
dated February 2, 1998, by and between Greentree Software, Inc., a New York
Corporation with its principal business office in the State of Minnesota
(hereinafter the "Company") and Joseph D. Mooney, Sr. a Minnesota resident
(hereinafter "Executive") is made and entered into on this 14th day of April,
1998.
AGREEMENT
In consideration of the parties' mutual covenants and undertakings, the
Company and the Executive agree to amend certain paragraphs of the Executive
Compensation Agreement as follows:
3.7 DEFERRED EMPLOYMENT BONUS. To induce Executive to commence
employment with the Company before this Agreement was executed, the
Company promised to pay him a deferred employment bonus equal to
One Hundred Seventy-Five Thousand Dollars ($175,000.00), either in
cash or in the form of Company Stock, whichever he elects after the
Company notifies him from time to time of the current value of the
Company Stock that may be used n payment of such bonus (the
"Deferred Employment Bonus"). Executive and the Company hereby
acknowledge that the Company has paid (and Executive has accepted)
$60,000.00of such bonus in the form of 20,000 shares of Common
Stock issued to him in 1997, thereby reducing the unpaid balance of
the Deferred Employment Bonus to $115,000.00. The Company hereby
confirms that its obligation to pay such unpaid balance of the
Deferred Employment Bonus remains in effect, is not subject to any
risk of forfeiture by Executive and shall be performed as follows.
[the balance of paragraph 3.7 shall remain unchanged]
3.8 FACILITATOR'S FEE ON SALE. In the event that, at any time during
the Term or within one (1) year after Executive's Date of
Termination, a majority of the Company Stock or substantially all
of its assets is sold or exchanged in any transaction that results
in the receipt, by those Company shareholders who sell or exchange
their Company Stock in (or as a result of) that transaction, of
consideration valued at an amount per share of the Company Stock
transferred by them that is equal to or greater than the average
closing price of the Company Stock traded in the public market
during the period of twenty (20) consecutive trading days ended on
the trading day immediately preceding the closing date of such
transaction (if no Company Stock is traded on any trading day in
such 20 day period, the
<PAGE>
closing price per share for that day shall be deemed to be the
closing price per share on the last day on which Company Stock was
traded), the Executive shall be entitled to receive a facilitator's
fee in an amount equal to 2% of the gross amount of such
consideration up to a maximum of $400,000.00; and such fee shall be
payable by the Company upon the closing of such transaction, in
addition to any amounts due Executive under Articles 3,4, 5 and 6
(as a result of that transaction or otherwise).
4.1 OPTION GRANTS. The effective date of Option Grant of the Second
Option shall be January 14, 1998.
5.7 COMPENSATION UPON TERMINATION, DEATH OR DURING DISABILITY.
(e)
(iii) cause Executive's continued participation in all Plans
in accordance with Section 3.2, as if Executive remained
continuously employed with the Company for a period of 12 months
after the Date of Termination, for all purposes, including without
limitation all grants, awards, accruals and vesting thereunder;
provided, that, if such continued participation is not permissible
under applicable law, the Company shall at its sole cost and
expense provide Executive with benefits substantially similar to
those to which Executive would have been entitled for such period
under those Plans in which Executive's continued participation is
not permissible;
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to the Executive Employment Agreement of Joseph D. Mooney, Sr. to be duly
executed and delivered on the day and year first above written, but effective
retroactively as of the Effective Date except as otherwise provided.
COMPANY GREENTREE SOFTWARE, INC.
By /s/ Philip D. Wolf
-----------------------------
Its Chief Financial Officer
-----------------------------
Company's Address: 7901 Flying Cloud Drive, Suite 150
Eden Prairie, Minnesota 55344
<PAGE>
EXECUTIVE: /s/ Joseph D. Mooney, Sr.
---------------------------------
Joseph D. Mooney, Sr.
Executive's Address: 4100 Lotus Drive
Minnetrista, Minnesota 55331
The undersigned member of the Board of the Company hereby certifies that
this Agreement has been duly approved by resolutions of the Board, without
the participation by the Executive who is party to this Agreement.
/s/ Brad Markowitz
---------------------------------
Brad Markowitz, Director
<PAGE>
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT is made and entered into on this 1st
day of April, 1998, but effective as of the 15th day of December, 1996 (the
"Effective Date"), by and between GREENTREE SOFTWARE, INC., a New York
corporation with its principal business office in the State of Minnesota
(hereinafter the "Company"); and JEFF PINKERTON, a Massachusetts resident now
employed at the Company's Massachusetts production facility (hereinafter
"Executive").
INTRODUCTION
A. From and after the Effective Date, Executive has been and is
presently employed by the Company in the capacity of President (reporting to
the Company's Chief Executive Officer) and serves as a member of the
Company's Board.
B. Executive possesses certain unique skills, talents, contacts,
judgment and knowledge of the Company business, strategies, ethics and
objectives.
C. In order to provide for continuity in the executive management of
the Company, which continuity is deemed to be vital to the continued growth
and success of the Company; and in order that the Company may continue to
avail itself of the unique skills, talents, contacts, judgment and knowledge
of Executive, the Company desires to ensure the retention of Executive in the
employ of the Company and to obtain his promises not to harm the Company, as
set forth in Article 7.
D. Executive desires to be assured of a secure tenure with the
Company; duties and responsibilities commensurate with Executive's education,
experience and background; and salary, bonus, incentive compensation, a
Company stock option and other benefits and perquisites at levels that
reflect Executive's past contributions and anticipated future contributions
to the Company.
E. Articles 5 and 6 describe the severance compensation that the
Company intends to pay to the Executive if his employment with the Company
terminates under certain circumstances described therein, including without
limitation his employment in connection with a Change in Control (as defined
below).
AGREEMENT
NOW, THEREFORE, in consideration of the facts recited above, which are a
part of this Agreement, and the parties' mutual covenants and undertakings
contained in this Agreement, the Company and Executive agree as follows:
<PAGE>
ARTICLE 1
DEFINITIONS
Capitalized terms used in this Agreement shall have their defined
meaning throughout the Agreement. The following terms shall have the meanings
set forth below; unless the context clearly requires otherwise.
1.1 "Agreement" means this Executive Employment Agreement, as from time
to time amended.
1.2 "Base Salary" means the total annual cash compensation payable to
Executive on a regular periodic basis under Section 3.1, without regard to
any voluntary salary deferrals or reductions to fund employee benefits.
1.3 "Beneficiary" means the person or persons designated in writing to
the Company by Executive to receive benefits payable after Executive's death
pursuant to Sections 3.7 or 3.8. In the absence of any such designation or
in the event that all of the persons so designated predecease Executive,
Beneficiary means the executor, administrator or personal representative of
Executive's estate.
1.4 "Board" means the Board of Directors of the Company.
1.5 "Cause" has the meaning set forth in Section 5.2.
1.6 "Change in Control" has the meaning set forth in Section 6.1.
1.7 "Code" shall mean the Internal Revenue Code of 1986, as amended (or
any successor thereto); and any Treasury Regulations issued thereunder.
1.8 "Company" means all of the following, jointly and severally: (a)
Greentree Software, Inc., (b) any Subsidiary thereof and (c) any Successor
thereto.
1.9 "Company Stock" means the voting common stock of the Company.
1.10 "Confidential Information" means information that is proprietary to
the Company or proprietary to others and entrusted to the Company; whether or
not such information includes trade secrets. Confidential Information
includes, but is not limited to, information relating to the Company's
business plans and to its business as conducted or anticipated to be
conducted, and to its past or current or anticipated products. Confidential
Information also includes, without limitation, information concerning the
Company's research, development, purchasing, accounting, marketing, selling
and services. All information that Executive has a reasonable basis to
consider as confidential shall be Confidential Information, whether or not
originated by Executive and without regard to the manner in which Executive
obtains access to this and any other proprietary information of the Company.
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<PAGE>
1.11 "Date of Termination" has the meaning set forth in Section 5.6(b).
1.12 "Disability" means the unwillingness or inability of Executive to
perform the essential functions of his position (with or without reasonable
accommodation) under this Agreement for a period of eighteen (18) consecutive
months because of his incapacity due to physical or mental illness, bodily
injury or disease, if within thirty (30) days after Notice of Termination is
thereafter given by the Company the Executive shall not have returned to the
full-time performance of the Executive's duties; provided, however, that if
Executive (or his legal representative, if applicable) does not agree with a
determination to terminate his employment hereunder because of Disability,
the question of Executive's Disability shall be subject to the certification
of a qualified medical doctor mutually agreed to by the Company and Executive
(or, in the event of the Executive's incapacity to designate a doctor, the
Executive's legal representative). In the absence of such agreement, each
party shall nominate a qualified medical doctor and the two doctors shall
select a third doctor, who shall make the determination as to Disability.
The decision of the designated physician shall be binding upon the parties
hereto.
1.13 "Executive" means Jeff Pinkerton.
1.14 "Good Reason" has the meaning set forth in Section 5.3.
1.15 "Notice of Termination" has the meaning set forth in Section 5.6(a).
1.16 "1934 Act" shall mean the Securities Exchange Act of 1934, as
amended (or any successor provision).
1.17 "Plan" means any bonus or incentive compensation agreement, plan,
program, policy or arrangement sponsored, maintained or contributed to by the
Company; to which the Company is a party or under which employees of the
Company are covered, including, without limitation, (a) any stock option,
restricted stock or any other equity-based compensation plan; (b) any annual
or long-term incentive (bonus) plan; (c) any employee benefit plan, such as a
thrift, pension, profit sharing, deferred compensation, medical, dental,
disability income, accident, life insurance, automobile allowance,
perquisite, fringe benefit, vacation, sick or parental leave, severance or
relocation plan or policy and (d) any other agreement, plan, program, policy
or arrangement intended to benefit employees or executive officers of the
Company.
1.18 "Subsidiary" means any corporation or other business entity that is
controlled by the Company.
1.19 "Successor" has the meaning set forth in Section 8.2(a).
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<PAGE>
1.20 "Term" means the term of this Agreement and the employment of
Executive under this Agreement, as described in Section 2.3.
ARTICLE 2
EMPLOYMENT, DUTIES AND TERM
2.1 EMPLOYMENT. Upon the terms and conditions set forth in this
Agreement, the Company hereby employs Executive, and Executive accepts such
employment as President (reporting to the Company's Chief Executive Officer);
and shall serve as a member of the Board. Except as expressly provided
herein, termination of this Agreement by either party or by mutual agreement
of the parties shall also terminate Executive's employment by the Company.
2.2 DUTIES. During the Term, and excluding any periods of vacation,
sick, Disability or other leave to which Executive is entitled, Executive
agrees to devote substantially all of his attention and time during normal
business hours to the business and affairs of the Company and, to the extent
necessary to discharge the responsibilities assigned to Executive hereunder
and under the Company's bylaws, as amended from time to time to use
Executive's reasonable best efforts to perform faithfully and efficiently
such responsibilities.
During the Term, it shall not be a violation of this Agreement for
Executive to serve on corporate, civic or charitable boards or committees,
deliver lectures, fulfill speaking engagements or teach at educational
institutions and manage personal investments, so long as such activities do
not significantly interfere with the performance of Executive's
responsibilities as an employee of the Company in accordance with this
Agreement. It is expressly understood and agreed that to the extent that any
such activities have been conducted by Executive prior to the Effective Date,
the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall
not thereafter be deemed to interfere with the performance of Executive's
responsibilities to the Company. Executive shall comply with the Company's
policies and procedures; provided, however, that to the extent such policies
and procedures are inconsistent with this Agreement, the provisions of this
Agreement shall control.
2.3 TERM. Subject to the termination provisions of Article 5, the
original Term of this Agreement and the employment of Executive under this
Agreement shall be a five (5) year period commencing on the Effective Date;
and such Term shall be automatically renewed and such employment continued
for additional successive one (1) year periods unless terminated by either
party as provided herein.
2.4 CERTAIN PROPRIETARY INFORMATION. If Executive possesses any
proprietary information of another person or entity as a result of any prior
employment or relationship, Executive shall honor any legal obligation that
Executive has with that person or entity with respect to such proprietary
information.
-4-
<PAGE>
2.5 OWNERSHIP OF COMPANY PROPERTY. Executive agrees that all property
in Executive's possession belonging to Company, including without limitation,
all documents, reports, manuals, memoranda, computer print-outs, customer
lists, credit cards, keys, identification, products, access cards,
automobiles and all other property relating in any way to the business of the
Company are the exclusive property of the Company, even if Executive
authored, created or assisted in authoring or creating, such property.
Executive shall return to the Company all such documents and property
immediately upon termination of his Company employment or at such earlier
time as the Company may reasonably request.
2.6 DISCLOSURE AND ASSIGNMENT OF INVENTIONS AND OTHER WORKS. Executive
shall promptly disclose to the Company in writing any and all inventions and
works of authorship now or hereafter conceived, made, discovered, written or
created by Executive alone or jointly with another person, group, or entity,
whether during the normal hours of Executive's employment at the Company or
on his own time, during the term of this Agreement and for one year after
termination of this Agreement. For the purposes of this agreement,
"inventions" include, but are not limited to: (a) machinery, apparatus,
products, processes, computer hardware, information systems and software
(including, without limitation, source code, object code, documentation,
diagrams and flow charts); and (b) any other discoveries, concepts and ideas,
whether patentable or not (including, without limitation, processes, methods,
formulas and techniques, as well as improvements thereof or know-how related
thereto, concerning any present or prospective activities of the Company).
Executive shall assign to the Company in writing all of his rights,
title and interests (of whatsoever kind or nature) in and to all such
inventions and works of authorship. Executive shall also give the Company
all the assistance it reasonably requires in order for the Company to
perfect, protect, and use its rights to inventions and works of authorship.
Executive shall sign all applications for patents, and any assignments
thereof or interest therein, required by the Company in connection therewith;
and shall also sign all other writings, perform all other acts and supply all
information that the Company considers necessary or desirable in order to (a)
transfer or record the transfer of Executive's entire right, title and
interest in such inventions and works of authorship; and (b) enable the
Company to obtain exclusive patent, copyright or other legal protection for
such inventions and works of authorship. The Company shall bear any
reasonable expenses in this regard.
Executive understands and agrees that nothing in this Agreement shall
require the Company to accept Executive's assignment or other conveyance of
any interest in any invention or patent or to prosecute any patent
application or other proceeding, other than as Company may desire in its sole
discretion.
2.7 ADDITIONAL EXCLUSIONS. Schedule A to this Agreement describes all
inventions and works of authorship (if any) that Executive owns or controls,
and such items shall be excluded from the operation of Section 2.6 of this
Agreement. Executive represents that the inventions and works of authorship
described on Schedule A (if any) were conceived, made, written or created by
him prior to employment with the Company, its subsidiaries or affiliates.
Other than any inventions and works of authorship described in Schedule A,
Executive represents that he does not own or control
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<PAGE>
rights in any inventions or works of authorship and Executive warrants and
covenants that he shall not assert any such rights against the Company.
ARTICLE 3
COMPENSATION, BENEFITS AND EXPENSES
3.1 BASE SALARY. Subject to Section 5.7(a), during the Term and for as
long thereafter as may be required by Articles 5 and 6, the Company shall pay
Executive a Base Salary at an annual rate that is not less than One Hundred
Fifty Thousand Dollars ($150,000.00) or such higher annual rate as may from
time to time be approved by the Board, such Base Salary to be paid in
substantially equal regular periodic payments in accordance with the
Company's regular payroll practices. If Executive's Base Salary is increased
from time to time during the Term, the increased amount shall become the Base
Salary for the remainder of the Term and for as long thereafter as may be
required by Articles 5 and 6, subject to any subsequent increases.
3.2 OTHER COMPENSATION AND BENEFITS. During the Term and for as long
thereafter as may be required by Articles 5 and 6:
(a) the Company shall continue in full force and effect all
Plans in which Executive is participating as of the Effective Date or in
which Executive becomes entitled to participate after the Effective Date
(or Plans providing Executive with at least substantially similar
benefits) other than as a result of the normal expiration of any such
Plan accordance with its terms as in effect as of the Effective Date or
the date as of which Executive first becomes entitled to participate in
such Plan, as the case may be; and
(b) the Company shall not take or omit to take any action that
would adversely affect Executive's continued participation in any such
Plan on at least as favorable a basis to Executive as is the case on the
Effective Date or the date as of which Executive first becomes entitled
to participate in such Plan, as the case may be; or that would
materially reduce Executive's benefits in the future under any such Plan
or deprive Executive of any material benefit enjoyed by Executive as of
the Effective Date or the date as of which Executive first becomes
entitled to participate in such Plan, as the case may be; provided,
however, that
(c) the Company may in its sole discretion amend or terminate any
Plan that provides benefits generally to employees in addition to its
executive officers and, if it does so in a way that has a materially
adverse effect on Executive, the Company shall provide Executive with a
separate benefit arrangement that substantially maintains for him the
benefits otherwise reduced or eliminated by such amendment or
termination, to the extent permitted by applicable law and insurance
underwriting practices.
Executive shall also be entitled to participate in or receive benefits
under any Plan made available by the Company in the future to its executives
and key management employees, subject to and on a basis consistent with the
terms, conditions and overall administration of such Plans and
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<PAGE>
the preceding provisions of this Section 3.2. Nothing paid to Executive
under any Plan presently in effect or made available in the future shall be
deemed to be in lieu of the Base Salary, bonuses, incentives or compensation
of any other nature otherwise payable to Executive.
3.3 VACATION. For the 1997 calendar year and each subsequent calendar
year that begins during the Term, and for each calendar year thereafter as
may be required pursuant to Articles 5 and 6, Executive shall be entitled to
at least twenty (20) paid vacation days, pro-rated for any partial calendar
year. The time or times at which such vacation days are to be taken shall be
reasonably determined by Executive consistent with Executive's duties and
obligations under this Agreement. Any such vacation days that are unused at
the end of any calendar year may be carried over and used in a subsequent
calendar year, in addition to the vacation days earned in such subsequent
year; provided, however, that if the number of such unused vacation days
exceeds forty (40) days at the end of any calendar year, such excess vacation
days shall be forfeited. The value of any accrued vacation days that remain
unused upon Executive's Date of Termination shall be payable by the Company
to him in cash pursuant to Articles 5 and 6.
3.4 BUSINESS EXPENSES AND INDEMNIFICATION. During the Term and as for
as long thereafter as may be required by Articles 5 and 6, the Company shall,
in accordance with, and to the extent of, its uniform policies in effect from
time to time, pay or reimburse all ordinary and necessary business expenses
incurred by Executive in performing Executive's duties as an executive
officer and director of the Company, including without limitation all travel
and living expenses while away from home on business in the service of the
Company, home telephone expenses, social and civic club membership and
participation expenses and entertainment expenses; provided, however, that
Executive accounts promptly for such expenses to the Company in the manner
reasonably prescribed from time to time by the Company. To facilitate
payment of such expenses, Executive shall be furnished with the use of a
corporate credit card.
The Company shall pay Executive's reasonable attorneys' fees and
expenses incurred in connection with drafting and negotiating this Agreement.
To the fullest extent permitted by applicable law, Executive shall have
no personal liability to the Corporation or its shareholders for any breach
of fiduciary duty or other duties as an officer, employee or director of the
Company. The Company shall defend and indemnify Executive, to the fullest
extent permitted by applicable law, against any claim, damages, loss, costs
or expenses (including fees of experts and attorneys employed by him)
resulting from any alleged breach of duty.
3.5 AUTOMOBILE ALLOWANCE. During the Term and for as long thereafter
as may be required by Articles 5 and 6, the Company shall pay Executive a
cash automobile allowance equal to Six Hundred Fifty Dollars ($650.00)
monthly, payable in the same manner as his Base Salary.
3.6 OFFICE AND FACILITIES. During the Term, the Company shall furnish
Executive with (a) office space at least equivalent in size, quality,
furnishings and in other respects to the office
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<PAGE>
space provided him as of the Effective Date; and (b) full-time secretarial
service, together with such other reasonable facilities and services as are
suitable, necessary and appropriate for his position.
3.7 LIMITATION ON RIGHT TO DEFERRED COMPENSATION. The rights of
Executive, or his beneficiaries or estate, to any deferred compensation under
this Agreement shall be solely those of an unsecured creditor of the Company.
Neither Executive nor any of his beneficiaries or estate shall be entitled to
assign or transfer (except to the Company) any right to receive any part of
any deferred compensation amounts hereunder and, in the event of any attempt
to assign or transfer any of such amounts, the Company shall have no further
liability hereunder for such amounts.
ARTICLE 4
STOCK OPTION
4.1 OPTION GRANT. Subject to the terms and conditions of this
Agreement, the Company hereby irrevocably grants to Executive the following
right and option (the "Option") to purchase all or any part of the aggregate
number of shares of Company Stock of the Company set forth in the following
table, opposite the date such grant became effective (such number being
subject to adjustment as provided in Section 4.8):
<TABLE>
<CAPTION>
Effective Date of Option Grant Number of Shares
------------------------------ ----------------
<S> <C>
Execution Date of this Agreement 200,000
</TABLE>
4.2 PURCHASE PRICE. The purchase price of the shares of Common Stock
covered by the Option shall be One Dollar ($1.00) per share.
4.3 VESTING OF OPTION. Executive's right to exercise all or any
portion of the Option is entirely vested and may be exercised as provided in
this Agreement, at any time before such Option expires pursuant to this
Agreement.
4.4 EXPIRATION OF OPTION. Except as otherwise provided in this
Agreement, the Option shall be exercisable for five (5) years from the
effective date of its grant as stated in the table set forth in Section 4.1;
provided, however, that in the event that Executive ceases to be employed by
the Company, for any reason or no reason, with or without Cause, Executive or
his legal representative shall have no more than twelve (12) months from his
Date of Termination to exercise all or any portion of the Option pursuant to
Section 4.3 of this Agreement. The Option shall terminate and become null
and void upon the expiration of such 12-month period or, if earlier, upon the
expiration date of the Option, which shall be the last day of such 5-year
period.
4.5 MANNER OF EXERCISE. The Option may be exercised, in whole or in
part, by giving written notice to the Company, specifying that the Option is
being exercised and specifying the number of shares of Common Stock to be
purchased, and accompanied by the full purchase price
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<PAGE>
for such shares. The purchase price shall be payable in United States
dollars upon any exercise of the Option and may be paid in any of the
following ways:
(a) by delivery of cash, uncertified or certified check, bank draft;
(b) by a written offer to release the Company from its obligation to
pay Executive (or, if he has died, the Option holder) a specified amount
and type of unpaid cash compensation earned by Executive and otherwise
payable as of the date of such exercise, that is equal to the purchase
price, except that such offer shall not include any amount of such
compensation that must be withheld by the Company to cover withholding
taxes required by applicable law, pursuant to Section 4.10 or otherwise;
(c) by delivery of shares of Common Stock in payment of all or any
part of the purchase price, which shares shall be valued for this purpose
at the Fair Market Value (as determined under Section 4.11) as of the date
such Option is exercised; or
(d) by instructing the Company to withhold from the shares of Common
Stock issuable upon exercise of the Option, shares of Common Stock, in
payment of all or any part of the purchase price, which shares shall be
valued for this purpose at their then Fair Market Value or in such other
manner as may be authorized from time to time by the Company.
4.6 RIGHTS AS OPTION HOLDER. Executive, as holder of the Option, shall
not have any of the rights of a shareholder with respect to the shares
covered by such Option, except to the extent that one or more certificates
for such shares shall be delivered to him upon the due exercise of all or any
part of such Option.
4.7 LIMITATIONS ON OPTION TRANSFERABILITY. No portion of the Option
shall be transferable otherwise than by will, other testamentary instrument
or the laws of descent and distribution; and each Option may be exercised,
during the lifetime of Executive, only by Executive; provided, however, that
during his lifetime Executive may assign all or any portion of the Option as
follows: (a) to his spouse or one or more of his children or other
descendants (or any combination thereof); or (b) any trust for the primary
benefit of Executive or any of the foregoing individuals. More particularly
(but without limiting the generality of the foregoing), except as permitted
by the preceding sentence, no portion of the Option may be assigned,
transferred (except as provided above), pledged or hypothecated in any way;
shall not be assignable by operation of law and shall not be subject to
execution, attachment, or similar process. Any attempted assignment,
transfer, pledge, hypothecation or other disposition of any portion of the
Option contrary to the provisions hereof; and any levy of any execution,
attachment, or similar process upon any portion of the Option shall be null
and void and without effect.
Executive acknowledges that any transfer of an Option that is permitted
by the preceding paragraph may be a taxable event to the extent required by
applicable tax law, to the extent of any
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consideration received by Executive, or any obligation of Executive that is
satisfied, in connection with such transfer.
4.8 ADJUSTMENT. In the event of any merger, consolidation or
reorganization of the Company with any other corporation or corporations,
there shall be substituted for each of the shares of Common Stock then
subject to the Option, the number and kind of shares of stock or other
securities to which the holders of the shares of Common Stock will be
entitled pursuant to such transaction. In the event of any recapitalization,
stock dividend, stock split, combination of shares, issuance of additional
shares without the Employer's receipt of fair consideration in cash or
property (as determined by the Board pursuant to applicable law), or any
other change in the Common Stock that would have a similar effect, the number
of shares of Common Stock then subject to the Option shall be adjusted in
proportion to the change in outstanding shares of Common Stock. In the event
of any such adjustments, the purchase prices of the Option and the shares of
Common Stock issuable pursuant to the Option shall be equitably adjusted as
and to the extent appropriate, in the discretion of the Board, to provide
Executive with the same relative rights before and after such adjustment.
4.9 ADDITIONAL CONDITION. Notwithstanding anything in this Agreement
to the contrary:
(a) the Company may, if it shall determine it necessary or
desirable for any reason, at the time of the issuance of any shares of
Common Stock pursuant to an Option, require Executive, as a condition to
the receipt of shares of Common Stock issued pursuant thereto, to
deliver to the Company a written representation of present intention to
acquire the shares of Common Stock issued pursuant thereto for his own
account for investment and not for distribution; and
(b) if at any time the Company further determines, in its sole
discretion, that the listing, registration or qualification (or any
updating of any such document) of the shares of Common Stock issuable
pursuant thereto is necessary on any securities exchange or under any
federal or state securities or blue sky law, or that the consent or
approval of any governmental regulatory body is necessary or desirable
as a condition of, or in connection with the issuance of shares of
Common Stock pursuant thereto, or the removal of any restrictions
imposed on such shares, such shares of Common Stock shall not be issued
or such restrictions shall not be removed, as the case may be, in whole
or in part, unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Company.
4.10 WITHHOLDING.
(a) The Company shall have the right to withhold from any payments
made under this Agreement, or to collect as a condition of payment, any
taxes required by law to be withheld. At any time when Executive is
required to pay to the Company an amount required to be withheld under
applicable income tax laws in connection with the issuance of Common
Stock upon exercise of an Option, Executive may satisfy this obligation
in whole
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or in part by electing (the "Election") to have the Company withhold
from the shares of Common Stock to be issued having a value up to the
amount required to be withheld. The value of the shares to be withheld
shall be based on the Fair Market Value of the Common Stock on the date
that the amount of tax to be withheld shall be determined ("Tax Date").
(b) Each Election must be made prior to the Tax Date. The Company
may disapprove of any Election or may suspend or terminate the right to
make Elections. An Election is irrevocable.
(c) An Election must comply with all of the requirements of the 1934
Act .
4.11 DEFINITION OF FAIR MARKET VALUE. Whenever "Fair Market Value" of
Common Stock shall be determined for purposes of this Article 4, it shall be
equal to the average trading price per share of Common Stock in the public
market during a period of twenty (20) consecutive trading days, based on the
average closing price for those days; provided, however, that if no Company
Stock is traded on any trading day in such 20-day period, the closing price
per share for that day shall be deemed to be the closing price per share on
the last day on which Company Stock was traded.
4.12 GENERAL. The Company shall at all times during the term of the
Option reserve and keep available such number of shares of Common Stock as
will be sufficient to satisfy the requirements of this Article 4.
ARTICLE 5
EARLY TERMINATION
5.1 EARLY TERMINATION. Subject to the respective continuing
obligations of the parties under Articles 6 and 7, this Article 5 sets forth
the terms for early termination of Executive's employment under this
Agreement before any Change in Control occurs.
5.2 TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate
this Agreement for Cause. For purposes of this Agreement, "Cause" means any
of the following, with respect to Executive's position of employment with the
Company:
(a) an act or acts of personal dishonesty by Executive that is or
are intended to result in substantial personal enrichment of Executive
at the material expense of the Company;
(b) repeated violations by Executive of his obligations under
Section 2.2 (for reasons other than his Disability), which violations
are demonstrably willful and deliberate on Executive's part and are not
remedied within a reasonable period after Executive's receipt of notice
of such violations from the Company; or
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(c) the willful engaging by Executive in illegal conduct that is
materially and demonstrably injurious to the Company.
For purposes of this Section 5.2, no act, or failure to act, on
Executive's part shall be considered "dishonest" "willful" or "deliberate"
unless done, or omitted to be done, by Executive in bad faith and without
reasonable belief that Executive's action or omission was in or not opposed
to, the best interest of the Company. Any act, or failure to act, based upon
authority given pursuant to a resolution duly adopted by the Board or based
upon the advice of counsel for the Company shall be conclusively presumed to
be done, or omitted to be done, by Executive in good faith and in the best
interests of the Company. Furthermore, the term "Cause" shall not include
ordinary negligence or failure to act, whether due to an error in judgment or
otherwise, if Executive has exercised substantial efforts in good faith to
perform the duties reasonably assigned or appropriate to the position.
Notwithstanding the foregoing, Executive shall not be deemed to have
been terminated for Cause unless and until there shall have been delivered to
Executive a copy of a resolution duly adopted by the affirmative vote of not
less than three quarters of the entire membership of the Board, at a meeting
of the Board called and held for the purpose (after reasonable notice to
Executive and an opportunity for Executive, together with Executive's
counsel, to be heard before the Board), finding that in the good faith
opinion of the Board, Executive was guilty of the conduct set forth above in
this Section 5.2 and specifying the particulars thereof in detail. Executive
shall not be entitled to vote as a member of the Board on any such resolution.
5.3 TERMINATION BY EXECUTIVE FOR GOOD REASON. Executive may terminate
his employment under this Agreement for Good Reason in accordance with the
following provisions of this Section 5.3. Termination by Executive for "Good
Reason" shall mean termination of employment based on any one or more of the
following:
(a) An adverse involuntary change in Executive's status or
position as an executive officer of the Company or as Chairman of the
Board, including, without limitation, (i) any adverse change in
Executive's status or position as a result of a material diminution in
Executive's duties, responsibilities or authority as of the Effective
Date (or any status or position to which Executive may be promoted after
the date hereof); (ii) the assignment to Executive of any duties or
responsibilities that, in Executive's reasonable judgment, are
inconsistent with Executive's status or position; or (iv) any removal of
Executive from, or any failure to reappoint or reelect Executive to,
such positions (except in connection with a termination of Executive's
employment for Cause in accordance with Section 5.2 hereof or as a
result of his Disability or death in accordance with Section 5.4 hereof);
(b) A reduction by the Company in Executive's Base Salary as in
effect as of the Effective Date or as the same may be increased from
time to time; or a change in the eligibility requirements or performance
criteria under any Plan under which Executive is
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covered as of the Effective Date, which adversely affects Executive and
is not substantially cured as provided in Section 3.2;
(c) Without replacement (as provided in Section 3.2) by a Plan
providing benefits to Executive equal to or greater than those
discontinued, the failure by the Company to continue in effect, within
its maximum stated term, any Plan in which Executive is participating as
of the Effective Date or the taking of any action by the Company that
would adversely affect Executive's participation or materially reduce
Executive's benefits under any Plan;
(d) The taking of any action by the Company that would materially
adversely affect the physical conditions existing as of the Effective
Date in or under which Executive performs his employment duties;
(e) The Company's requiring Executive to be based anywhere other
than where Executive's office is located as of the Effective Date,
except for required travel on the Company's business to an extent
substantially consistent with the business travel obligations that
Executive undertook on behalf of the Company as of the Effective Date;
(f) The failure by the Company to obtain from any Successor an
assumption of this Agreement as contemplated by Section 8.2;
(g) Any purported termination by the Company of this Agreement or
the employment of the Executive, that is not expressly authorized by
this Agreement; or any breach of this Agreement by the Company other
than an isolated, insubstantial and inadvertent failure not occurring in
bad faith and which is remedied by the Company within a reasonable
period after the Company's receipt of notice thereof from the Executive;
or
(h) Any refusal by the Company to continue to allow Executive to
attend to matters or engage in activities not directly related to the
business of the Company that, prior to the Effective Date or any time
thereafter but prior to such refusal, Executive was permitted by the
Board to attend to or engage in.
5.4 TERMINATION IN THE EVENT OF DEATH OR DISABILITY. The Term, and
Executive's employment under this Agreement, shall end in the event of
Executive's death or Disability, as the applicable Date of Termination.
5.5 TERMINATION BY MUTUAL AGREEMENT. The parties may terminate
Executive's employment under this Agreement at any time by mutual written
agreement; and the Term shall end as of such Date of Termination.
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5.6 NOTICE OF TERMINATION; DATE OF TERMINATION; EMPLOYMENT OFFER.
(a) For purposes of this Agreement, a "Notice of Termination"
shall mean a notice that shall indicate the specific termination
provisions in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide the
basis for such termination. Any purported termination by the Company or
by Executive pursuant to this Article 5 (other than his death or a
termination by mutual agreement pursuant to Section 5.5) shall be
communicated by written Notice of Termination to the other party hereto.
(b) For purposes of this Agreement, "Date of Termination" shall
mean: (i) if Executive's employment is terminated due to death, the last
day of the month first following the month during which Executive's
death occurs; (ii) if Executive's employment is to be terminated for
Disability, thirty (30) calendar days after Notice of Termination is
given; (iii) if Executive's employment is terminated by the Company for
Cause or by Executive for Good Reason, the date specified in the Notice
of Termination; (iv) if Executive's employment is terminated by mutual
agreement of the parties, the date specified in such agreement; or (v)
if Executive's employment is terminated for any other reason, the date
specified in the Notice of Termination, which in no event shall be a
date earlier than ninety (90) calendar days after the date on which a
Notice of Termination is given, unless an earlier date has been
expressly agreed to by Executive in writing either in advance of, or
after, receiving such Notice of Termination; provided, however, if
within thirty (30) calendar days after giving of a Notice of Termination
the recipient of the Notice of Termination notifies the other party that
a dispute exists concerning the termination, then the Date of
Termination shall be the date on which the dispute is finally
determined, whether by mutual written agreement of the parties, by final
and binding arbitration or by final judgment, order or decree of a court
of competent jurisdiction (the time for appeal therefrom having expired
or no appeal having been perfected). During the pendency of any such
dispute and until the dispute is resolved in the manner provided in the
immediately preceding sentence, the Company will continue to pay
Executive all compensation and benefits to which he was entitled
pursuant to Articles 3 and 4 immediately prior to the time the Notice of
Termination is given.
If this Agreement is terminated other than by reason of (a) the
expiration of the original 5-year Term; (b) Executive's Disability or death;
(c) Executive's termination for Cause pursuant to Section 5.2, which
termination for Cause has been agreed to by Executive or has been determined
in a proceeding as provided in Section 8.3 to have been proper; or (d) by
mutual agreement of the parties pursuant to Section 5.5, Executive may, but
shall not be required to, not later than ten (10) days after the Date of
Termination, provide a written offer of continued employment with the Company
in accordance with the terms of this Agreement which terms shall, in the case
of a termination by Executive for Good Reason pursuant to Section 5.3,
include the Company taking any such steps as way be necessary to eliminate in
a manner reasonably satisfactory to Executive any conditions which created
the Good Reason for such termination. Within ten (10) days of its receipt of
such offer, the Company shall provide Executive with a written acceptance or
rejection of such offer. Failure of the Company to so accept or reject such
offer within such period shall be deemed to be a rejection of such offer.
The parties hereby acknowledge that Executive's failure to provide
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such offer to the Company shall in no way impair, affect or constitute a
waiver of Executive's right to enforce the Company's obligations under this
Agreement; and the Company shall not assert such failure as a defense in any
action or proceeding by Executive to enforce the Company's obligation under
this Agreement.
5.7 COMPENSATION UPON TERMINATION, DEATH OR DURING DISABILITY.
(a) During any period that Executive fails to perform Executive's
duties hereunder as a result of his incapacity due to physical or mental
illness included in the definition of Disability, Executive shall continue
to receive all Base Salary and other compensation and benefits to which
Executive is otherwise entitled under this Agreement and any Plan through
Executive's Date of Termination.
(b) If Executive's employment under this Agreement is terminated
on account of Disability or death, the Company shall, within five (5)
calendar days following the Date of Termination, pay any amounts due to
Executive for Base Salary through the Date of Termination, together with
any other unpaid and pro rata amounts to which Executive is entitled as
of the Date of Termination pursuant to Articles 3 and 4, including
without limitation (i) any amounts which Executive is entitled under any
Plan in accordance with the terms of such Plan, and (ii) a pro rata
portion (prorated through the Date of Termination) of any annual or
long-term bonus or incentive payments (for performance periods in effect
at the Date of Termination) to which Executive would have been entitled
had Executive remained continuously employed through the end of such
performance periods and continued to perform Executive's duties in the
same manner as performed immediately prior to the Executive's death or
Disability.
(c) If Executive's employment under this Agreement is terminated
by the Company for Cause or by Executive for other than Good Reason, the
Company shall pay Executive his Base Salary through the Date of
Termination and any amounts to which the Executive is entitled under any
Plan in accordance with the terms of such Plan. The Company shall also
pay any retirement benefits to which Executive is or becomes entitled
under any Plan or otherwise under Section 3.2.
(d) If Executive's employment under this Agreement is terminated
by the mutual agreement of the parties under Section 5.5, the Company
shall provide Executive with the compensation benefits described in
paragraph (b) of this Section 5.7, except as otherwise specified in that
agreement.
(e) If, in breach of this Agreement, the Company terminates
Executive's employment hereunder (it being understood that a purported
termination for Disability or for Cause which is disputed and finally
determined not to have been proper shall be a termination by the Company
in breach of this Agreement), or if Executive terminates his employment
hereunder for Good Reason during the unexpired original 5-year Term,
unless earlier
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terminated pursuant to Section 5.4 or Section 5.5, the Company shall, as
damages for such breach:
(i) make the payments described in paragraph (b) of this
Section 5.7;
(ii) continue to pay any amounts due to Executive for Base
Salary in accordance with Section 3.1, at the annual rate in effect
thereunder immediately prior to the Date of Termination (but
determined without regard to any purported reduction in Base Salary
which gave rise to such termination of employment) in the same
manner as if Executive had remained continuously employed for a
period of twenty-four (24) months after the Date of Termination;
(iii) cause Executive's continued participation in all Plans in
accordance with Section 3.2, as if Executive remained continuously
employed with the Company throughout the 24-month period described
above for all purposes, including without limitation all grants,
awards, accruals and vesting thereunder; provided, that, if such
continued participation is not permissible under applicable law,
the Company shall at its sole cost and expense provide Executive
with benefits substantially similar to those to which Executive
would have been entitled for such period under those Plans in which
Executive's continued participation is not permissible;
(iv) continue to (A) provide Executive with paid vacation in
accordance with Article 3; (B) bear business expenses of Executive
in accordance with Article 3, with respect to matters reasonably
undertaken by Executive on behalf of the Company; (C) provide
Executive with the automobile allowance described in Article 3; and
(D) provide Executive with offices and facilities in accordance
with Article 3 and in the same manner as if Executive had remained
continuously employed throughout the 24-month period described
above; and
(v) pay any retirement and death benefits to which Executive
is or became entitled pursuant to Section 3.2, without regard to
whether any such compensation or benefits referred to in clauses
(i) through (iv) of this subparagraph (e) constitute excess
parachute payments for purposes of section 280G of the Code.
(f) Executive shall not be required to mitigate the Company's
payment obligations under this Section 5.7 by making any efforts to
secure other employment for which Executive is reasonably qualified by
education, experience or background; provided, however that if, during
any 24-month period in which Executive is entitled to receive his Base
Salary under paragraph (e)(ii) of this Section 5.7, Executive commences
substantially full-time employment with any other employer, the
Company's obligation to make such Base Salary payments shall be reduced
to the extent of any compensation earned by Executive from the other
employer for such period, regardless of when such compensation is
payable. If Executive accepts any such employment during any such
period, he shall provide to the Company written documentation of his
compensation from each new employer for such period and, if he does not
do so, such compensation shall be presumed to exceed his Base Salary for
the period of such employment.
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ARTICLE 6
CHANGE IN CONTROL
6.1 DEFINITIONS RELATING TO A CHANGE IN CONTROL. The following terms
shall have the meanings set forth below; unless the context clearly requires
otherwise:
(a) "Beneficial Ownership" by a person or group of persons shall
be determined in accordance with Regulation 13D (or any similar
successor regulation) promulgated by the Securities and Exchange
Commission pursuant to the 1934 Act. Beneficial Ownership of an equity
security may be established by any reasonable method, but shall be
presumed conclusively as to any person who files a Schedule 13D report
with the Securities and Exchange Commission reporting such ownership.
(b) "Change in Control" of the Company shall mean that any of the
following has occurred:
(i) any person (as defined in sections 3 (a) (9) and 13(d)(3)
of the 1934 Act) becomes entitled to Beneficial Ownership, directly
or indirectly, of twenty-five percent (25%) or more of combined
voting power of the Company's outstanding equity securities then
entitled to vote for directors; provided, however, that if any such
person is now entitled to Beneficial Ownership of twenty-five
percent (25%) or more of such voting power as of the date of
execution of this Agreement, the present existence of such
ownership shall not constitute a "Change in Control" unless such
person changes in identity or composition or the same person
becomes entitled to Beneficial Ownership, directly or indirectly,
of fifty percent (50%) of such voting power;
(ii) the occurrence, within any twelve (12) month period
during the Term, of a change in the Board with the result that the
Incumbent Members no longer constitute a majority of the Board;
(iii) the shareholders of the Company approve an agreement to
merge or consolidate with or into another corporation, but only if
such transaction results in an immediate change in the Board as
described in clause (ii); and, if the Board does not so change, the
resulting entity shall be deemed a Successor and shall thereafter
be liable for all of the Company's obligations hereunder; or
(iv) an agreement to sell or otherwise dispose of all or
substantially all of the Company's assets (including a plan of
liquidation).
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(c) "Incumbent Members," with respect to any period, shall mean
the members of the Board on the date immediately preceding the
commencement of such period; provided, however, that any person becoming
a member of the Board during such period whose election or nomination
for election was supported by a majority of the Board members who, on
the date of such election or nomination for election, comprised the
Incumbent Members shall be considered one of the Incumbent Members with
respect to such period.
(d) "Change in Control Termination" shall mean that a Change in
Control of the Company has occurred, and either of the following events
also occurs within the period beginning six (6) months immediately
before such Change in Control and ending two (2) years after such Change
in Control: (i) the Company terminates the Executive's employment or
this Agreement for any reason other than for Cause, his death or his
Disability (it being understood that a purported termination for
Disability or for Cause that is finally determined not to have been
proper shall not be a termination for Disability or for Cause); or (ii)
Executive terminates his employment for Good Reason, and any termination
by Executive of his employment for any reason during the thirty (30) day
period immediately following such Change in Control shall be deemed to
be for Good Reason.
6.2 BENEFITS UPON A CHANGE IN CONTROL TERMINATION. If a Change in
Control Termination occurs with respect to Executive, he shall be entitled to
the following benefits; provided, however, that to the extent he has already
received the same type of benefits under Article 5 as a result of his Change
in Control Termination, his benefits under this Section 6.2 shall be reduced
to prevent duplication of benefits hereunder:
(a) all of the payments and benefits that Executive would have
been entitled to receive if the Change in Control Termination were
described in Section 5.7(e), except that in lieu of any further Base
Salary payments to Executive for periods subsequent to the Date of
Termination, the Company shall pay to Executive an amount equal to the
product of (i) the sum of (A) Executive's annual Base Salary in effect
as of the Date of Termination and (B) the amount that otherwise would be
earned under any executive compensation Plan in which Executive is then
participating for the year in which occurs such Date of Termination,
assuming all such funds under such Plan had been earned, multiplied by
(ii) the number 2.99; such payment to be made in a lump sum on or before
the fifth calendar day following the Date of Termination;
(b) for a period of not less than twenty-four (24) months
following Executive's Date of Termination, the Company will reimburse
Executive for all reasonable expenses incurred by him (but not including
any arrangement by which Executive prepays expenses for a period of
greater than thirty (30) days) in seeking employment with another
employer, including the fees of a reputable out placement organization;
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(c) as of the date of the Change in Control Termination, all of
the Option granted to Executive under Section 4.1 shall become entirely
vested and immediately exercisable, notwithstanding any contrary
provisions of Section 4.3, except to the extent any portion of the
Option has already become vested, been exercised or expired according to
the terms of this Agreement;
(d) if the payments provided under paragraph (b) above in lieu of
continuing Base Salary (the "Contract Payment") or any other portion of
the Total Payments (as defined in paragraph (i) below) will be subject
to the tax (the "Excise Tax") imposed by section 4999 of the Code, the
Company shall pay Executive on or before the fifth calendar day
following the Date of Termination, an additional amount (the "Gross-Up
Payment") such that the net amount retained by Executive, after
deduction of any Excise Tax on the Contract Payment and such other Total
Payments and any federal and state and local income tax and Excise Tax
upon the payment provided for by this paragraph (d), shall be equal to
the Contract Payment and such other Total Payments. For purposes of
determining whether any of the payments will be subject to the Excise
Tax and determining the amount of such Excise Tax, the following rules
shall apply:
(i) any other payments or benefits received or to be received
by Executive in connection with a Change in Control or Executive's
termination of employment, whether payable pursuant to the terms of
this Agreement or any other plan, arrangement or agreement with the
Company, its Successors, any person whose actions resulted in a
Change in Control or any corporation affiliated (or which, as a
result of the completion of a transaction causing a Change in
Control, will become affiliated) with the Company within the
meaning of Section 1504 of the Code (together with the Contract
Payment, the "Total Payments") shall be treated as "parachute
payments" within the meaning of section 280G(b) (2) of the Code;
and all "excess parachute payments" within the meaning of section
280G(b) (1) shall be treated as subject to the Excise Tax, unless
in the opinion of tax counsel selected by the Company's independent
auditors and acceptable to Executive the Total Payments (in whole
or in part) do not constitute such parachute payments, or such
excess parachute payments (in whole or in part) represent
"reasonable compensation" for services actually rendered within the
meaning of section 280G(b)(4) of the Code either in their entirety
or in excess of the "base amount" within the meaning of section
280G(b)(3) of the Code, or are otherwise not subject to the Excise
Tax;
(ii) the amount of the Total Payments that shall be treated as
subject to the Excise Tax shall be equal to the lesser of (A) the
total amount of the Total Payments or (B) the amount of excess
parachute payments within the meaning of section 280G(b)(l) (after
applying paragraph (i) above); and
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(iii) the value of any non-cash benefits or any deferred
payment or benefit shall be determined by the Company's independent
auditors in accordance with the principles of sections 280G(d)(3)
and (4) of the Code.
For purposes of determining the amount of the Gross-Up Payment,
Executive shall be deemed to pay federal income taxes at the highest
marginal rate of federal income taxation in the calendar year in which
the Gross-Up Payment is to be made, and state and local income taxes at
the highest marginal rate of taxation in the state and locality of
Executive's residence on the Date of Termination, net of the maximum
reduction in federal income taxes that could be obtained from deduction
of such state and local taxes. In the event that the Excise Tax is
subsequently determined to be less than the amount taken into account
hereunder as of the Date of Termination, Executive shall repay to the
Company (at the time that the amount of such reduction in Excise Tax is
finally determined) the portion of the Gross-Up Payment attributable to
such reduction (plus the portion of the Gross-Up Payment attributable to
the Excise Tax and federal and state and local income tax imposed on the
Gross-Up Payment being repaid by Executive if such repayment results in
a reduction in Excise Tax and/or a federal and state and local income
tax deduction), plus interest on the amount of such repayment at the
applicable rate provided in section 1274(d) of the Code. In the event
that the Excise Tax is determined to exceed the amount taken into
account hereunder as of the Date of Termination (including by reason of
any payment the existence or amount of which cannot be determined at the
time of the Gross-Up Payment), the Company shall make an additional
Gross-up Payment in respect of such excess at the time that the amount
of such excess is finally determined.
Executive shall not be required to mitigate the Company's payment
obligations under this Section 6.2 by making any efforts to secure other
employment for which Executive is reasonably qualified by education,
experience or background; and Executive's commencement of employment with
another employer shall not reduce the obligations of the Company pursuant to
this Section 6.2.
ARTICLE 7
CONFIDENTIAL INFORMATION AND COMPETITION
7.1 CONFIDENTIAL INFORMATION. Executive shall not, during the Term or
subsequent to the termination of Executive's employment under this Agreement,
use or disclose, other than in connection with Executive's employment with
the Company, any Confidential Information to any person not employed by the
Company or not authorized by the Company to receive such Confidential
Information, without the prior written consent of the Company. Executive will
use reasonable and prudent care to safeguard and protect and prevent the
unauthorized use and disclosure of Confidential Information. The obligations
contained in this Section 7.1 will survive for as long as the Company in its
sole judgment considers the information to be Confidential Information.
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The obligations under this Section 7.1 will not apply to any
Confidential Information that is now or becomes generally available to the
public through no fault of Executive or to Executive's disclosure of any
Confidential Information required by law or judicial or administrative
process.
7.2 NON-COMPETITION. Subject to Sections 7.3 and 7.4, Executive agrees
that, during the Term and for a period of one (1) year following his
termination of Company employment for any reason, Executive will not directly
or indirectly, alone or as an officer, director, shareholder, partner,
member, employee or consultant of any other corporation or any partnership,
limited liability company, firm or other business entity, engage in any
business or commercial activity in competition with any part of the Company's
business as conducted during the Term or as of Executive's Date of
Termination or with any part of the Company's contemplated business with
respect to which Executive has Confidential Information governed by Section
7.1. For purposes of this paragraph, "shareholder" shall not include
beneficial ownership of less than five percent (5%) of the combined voting
power of all issued and outstanding voting securities of a publicly held
corporation whose stock is traded on a major stock exchange or quoted on
NASDAQ.
7.3 COMPETITION AFTER EARLY TERMINATION. Notwithstanding Section 7.2,
if Executive's employment terminates under circumstances which entitle him to
receive damages for breach of this Agreement pursuant to Section 5.7(e) or
benefits under Section 6.2, and the Company fails to provide Executive with
any compensation or benefits due him pursuant to Section 5.7(e) or Section
6.2 and does not remedy such failure within ten (10) days after receipt of
notice of such failure from Executive, the restrictions set forth in Section
7.2 shall cease to apply to Executive for the remainder of the period to
which such restrictions would otherwise apply, notwithstanding any subsequent
remedy of such failure by the Company.
7.4 OPTION TO REVISE. At its sole option, the Company may, by written
notice given to Executive within thirty (30) days after his Date of
Termination, waive or limit the time and/or geographic area in which
Executive is prohibited from engaging in competitive activity under Section
7.2.
ARTICLE 8
GENERAL PROVISIONS
8.1 NO ADEQUATE REMEDY. Notwithstanding Sections 5.7 and 6.2, the
parties declare that it is impossible to accurately measure in money the
damages which wilt accrue to either party by reason of a failure to perform
any of the obligations under this Agreement. Therefore, if either party
institutes any action or proceeding to enforce the provisions hereof, other
than a claim by Executive for a payment pursuant to Section 5.7 or 6.2, the
party against whom such action or proceeding is brought hereby waives the
claim or defense that such party has an adequate remedy at law, and such
party shall not assert in any such action or proceeding the claim or defense
that such party has an adequate remedy at law.
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8.2 SUCCESSORS AND ASSIGNS.
(a) For purposes of this Agreement, "Successor" shall mean any
corporation, individual, group, association, partnership, limited
liability company, firm, venture or other entity or person that,
subsequent to the date hereof, succeeds to the actual or practical
ability to control (either immediately or with the passage of time), or
substantially all of the Company and/or the Company's business and/or
assets, directly or indirectly, by merger, consolidation,
recapitalization, purchase, liquidation, redemption, assignment, similar
corporate transaction, operation of law or otherwise.
(b) This Agreement shall be binding upon and inure to the benefit
of any Successor of the Company and each Subsidiary, and any such
Successor shall absolutely and unconditionally assume all of the
Company's and any Subsidiary's obligations hereunder. Upon Executive's
written request, the Company will seek to have any Successor, by
agreement in form and substance satisfactory to Executive, assent to the
fulfillment by the Company of their obligations under this Agreement.
Failure to obtain such assent at least three (3) business days prior to
the time a person or entity becomes a Successor (or where the Company
does not have at least three (3) business days advance notice that a
person or, entity may become a Successor, within one (1) business day
after having notice that such person or entity may become or has become
a Successor) shall constitute Good Reason for termination by Executive
of employment pursuant to Section 5.3.
(c) This Agreement and all rights of Executive hereunder shall
inure to the benefit of and be enforceable by Executive's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees and any assignees permitted
hereunder. If Executive should die while any amounts would still be
payable to Executive hereunder if Executive had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to Executive's devise,
legatee or other designee or, if there be no such designee, to
Executive's estate. Executive may not assign this Agreement, in whole
or in any part, without the prior written consent of the Company.
8.3 DISPUTES. Any dispute, controversy or claim for damages arising
under or in connection with this Agreement shall, in Executive's sole
discretion, be settled exclusively by such judicial remedies as Executive may
seek to pursue or by arbitration in Minneapolis, Minnesota by a panel of
three (3) arbitrators in accordance with the Commercial Arbitration Rules of
the American Arbitration Association (as then in effect for expedited
proceedings). Notwithstanding the foregoing, no disputant shall be required
to seek arbitration regarding any cause of action that would entitle such
disputant to injunctive relief. Each of the disputants shall be entitled to
present evidence and argument to the arbitrators. The arbitrators shall have
the right only to interpret and apply the provisions of this Agreement
(including other applicable agreements) and may not change any of such
provisions. The arbitrators shall permit reasonable pre-hearing discovery of
facts, to the extent necessary to establish a claim or a defense to a claim,
subject to supervision by the arbitrators.
-22-
<PAGE>
The determination of the arbitrator shall be conclusive and binding upon
the parties and judgment may be entered on the arbitrators' award by any
court having competent jurisdiction thereof; provided, however; that
Executive shall be entitled to seek specific performance of Executive's right
to be paid until the Date of Termination during the pendency of any dispute
or controversy arising under or in connection with this Agreement. The
Company shall bear all costs and expenses, including attorney's fees, arising
in connection with any arbitration proceeding pursuant to this Section 8.3.
The Company shall be entitled to seek an injunction or restraining order in a
court of competent jurisdiction to enforce the provisions of Article 7.
8.4 LITIGATION EXPENSE. If any party is made or shall become a party
to any litigation (including arbitration) commenced by or against the other
party involving the enforcement of any of the rights or remedies of such
party, or arising on account of a default of the other party in its
performance of any of the other party's obligations hereunder, then the
prevailing party in such litigation shall receive from the other party all
costs incurred by the prevailing party in such litigation, plus reasonable
attorneys' fees to be fixed by the court or arbitrator (as applicable), with
interest thereon from the date of judgment or arbitrator's decision at the
rate of ten percent (10%) or, if less, the maximum rate permitted by law.
8.5 NO OFFSETS. In no event shall any amount payable to Executive
pursuant to this Agreement be reduced for purposes of offsetting, either
directly or indirectly any indebtedness or liability of Executive to the
company.
8.6 NOTICES. All notices, requests and demands given to or made
pursuant hereto shall, except as otherwise specified herein, be in writing
and be personally delivered or mailed postage prepaid, registered or
certified U. S. mail, to any party as its address set forth on the last page
of this Agreement. Either party may, by notice hereunder, designate a changed
address. Any notice hereunder shall be deemed effectively given and received:
(a) if personally delivered, upon delivery; or (b) if mailed, on the
registered date or the date stamped on the certified mail receipt.
8.7 CAPTIONS. The various headings or captions in this Agreement are
for convenience only and shall not affect the meaning or interpretation of
this Agreement. When used herein, the terms "Article" and "Section" mean an
Article or Section of this Agreement, except as otherwise stated.
8.8 GOVERNING LAW. The validity, interpretation, construction,
performance, enforcement and remedies of or relating to this Agreement, and
the rights and obligations of the parties hereunder, shall be governed by the
substantive laws of the State of Minnesota (without regard to the conflict of
laws rules or statutes of any jurisdiction), and any and every legal
proceeding arising out of or in connection with this Agreement shall be
brought in the appropriate courts of the State of Minnesota, each of the
parties hereby consenting to the exclusive jurisdiction of said courts for
this purpose.
-23-
<PAGE>
8.9 CONSTRUCTION. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by
or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity without invalidating the
remainder of such provision or the remaining provisions of this Agreement.
8.10 WAIVER. No failure on the part of either party to exercise, and
no delay in exercising, any right or remedy hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any right or
remedy hereunder preclude any other or further exercise thereof or the
exercise of any other right or remedy granted hereby or by any related
document or by law
8.11 MODIFICATION. This Agreement may not be modified or amended except
by written instrument signed by the parties hereto.
8.12 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
and understanding between the parties hereto in reference to all the matters
herein agreed upon. This Agreement replaces in full all prior employment
agreements or understandings of the parties hereto, and any and all such
prior agreements or understandings are hereby rescinded by mutual agreement.
8.13 SURVIVAL. The parties expressly acknowledge and agree that the
provisions of this Agreement which by their express or implied terms extend
(a) beyond the termination of Executive's employment hereunder, including
without limitation Sections 2.6 and 2.7 (concerning inventions and other
works), Section 3.2 (relating to any Plan benefits), Section 5.7 (relating to
severance compensation) and Section 6.2 (relating to effects of a Change in
Control); or (b) beyond the termination of this Agreement, including, without
limitation Article 7 (relating to confidential information and
non-competition), shall continue in full force and effect notwithstanding
Executive's termination of employment hereunder or the termination of this
Agreement, respectively.
[The balance of this page is intentionally left blank.]
-24-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Executive
Employment Agreement to be duly executed and delivered on the day and year
first above written, but effective retroactively as of the Effective Date.
COMPANY: GREENTREE SOFTWARE, INC.
By /s/ Joseph D. Mooney, Sr.
--------------------------------
Joseph D. Mooney, Sr.
its Chief Executive Officer
Company's Address: 7901 Flying Cloud Drive, Suite 150
Eden Prairie, Minnesota 55344
EXECUTIVE: /s/ Jeff Pinkerton
--------------------------------
Jeff Pinkerton
Executive's Address: 41 Indian Brook Road
Ashland, MA 01721
The undersigned member of the Board of the Company hereby certifies that
this Agreement has been duly approved by resolutions of the Board, without
the participation by the Executive who is party to this Agreement.
/s/ Brad Markowitz
------------------------------------
Brad Markowitz, Director
-25-
<PAGE>
FIRST AMENDMENT TO THE
EXECUTIVE EMPLOYMENT AGREEMENT OF
JEFF PINKERTON
This Amendment and Correction to the Executive Employment Agreement
dated April 1, 1998, by and between Greentree Software, Inc., a New York
Corporation with its principal business office in the State of Minnesota
(hereinafter the "Company") and Jeff Pinkerton a Massachusetts resident
(hereinafter "Executive") is made and entered into on this 14th day of April,
1998.
AGREEMENT
In consideration of the parties' mutual covenants and undertakings, the
Company and the Executive agree to amend certain paragraphs of the Executive
Compensation Agreement as follows:
3.1 BASE SALARY. Subject to Section 5.7(a), during the Term and for as
long thereafter as may be required by Articles 5 and 6, the Company
shall pay Executive a Base Salary at an annual rate that is not
less than One Hundred Fifty Thousand Dollars ($150,000.00) or such
higher annual rate as may from time to time be approved by the
Board, such Base Salary to be paid in substantially equal regular
periodic payments in accordance with the Company's regular payroll
practices. It is understood between Executive and Company that the
base salary of $150,000.00 shall be payable prospectively from
April 1, 1998. If Executive's Base Salary is increased from time
to time during the Term, the increased amount shall become the Base
Salary for the remainder of the Term and for as long thereafter as
may be required by Articles 5 and 6, subject to any subsequent
increases.
4.1 OPTION GRANTS. The effective date of Option Grant shall be January
14, 1998.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to the Executive Employment Agreement of Jeff Pinkerton to be duly executed
and delivered on the day and year first above written, but effective
retroactively as of the Effective Date except as otherwise indicated.
<PAGE>
COMPANY: GREENTREE SOFTWARE, INC.
By /s/ Joseph D. Mooney, Sr.
------------------------------
Joseph D. Mooney, Sr.
its Chief Executive Officer
Company's Address: 7901 Flying Cloud Drive, Suite 150
Eden Prairie, Minnesota 55344
EXECUTIVE: /s/ Jeff Pinkerton
---------------------------------
Jeff Pinkerton
Executive's Address: 41 Indian Brook Road
Ashland, MA 01721
The undersigned member of the Board of the Company hereby certifies that
this Agreement has been duly approved by resolutions of the Board, without
the participation by the Executive who is party to this Agreement.
/s/ Brad Markowitz
---------------------------------
Brad Markowitz, Director
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