U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission File Number 1-12687
IFS INTERNATIONAL, INC.
(Name of small business issuer in its charter)
Delaware 13-3393646
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Rensselaer Technology Park, 300 Jordan Rd., Troy, NY 12180
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (518)283-7900
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
Series A Convertible Boston Stock Exchange
Preferred Stock, par value $.001 per share
Redeemable Series A Convertible Preferred Boston Stock Exchange
Stock Purchase Warrants
Securities registered under Section 12(g) of the Exchange Act:
Title of each class
Common Stock, par value $.001 per share
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____
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year. $5,208,334
The aggregate market value of the Common Stock held by non-affiliates on July
17, 1998 was approximately $1,297,000.
The aggregate market value of the Series A Convertible Preferred Stock held by
non-affiliates on July 17, 1998 was approximately $1,820,000.
As of July 17, there were 1,197,728 and 1,373,719 shares of IFS International,
Inc. Common Stock and Series A Convertible Preferred Stock, respectively,
outstanding.
<PAGE>
PART I
This report on Form 10-KSB contains herewith forward-looking statements that
involve risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in the forward-looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed below and in "Management's Discussion and Analysis
of Financial Condition and Plan of Operations."
ITEM 1. Business
Business Developments
IFS International, Inc. (the "Company"), a Delaware corporation, is engaged
in the business of developing, marketing and supporting software products for
the electronic funds transfer ("EFT") and retail banking markets. These markets
are served through the Company's two wholly-owned subsidiaries, IFS
International, Inc. ("IFS"), a New York corporation and Network Controls
International, Inc. ("NCI"), a North Carolina corporation.
The Company was incorporated in Delaware in September 1986 under the name
Wellsway Ventures, Inc. ("WWV"). WWV subsequently changed its name to IFS
International, Inc. The Company's principal offices are located at Rensselaer
Technology Park, 300 Jordan Road, Troy, New York 12180 and its telephone number
is (518) 283-7900.
On January 30, 1998, the merger of a wholly owned subsidiary of IFS with and
into NCI Holdings, Inc. ("Holdings") was consummated pursuant to a Plan and
Merger Agreement, dated January 30, 1998 (the "Merger Agreement"). Holdings owns
approximately 94% of the issued and outstanding shares of capital stock of NCI,
which develops and markets software products for bank automation. On June 1,
1998 NCI was merged into Holdings and Holdings subsequently changed its name to
Network Controls International, Inc.
Public Offering
On February 28, 1997, the Company consummated a public offering (the "Public
Offering") of 1,380,000 shares of Series A Convertible Preferred Stock
(including 180,000 shares covering over-allotments) (the "Series A Preferred
Stock") and 1,955,000 Redeemable Series A Convertible Preferred Stock Purchase
Warrants (including 255,000 warrants covering over-allotments) (the "Warrants").
The Company received net proceeds of approximately $5,744,000. The Series A
Preferred Stock is convertible, at the option of the holder, into one share of
the Company's common stock, subject to adjustment, until February 20, 2002 or
earlier upon the occurrence of certain events. Each Warrant entitles the holder
to purchase one share of Series A Preferred Stock at a price of $6.25 per share,
subject to adjustment, for a period of three years commencing on February 21,
1999 or earlier upon the occurrence of certain events.
Introduction to Business
IFS' family of software products, marketed under the name TPII ("TPII"),
serve as a UNIX-based manager for EFT systems. TPII software products are
compatible with a significant portion of the industry standard computer
platforms, are designed to operate with computers utilizing the UNIX operating
system, are written in C programming language and incorporate Oracle relational
database technology and object oriented design concepts.
An EFT system ("EFT System") of a bank or other financial institution permits
the processing of transactions involving credit cards and debit cards (e.g., ATM
cards). An EFT System typically consists of one or more of the following
facilities in various configurations: automatic teller machines ("ATMs"), point
of sale ("POS") terminals, a host computer of the financial institution and
regional, national and international networks ("Networks"), such as CIRRUS,
NYCE, MAC, EUROPAY or PLUS. TPII software products primarily route and authorize
the processing of transactions through an EFT System.
TPII software is offered in separate modules which perform different
functions, including (i) interfacing with ATMs, POS terminals, a financial
institution's host computer and Network computers, (ii) updating credit and
debit card information, (iii) providing stand-in authorization for transactions
when the financial institution's host computer is not operating, (iv) computing
fees for processed transactions (v) generating reports, and (vi) processing
Smart Card transactions. The TPII software products are typically installed at
the financial institution's main processing facility. TPII software is also
capable of managing EFT Systems that involve the "loading" of value on smart
cards. A smart card is a plastic card with an electronic chip that acts as a
small computer which can enable the holder to "load" a fixed amount of
purchasing power or cash equivalent on the card as authorized.
TPII software products have been primarily installed in EFT Systems of banks
and other financial institutions located in emerging countries and former
Eastern Bloc nations. As of April 30, 1998, twenty-one financial institutions
and three Networks were utilizing TPII software products. Such financial
institutions serve approximately 1,200 ATMs and over 4,000 POS terminals, and
the three Networks serve twenty-two, eight and four financial institutions,
respectively.
The Company principally derives its revenues from the licensing of its family
of software and hardware products. A substantial portion of such revenues are
generated by licensing through or to computer manufacturers, which incorporate
the TPII software products into a turnkey system installed at a financial
institution. The preparation of functional specifications, customization and
installation of TPII software products and the training by IFS of the financial
institution's personnel in the use of the TPII software products take an average
of six to twelve months, depending upon the timing of installation and final
acceptance of the EFT System by the customer. IFS generally receives payment of
a substantial portion of the license fee prior to the final acceptance by the
customer. The Company provides its customers with maintenance services for its
software products for a separate fee. The Company also offers other support
services, such as additional training of customer personnel, project management
and consulting, for additional consideration.
NCI provides bank teller/platform and networking solutions to large financial
institutions and major suppliers of branch automation equipment. NCI is
currently developing a new product line, NCI Business Centre, which is expected
to be introduced in 1999. NCI Business Centre is a server-centric and
enterprise-wide retail banking solution designed to automate delivery channels,
such as teller, platform, Internet banking, call center and kiosks. NCI Business
Centre uses Windows NT, browsers and TCP/IP protocol technologies for delivery
of functionality over Intranet and Internet networks.
NCI is headquartered in Charlotte, North Carolina.
NCI GmbH, a wholly owned subsidiary of NCI based in Germany , was established
in 1988 and operates primarily in Germany, Switzerland, Italy, and Austria. This
subsidiary has been a reseller of NCI products for the past decade. NCI Ltd., a
wholly owned subsidiary of NCI based in the United Kingdom , was established in
January 1990 in central London and operates primarily throughout Europe. With a
business focus on systems integration, money broking consulting, software
product development, and software product integration, NCI Ltd. provides
solutions to customers across Europe. NCI also maintains a branch office in
Melbourne Australia, and has an inactive subsidiary in Spain.
BUSINESS OF THE COMPANY
Software / Hardware Products
TPII software products are EFT Systems managers, primarily acting to
facilitate the processing of debit card or credit card transactions or the
"loading" of value to smart cards. TPII products primarily route and authorize
the processing of transactions through an EFT System, thereby enabling the
system to interface or communicate with other systems and Networks, as well as
to provide other functions. Such transactions involve several steps managed by
an EFT System. First, the bank customer or a retailer inserts the customer's
debit, credit or smart card issued by the bank into an ATM, POS terminal or
smart card "load" device thereby requiring authorization of a transaction. The
request is routed to a Network or bank computer for authorization; the
authorization message is then returned to the terminal at which the transaction
was originated and the transaction then is completed. The whole process is
generally accomplished within thirty seconds or less.
Most EFT Systems operate twenty-four hours a day, seven days a week.
TPII software products generally can be configured to (i) act as a front-end
to a financial institution's host computer, (ii) perform as a switch connected
to multiple financial institutions' host computers and Networks or (iii) act as
an authorization-only system for financial transactions. As a front-end system,
TPII software products can intercept transactions from a financial institution's
terminals and route them to the institution's host computer. This eliminates
expenses that may be charged by data processing facilities or Networks. As a
switch, TPII software products can route transactions between multiple host
computers of financial institutions for authorization of transactions. In this
environment, ATMs, POS terminals and smart card"loading" devices of a financial
institution are on-line to such financial institution's host computer and such
host computer is on-line to the TPII software. If such financial institution's
host computer receives a transaction request from an ATM, POS terminal or smart
card "load device" requiring an authorization from another financial institution
which is part of the Network, then the request is transmitted to the Network
utilizing TPII software and TPII software routes the request to the proper
financial institution's host computer for authorization, which then transmits
the authorization response back to the Network. TPII software then routes the
authorization response to the original requesting financial institution. In this
environment, TPII software can also authorize the transaction if the financial
institution from which the authorization is requested is unavailable.
As an authorization-only system, TPII software products receive authorization
requests from various Network switches. In this environment, TPII software is
installed at the financial institution's main office, but is not interfaced with
any of that institution's ATMs, POS terminals or smart card load devices.
Instead, it will authorize transactions initiated by credit cards, debit cards
and/or smart cards issued by the institution to its customers when the customers
utilize terminals and devices owned by other financial institutions. In this
environment, a transaction request originating at another financial
institution's ATM, POS terminal or smart card "loading" device by the customer
is transmitted to a Network switch and the Network switch will route the
transaction request to TPII software. TPII software will then route the
transaction to the host computer of the financial institution utilizing TPII
software for authorization. If such institution's host computer is unavailable,
then TPII software will authorize the transaction and transmit the response back
to the proper Network switch.
TPII software products can be installed at the financial institution's main
office, a branch or at a data processing facility. TPII software products permit
7-day, 24-hour remote banking by storing customer balance files and
communicating with the customers' in-house computer(s) or data center(s) on a
continuous (real time) or batch (delayed) basis with no changes required to
existing host application software. TPII software products are capable of
sending or receiving messages from ATMs, POS terminals, Networks and host
computers. Such products may authorize transactions without the necessity of
interfacing with the host computer and can periodically input the transactions
into the host computer.
NCI entered the application software market in 1989 with the NCI BANC-Mgr(TM)
product, a full featured teller and platform automation system. In 1993, NCI
introduced NCI ClientServer Mgr(TM). NCI ClientServer Mgr(TM) is an integral
part of the configuration of current solutions. NCI ClientServer Mgr(TM) is
marketed and sold separately as an alternative for the IBM LANDP product. NCI is
marketing its new flagship product called NCI Business Centre(TM), a
browser-based enterprise retail delivery solution that is designed to span all
delivery channels; marketing, platform, teller, call center, and virtual
banking.
NCI's Wizard(TM), XOVER(TM), and BANC-Mgr(TM) solutions provide tactical
solutions to financial institutions by allowing for a low cost migration
strategy from the IBM 4700 environment to a PC based environment.
Visa Contract
IFS has developed software for Visa International Service Association
("Visa") to manage an EFT System that facilitates the "loading" of value on a
smart card through a bank's terminals. As a result of a successful test of IFS'
TPII smart card software, Visa entered into an agreement with IFS in July 1996
for the licensing and installation of this software in connection with the
operation of up to seven pilot programs for the purposes of evaluating the TPII
smart card software and other aspects of the smart card system. The license for
each pilot program is for a term of 24 months commencing on the date such pilot
program goes on-line. As of April 30, 1998, Visa has selected financial
institutions in the following countries to conduct the pilot programs: the
United States, the United Kingdom, Japan, and Germany. The first pilot program
that became operational was in Germany during the first calendar quarter of
1997. Several pilot programs are now fully operational. Visa has renewed license
and maintenance agreements for the initial beta site.
Licensing, Services and Training
IFS licenses its TPII software products pursuant to a non-exclusive perpetual
licensing agreement. Under these agreements, the customer receives the
non-exclusive right to use one copy of the software product on designated
equipment upon payment of a one-time fixed license fee. Each financial
institution's computer requires a separate copy of TPII software, and the
license portion of the fee is incurred for each copy of the software installed.
IFS trains the financial institution's personnel in the use of the software
products as part of the license fee.
NCI licenses its software products pursuant to a end user licensing
agreement. Under these agreements, the customer receives the right to use the
software product on designated work stations or in designated locations upon
payment of agreed upon fees. Depending upon the type of license purchased, the
software product may be installed at several different locations or it may be
limited to specified number of work stations. NCI will train the financial
institution's personnel in the use of its software products upon request, for an
additional fee .
The TPII software products generally involve customization to enable the TPII
software to interface with a customer's unique host software and to meet the
particular needs of the customer. For example, each financial institution has
different software operating various ATMs or POS terminals, as well as bank and
Network computers, requiring modification to configure with the IFS' TPII
software. Licenses for TPII software products generally begin at $180,000 and
average approximately $300,000 per contract depending upon the modules selected.
Payments under these types of contracts are usually made in several stages
commencing with signing of the license agreement and then as certain milestones
are completed.
The Company generally warrants its software products for 90 days. Subsequent
to the warranty period of the software products, the Company provides
maintenance services with respect to such software products. Yearly service fees
are typically 15% of the original software license fee, subject to annual
increases based on changes in the Consumer Price Index in the United States, and
are generally payable annually in advance. During the period of service, the
customer receives any new program releases, which contain functional
enhancements and documentation updates that the Company deems necessary.
Hardware products are generally warranted for one year.
For an additional fee, IFS will provide additional training of customer
personnel. Depending on the complexity of the customer's system, training can
take from 2-4 days to 2-4 weeks.
Oracle Corporation has granted IFS, in exchange for the payment of royalties
to Oracle, a nonexclusive license to use, and grant sublicenses with the respect
to, the Oracle relational database software which is incorporated into the TPII
software products. NCI participates in the Oracle Corporation Business Alliance
Program.
There is little customization involved with NCI software products. Licenses
for NCI software products can vary in price significantly dependent upon the
type of license purchased. An enterprise license can be for several hundred
thousands of dollars versus a significantly lesser amount for a single user
license.
Special Development Contracts
IFS performs specialized software modifications or enhancements to its TPII
software for its customers. IFS generally receives a fee for the modification
and has all proprietary rights to the software developed and may then include
the modification in its standard TPII software products. IFS finds these
contracts to be beneficial because of the resulting enhancements to its base
software products.
NCI may perform specific development contracts for customers. NCI typically
retains ownership of the final product. The customer is billed on a time and
material or on a fixed fee basis.
Customers And Marketing
TPII software products have been installed in EFT Systems of banks and other
financial institutions located primarily in emerging countries and former
Eastern Bloc nations which operate, or are members of,
geographically-distributed EFT Systems or Networks servicing large volumes of
transactions.
In 1994, IFS entered into a strategic alliance with Digital Equipment
International BV ("DEC"), pursuant to which DEC agreed to market on a
nonexclusive basis TPII software products in connection with DEC's world-wide
sale of its computers for EFT Systems. In connection with DEC's sale of
computers for EFT Systems, DEC, rather than the financial institutions, is
generally the licensee of IFS' TPII software products. For the fiscal years
ended April 30, 1997 and 1998, approximately 21% and 19%, respectively, of the
Company's total revenues were derived pursuant to this relationship. The Company
is, therefore, dependent upon this relationship and would be adversely affected
by the loss of such relationship. IFS has a similar agreement with Unisys for
the European and African markets, but as of the date hereof, IFS has not derived
any revenues pursuant to its relationship with Unisys. IFS is currently seeking
to enter into alliances with additional computer manufacturers.
IFS' software product information is disseminated internally within DEC
through in-house newsletters and other promotional tools. Products are also
advertised, to a limited extent, in user publications and at various trade
shows.
As a result of the smart card pilot programs, Visa accounted for
approximately 16% and 39% of the Company's total revenues for the year ended
April 30, 1998 and 1997 respectfully. No other customer accounted for more than
10% of the Company's total revenues for the fiscal years ended April 30, 1998
and 1997.
IFS markets its products directly through Simon J. Theobald, Executive Vice
President, Charles J. Caserta, Executive Vice President of Business Development
as well as through the Company's sales staff. Mr. Theobald is located in IFS'
European office based in London, while Mr. Caserta is located at IFS' New York
location.
NCI markets its products primarily through Per Olof Ezelius, its President
and CEO together with Ken Russell, NCI's Vice President of North American
Operations and James Ling, NCI's regional sales manager for Asia/Pacific. Mr.
Ezelius and Mr. Russell are located at NCI's headquarters in Charlotte, N.C. Mr.
Ling is located at NCI's branch office in Australia. NCI also markets its
products through its two active subsidiaries, as well as several regional
re-sellers worldwide.
Backlog and Deferred Maintenance Service Revenues
Backlog
As of April 30, 1998 and 1997, the Company had backlog of approximately
$1,297,000 and $1,372,000, respectively, in software license fees and hardware
orders. Backlog was approximately $769,000 and $528,000 for IFS and NCI
respectively at April 30, 1998 respectfully. The backlog for the Company is
lower at April 30, 1998 than the previous fiscal year due to the Company having
a greater number of license agreements in process at a later stage of completion
as compared to April 30, 1997. The Company includes in its backlog all license
fees not included as revenues under the percentage of completion method to the
extent that the Company contemplates recognition of the related revenues within
one year. There can be no assurance that the contracts included in backlog will
actually generate the specified revenues or that the actual revenues will be
generated within the one year period.
Deferred Maintenance Service Revenues
As of April 30, 1998 and 1997, the Company had deferred maintenance service
revenues of approximately $753,000 and $287,000, respectively. The increase in
deferred maintenance service revenues is a result of the increase in the
installed base of TPII systems as well as a result of the acquisition of NCI.
Deferred maintenance revenue from NCI was approximately $316,000 at April 30,
1998. As more TPII software products are installed and NCI software licenses are
sold, maintenance revenues are expected to increase.
Competition
The development and marketing of software for financial institutions is
highly competitive. Many of the Company's competitors have greater financial
resources than the Company. In addition, many of the larger financial
institutions have developed their own systems internally. However, the Company
believes its current software products will continue to be competitive based on
cost and technology.
TPII software products face strong competition from proprietary (legacy) and
UNIX-based software. In the international EFT market, well established worldwide
competition includes Transaction Systems Architects, Inc., Deluxe Data Systems,
Inc., SDM International, Inc., S2 Systems, Inc., a subsidiary of Stratus, SLM
Software, Inc., Consolidated Software and Oasis Systems, whose products run on
Tandem or Stratus fault-tolerant computers with proprietary operating systems or
on IBM host or industry standard computers with UNIX operating systems.
IFS also encounters competition from original equipment manufacturers such as
NCR Corporation, Interbold, Fujitsu and Omron; EFT software system integrators
such as Kirchman Corporation, Hogan Systems, Inc., ARKSYS (formerly known as
Arkansas Systems), Jack Henry and Diebold, Incorporated; and EFT shared regional
networks such as NYCE, MAC and HONOR. Price competition is considerable, with
discounting from list used as an inducement to buy software and mainframes or to
become members of the Networks.
IFS is aware of only a limited number of companies primarily marketing
UNIX-based products for EFT Systems. The Company is also aware that S2 Systems,
Inc. has developed its own UNIX-based transaction processing package and
Transaction Systems Architects, Inc. has begun to market a UNIX-based product,
TRANS 24.
There are numerous companies which offer EFT outsourcing services. These
third party providers primarily drive ATMs belonging to financial institutions.
A significant portion of all of ATM transactions are processed by these third
party providers. The principal companies in this area are: Electric Data Systems
(EDS), Deluxe Data Corporation, Affiliated Computer Services, Inc., Fiserv,
Inc., Money Access Services (MAC), Information Services and First Data
Corporation.
The retail POS market is rapidly growing and numerous participants are
positioning themselves to capture various segments of the market. Most of these
companies are well established, have greater financial resources than the
Company and an established customer base. There can be no assurance that the
Company can make any inroads in this highly competitive marketplace or that its
efforts will be successful.
In the smart card market, other financial institutions and companies
including certain institutions and companies which have greater resources then
the Company, have developed and are developing their own smart card technology.
The Company is unable to predict which technology, if any, will become the
industry standard.
NCI has limited direct competition with most of its IBM 4700 migration
products as the Company is unaware of any equivalent products that are offered
by industry suppliers. There are several competitors for NCI's 3270 Coax
solution and IBM's LANDP product is a competitor for NCI's middleware product
NCI ClientServer-Mgr. The NCI Business Centre enterprise retail delivery
solution competes with the major branch automation solution providers, such as
IBM with it's CT product and ARGO Data, NCR with it's SellStation product and
Broadway, and Seymour with it's TouchPoint product. NCI also experiences
competition with core banking solutions that include a branch and teller system
integrated with their product, like Alltel, OSI, FISERV, Jack Henry &
Associates, and Unisys. With the web-banking outsourcing strategy, NCI's major
competitors in this business are Online Resource and Communications, Digital
Insight, Jack Henry & Associates, Security First Technologies, Edify, nFront,
Fund Xpress, and Q-UP Systems. Most of the Company's competition comes from
competitors with substantial financial resources who possess greater abilities
to market their products and withstand general economic and sales volatility.
Although all of the competitors of the NCI Business Centre Product offer
similar business functions, NCI does not believe that competitors have
enterprise wide, browser-based solution that allows customers to re-use common
business objects across multiple delivery channels through the use of the same
technology platform.
Software Development And Future Products
Competition, technological advances, changes in customer requirements,
deregulation and other regulatory changes affecting financial institutions
necessitate an ongoing enhancement and development effort to meet the
comprehensive processing needs of banks and other financial institutions. As a
result, the Company will continue ongoing expenditures for enhancement of the
Company's existing software products that take advantage of technological
advances and respond to the increasingly sophisticated requirements of its
customers. Enhancements to existing customers are delivered as add-ons to the
licensing agreements for additional license fees or as new license agreements.
IFS will further develop products, services, and enhancements relating to the
"loading" of value on the smart card. Financial institutions utilizing smart
cards must provide for the personalization of the smart cards as well as a
purchase terminal system, a collection system and a clearing system. IFS may
consider developing, itself or jointly, one or all of these products and
services and may also explore the possibility of providing a turnkey or single
vendor solution for financial institutions in this area.
IFS believes that its TPII software products can be adapted for Internet/home
banking. IFS is testing a home banking system utilizing the NCI Business Centre
product and TPII software..
IFS will also attempt to market additional services to the EFT industry. New
products may be developed internally or obtained thru acquisitions.
Research and development expenses for the fiscal year ended April 30, 1998
was approximately $1,427,000 as compared to approximately $515,000 for the
fiscal year ended April 30, 1997.
Proprietary Rights
The Company does not own any patents or registered copyrights. The Company
relies on a combination of trade secret and copyright laws, nondisclosure and
other contractual provisions and technical measures to protect its proprietary
rights. The Company distributes its software products under software license
agreements which typically grant customers nonexclusive licenses to use the
products. Use of the software products is usually restricted to designated
computers at specified locations and is subject to terms and conditions
prohibiting unauthorized reproduction or transfer of the software products. The
Company also seeks to protect the source code of its software products as a
trade secret. The Company also obtains confidentiality agreements from its
employees, customers and others who have access to its software products.
Despite these precautions, there can be no assurance that misappropriation of
the Company's software products and technology will not occur.
Although the Company believes that its intellectual property rights do not
infringe upon the proprietary rights of third parties, there can be no assurance
that third parties will not assert infringement claims against the Company.
Further, there can be no assurance that intellectual property protection will be
available for the Company's products in certain foreign countries.
Regulations
The Company's applications are utilized primarily by financial institutions.
Such institutions are subject to state, federal or foreign regulation. Hence, it
is possible that banking regulations may have a material effect on the Company's
operations. In addition, the software products are subject to export
regulations, including regulations relating to encrypted software, which require
prior approval of the licensing of the software to customers located in foreign
countries. To date, however, the Company has not experienced problems complying
with these regulations.
Employees
As of April 30, 1998, the Company had ninety-five employees, ninety-two of
whom were full time. Nine employees comprise the direct sales force; sixty-six
employees are involved in product development, technical support and services
and twenty employees are involved in office administration. The Company intends
to hire additional sales staff in the next fiscal year. Additionally, the
Company engages various consultants from time to time to assist with product
development and enhancements to existing products.
The Company believes it can continue to attract skilled personnel for all
areas and has been able to keep turnover to a minimum. However, the competition
to employ skillful professionals is intense. None of the employees are covered
by a collective bargaining agreement and there have been no work stoppages.
Management believes that relations with its employees are good.
ITEM 2. Properties
In March 1997, IFS purchased a ground lease expiring on May 25, 2083 and a
building with approximately 35,000 square feet of space located at 300 Jordan
Road, Rensselaer Technology Park, Troy, New York. In November 1997 IFS obtained
$1,190,000 in permanent financing from KeyBank National Association, with a term
of five years. The permanent loan is collateralized by the building and the
ground lease and contains several financial covenants. Waivers of certain
covenant violations have been received by the Company. Repayment of the loan is
based on escalating monthly principal payments and a balloon payment which is
due November 2002. The interest rate for the loan was established at an
effective fixed rate of 8.98% for 5 years using an interest rate swap agreement.
IFS has completed renovations of such facility and has incurred approximately
$908,000 of renovation costs through April 30, 1998. IFS moved its principal
operations to its new facility on August 25, 1997 and terminated its lease on
its former premises without any further obligations..
The Town of North Greenbush Industrial Development Agency ("IDA") passed a
resolution on March 25, 1997 authorizing the IDA to provide certain financial
assistance ("Financial Assistance") to IFS upon the completion of certain
events, including financing of the property located at 300 Jordan Road,
Rensselaer Technology Park, Troy, New York and its renovation. Such Financial
Assistance is in the form of (i) a New York State sales tax abatement, (ii) a
mortgage recording tax exemption and (iii) graduated payments by the Company in
lieu of real property taxes with respect to such property.
The Company's European Sales and Marketing office is leased and is located at
Salamander Quay (West), Park Lane, Harefield, Uxbridge, Middlesex, UB9 6NZ,
England. This office consists of approximately 890 square feet. The term of this
lease expires in June 1999. The current annual base rental amount is
approximately $22,000.
NCI's current headquarters, which consist of approximately 15,000 square feet
of leased office space, is located at Nine Woodlawn Green, Suite 120, Charlotte,
N.C. 28217. The term of this lease expires on February 28, 1999. The Company has
the option to renew the lease at a mutually agreeable rental. The current annual
base rental amount is approximately $183,000. NCI subsidiaries also lease space
on a short term basis.
ITEM 3. Legal Proceedings
The Company is not a party to any pending material legal proceedings.
ITEM 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders for the three months
ended April 30, 1998.
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters
Prior to February 21, 1997, the Company's Common Stock had been quoted on the
OTC Bulletin Board under the symbol IFSE. Commencing on February 21, 1997, the
Common Stock has been quoted on The Nasdaq SmallCap Market under the symbol
"MNYC." Prior to February 21, 1997, the Common Stock had been traded, if at all,
on a sporadic basis; therefore, the prices quoted below prior to such date are
not necessarily indicative of market value. The following table, which is
restated to reflect a 1-for-10 reverse split of the Common Stock effectuated at
the close of business on November 8, 1996, sets forth the range of the high and
low sales prices of the Common Stock on the OTC Bulletin Board until February
20, 1997, and The Nasdaq Small Cap Market thereafter, for the periods indicated.
The following table also sets forth the range of the high and low bid quotations
of the Series A Preferred Stock "MNYCP" and the Warrants "MYNCW" on The Nasdaq
Small Cap Market commencing on February 21, 1997.
SERIES A
COMMON STOCK PREFERRED STOCK WARRANTS
Quarter Ended High* Low* High* Low* High* Low*
- ---------------- ------- ------- ------- ------- ------- ------
April 30, 1998 $5.63 $2.75 $10.25 $1.88 $3.75 $.56
January 31, 1998 $6.88 $4.50 $9.88 $6.50 $4.00 $2.13
October 31, 1997 $7.75 $5.50 $12.00 $9.00 $4.00 $2.63
July 31, 1997 $9.00 $4.25 $11.50 $6.00 $6.25 $2.75
April 30, 1997 $10.00 $3.13 $19.75 $5.50 $12.50 $.88
January 31, 1997 $8.13 $3.50
October 31, 1996 $4.38 $2.50
July 31, 1996 $2.50 $2.50
* The sources of such quotations are the National Quotation Bureau, Nasdaq
Trading and Market Services, Nasdaq, and IDC.
The above quotations reflect inter-dealer prices, without mark-up, mark-down
or commission, and may not represent actual transactions.
As of April 30, 1998 there were approximately 242 recordholders and 1,684
beneficial owners of Common Stock.
As of April 30, 1998 there were approximately 25 recordholders and 817
beneficial owners of Preferred Stock.
As of April 30, 1998 there were approximately 18 recordholders and 576
beneficial owners of the Warrants.
No dividends will be paid on the Series A Preferred Stock, except that
holders of Series A Preferred Stock will be entitled to receive dividends if
dividends are declared with respect to the Common Stock and, in such event,
ratably with the holders of the Common Stock. The Company plans to retain any
future earnings for use in its business and, accordingly, the Company does not
anticipate paying dividends on its Common Stock and Series A Preferred Stock in
the foreseeable future. The payment of any dividends on the Common Stock and
Series A Preferred Stock will be at the discretion of the Company's Board of
Directors and will be dependent upon the Company's results of operations,
financial condition, capital requirements, contractual restrictions and other
factors deemed relevant by the Board of Directors.
ITEM 6. Management's Discussion And Analysis Of Financial Condition And Results
Of Operations
Introduction
The Company is engaged in the business of developing, marketing, and
supporting software for the EFT market. The Company's revenues have resulted
from the licensing of its family of TPII software products and from three months
of revenue from NCI. The preparation of functional specifications, customization
and installation of TPII software products and the training by IFS of the
financial institution's personnel in the use of the TPII software products takes
an average of six to twelve months, depending upon the timing of installation
and final acceptance of the EFT System by the customer.Completion of an NCI
license agreement typically takes an average of two to six months. IFS'
customers pays 30% to 50% of the licensing fees upon execution of the licensing
agreement and also make progress payments prior to acceptance. NCI customers
typically pay the license fees upon installation of the product. IFS recognizes
revenue under the percentage of completion method for software installation
contracts. The percentage of completion method is measured by estimates of the
progress towards completion as determined by costs incurred. NCI recognizes
software license revenue upon installation and hardware revenues upon shipment.
The Company also derives recurrent revenues from furnishing certain maintenance
services to its customers for its products. The Company may also receive
additional revenues for additional training of customer personnel and consulting
services (collectively "service revenues"). With respect to revenues for
maintenance services, the Company generally receives annual payments at the
beginning of the contract year. Such payments are reflected as deferred revenues
and are recognized ratably during such year.
Occasionally, IFS resells hardware to its customers in conjunction with its
TPII software installation contracts. Since such sales are isolated and random
IFS is unable to predict the amount of any future hardware revenues. Revenues
from these occasional hardware sales are recognized when invoiced to the
customer.
Results Of Operations
Fiscal Year Ended April 30, 1998 Compared With Fiscal Year Ended April 30, 1997
Results of operations incorporate the three months ended April 30, 1998 of
business activity from the Company's acquisitions of NCI.
Total revenues of $5,208,334, for the fiscal year ended April 30, 1998
represent an increase of $1,475,116, or 39.5%, over total revenues of $3,733,218
for the fiscal year ended April 30, 1997. This increase in total revenues
resulted from revenues generated by NCI during the three months ended April 30,
1998. NCI's total revenues for the three months ended April 30, 1998 were
$1,602,461. Revenues from IFS for the fiscal year ended April 30, 1998 decreased
$127,345 from the fiscal year ended April 30, 1997. The decrease in IFS' revenue
is primarily due to the effects of the Asian monetary crisis on the Company's
customers and potential customers located in the Far East. Total revenues from
Asia for the fiscal year ended April 30, 1998 were $323,084 as compared to
$433,452 for the fiscal year ended April 30, 1997. IFS did not generate any new
license agreements during the fiscal year ended April 30, 1998 from Asian
customers.
Service revenues for the fiscal year ended April 30, 1998 increased by
$1,616,961 or 169.2%, over service revenues for the fiscal year ended April 30,
1997. The increase in service revenues is a result of an increase in installed
TPII customers and additional consulting and project management services to TPII
customers. Service revenue also increased as a result of service revenue
generated by NCI. Service revenues of IFS for the fiscal year ended April 30,
1998 were $1,912,617 as compared to $955,843 for the fiscal year ended April 30,
1997. Service revenues of NCI for the three months ended April 30, 1998 were
$660,187. As of April 30, 1998, the Company had approximately $753,000 of
deferred maintenance service revenues. Service revenue growth is expected to
continue as long as the number of licenses for software products increases and
the customers continue to utilize such software products.
Hardware revenues increased in the fiscal year ended April 30, 1998 primarily
as a result of revenues generated by NCI. NCI's hardware revenues for the three
months ended April 30, 1998 were $657,400.
Revenues from licensing of software products and hardware sales in countries
outside the United States accounted for 73.6% of total revenues for the fiscal
year ended April 30, 1998 as compared to 53.2% for the fiscal year ended April
30, 1997. The increase as a percentage of total revenues resulted primarily from
the sales mix of NCI. Revenues from countries outside the United States for NCI
for the three months ended April 30, 1998 were $1,449,761 or 90.5% of total
revenues of $1,602,461. The Company nevertheless expects total revenues from
foreign countries to continue to be a significant portion of its revenues in the
future.
Gross profit, as expressed as a percentage of total revenues, decreased to
73.6% for the fiscal year ended April 30, 1998, as compared to 75.7% for the
fiscal year ended April 30, 1997. This decrease is associated with the increase
in hardware revenues. Hardware revenues typically have a lower gross margin than
the Company's software products. Hardware revenues were $699,623 for the fiscal
year ended April 30, 1998 as compared to $229,463 for the fiscal year ended
April 30, 1997.
Operating expenses of $5,153,376 for the fiscal year ended April 30, 1998
represent an increase of $2,709,288, or 110.9%, from operating expenses of
$2,444,088 for the fiscal year ended April 30, 1997. This increase in operating
expenses resulted in part to the addition of new personnel of IFS. IFS'
operating expenses for the fiscal year ended April 30, 1998 were $4,113,243 as
compared to $2,444,088 for the fiscal year ended April 30, 1997. IFS
approximately doubled its staff from the preceding fiscal year in anticipation
of new business, some of which did not materialize as a result of the Asian
monetary crisis. Research and development expenses for the fiscal year ended
April 30, 1998 were approximately $1,427,000 as compared to approximately
$515,000 for the fiscal year ended April 30, 1997. Operating expenses also
increased as a result of incorporating $1,040,133 of operating expenses from NCI
for the three months ended April 30, 1998.
The Company expects that operating expenses will increase in the fiscal year
ending April 30, 1999 as a result of NCI's operating expenses, as they will be
reflected for a full year.
Capitalized software costs for the fiscal year ended April 30, 1998 were
$531,639, as compared to $252,908 for the fiscal year ended April 30, 1997. This
increase in capitalized software costs resulted primarily from costs incurred
with respect to TPII smart card software technology. Such capitalized costs are
being amortized on a straight line basis over the estimated five year marketing
lives of the software.
Net loss was $1,261,473 for the fiscal year ended April 30, 1998, as compared
to a net income of $287,936 for the fiscal year ended April 30, 1997. Additional
costs of the Company during the fiscal year ended April 30, 1998 were
attributable to increased personnel and computer related equipment, expansion of
foreign marketing and licensing activities, including the hiring of personnel
and increasing advertising and public relations, research and development for
new and existing products and ancillary expenses related to the operations of
the new building. The Company believed that these additional costs would be
offset by additional revenue from its Singapore operations. These additional
revenues did not materialize primarily as a result of the Asian monetary crisis.
Management believes that cash flows from operations will be sufficient to
meet debt service requirements and to maintain a current status with its trade
creditors during fiscal year 1999. Operating cash flows for fiscal year 1999 are
expected to be principally attributable to anticipated revenues from sales of
TPII software products as well as NCI products. Further, in an attempt to reduce
operating expenses of IFS, management has implemented several cost reduction
measures including the elimination of several staff positions in July 1998.
Planned reduction measures include management salary reduction and further
administrative expense reduction initiatives.
Operations for the fourth quarter of 1998 include adjustments approximating
$922,000 relating to the cancellation of certain software installation
contracts, adjustments to service revenues previously recognized and changes in
costs to complete software installation contracts.
The Company has net operating loss carryforwards of approximately $3,200,000
as of April 30, 1998. The use of such net operating loss carryforwards as an
offset against future taxable income in any particular year may be limited.
Liquidity And Capital Resources
The Company's primary source of funds has historically been operating
revenue. The Company's working capital decreased from $3,879,457 at April 30,
1997 to $1,644,102, at April 30, 1998 primarily as a result of an increase in
staff in anticipation of new business, some of which did not materialize,
facilities acquisition expenditures and equipment purchases, and the purchase of
NCI Holdings, Inc. Negative cash flow from operating activities is a result of a
loss from operations, an increase in accounts receivable, and a decrease in
accounts payable. These decreases were offset by an increase in accrued
salaries, commissions, and other accrued expenses, and also an increase in
deferred revenue and customer deposits.
The Company believes that anticipated cash flow from operations along with
the remaining proceeds from the Public Offering will be sufficient to finance
the Company's working capital requirements for the foreseeable future. However,
since a portion of the license fee for TPII software products is not paid until
acceptance by the customer and, as a result, the Company is required to fund a
portion of the costs of configuration and installation of such products from
available capital, any substantial increase in the number of installations or
delay in payment could create a need for additional financing. In such event,
there can be no assurance that additional financing will be available on terms
acceptable to the Company, or at all. Presently, the Company is seeking a
primary market maker and a financial banker to possibly assist the Company for
its working capital needs if necessary.
The above statements and certain other statements contained in this annual
report on Form 10-KSB are based on current expectations. Such statements are
forward looking statements that involve a number of risks and uncertainties.
Factors that could cause actual results to differ materially include the
following (i) general economic conditions, (ii) competitive market influences,
(iii) the success of the Visa pilot programs, (iv) the development of the
capacity to accommodate additional and larger contracts, (v) establishing the
ability of TPII software products to process transactions for larger EFT
systems, and/or (vi) acceptance of TPII software products by a significant
number of new customers and the Company's continued relationship with computer
manufacturers.
QUARTER TO QUARTER SALES AND EARNING VOLATILITY
Quarterly revenues and operating results have fluctuated and will fluctuate
as a result of a variety of factors. The Company can experience long delays
(i.e., between three to twelve months) before a customer executes a software
licensing agreement. These delays are primarily due to extended periods of
software evaluation, contract review and the selection of the computer system.
In addition following execution of the agreement, the preparation of functional
specifications, customization and installation of software products and the
training by the Company of the financial institution's personnel in the use of
the TPII software products take an average of six to twelve months, depending
upon the timing of installation and final acceptance of the EFT System by the
customer. Accordingly, the Company's revenues may fluctuate dramatically from
one quarter to another, making quarterly comparisons extremely difficult and not
necessarily indicative of any trend or pattern for the year as a whole.
Additional factors effecting quarterly results include the timing of revenue
recognition of advance payments of license fees, the timing of the hiring or
loss of personnel, capital expenditures, operating expenses and other costs
relating to the expansion of operations, general economic conditions and
acceptance and use of EFT.
YEAR 2000
The Company has assigned project teams dedicated to prepare the Company's
computer systems, applications, current installed customers and future products
for the year 2000. Management expects to incur internal costs as well as other
expenses related to system enhancements and product modifications for the year
2000. These costs are being expensed. These costs associated with the year 2000
project are not expected to have a material impact on the future results of
operations. However, there could be a material adverse effect on the results of
operations if the system enhancements and modifications for the year 2000 prove
not to be effective. A contingency plan for the Company would be to install
temporary modifications to existing customers to ensure system integrity. These
modifications would be utilized until a time when complete system compliance
could be attained at the customer site.
INFLATION
The Company has not experienced any meaningful impact on its sales or costs
as the result of inflation.
ITEM 7. Financial Statements
The consolidated financial statements required to be filed herein are set
forth at the pages indicated at item 13.
ITEM 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
<PAGE>
PART III
ITEM 9. Directors, Executive Officers, Promoters and Control Persons of the
Registrant
The directors and executive officers of the Company are as follows:
Name Age Position
- ------------------- ----- -----------------------------------------
Frank A. Pascuito.......42 Chairman of the Board and Director
David L. Hodge..........59 President, CEO and Director
Charles J. Caserta......42 Vice President of Business Development and Director
Simon J. Theobald ......34 Vice President of Sales & Marketing and Director
Carmen A. Pascuito......38 Controller and Secretary
Arnold Wells ..........78 Director
John P. Singleton.......61 Director
DuWayne J. Peterson.....66 Director
Per Olof Ezelius........49 Director
Frank A. Pascuito is currently Chairman of the Board. Mr. Pascuito was the
Chief Executive Officer and Chairman of the Board of the Company from 1989 to
1998. Mr. Pascuito co-founded the Company's predecessor company, IFS
International, Inc. (formerly named Avant-Garde Computer Systems, Inc.), a New
York corporation engaged in the development and marketing of software (the
"Predecessor"), in 1981 and served as its President until November 1987 and as
its Vice President of Product Planning until 1989. Prior to 1981, he was
employed by NCR Corporation's ATM software development team. As a consultant to
NCR in 1979, he assisted in the development and performed the installation of
the first on-line/off-line ATM system for NCR in the United States. Mr. Pascuito
has over ten years of operating and marketing experience in EFT system design,
sales and service. Mr. Pascuito is a graduate of the State University of New
York at Potsdam with a B.S. degree in Computer Science. He is active in several
area organizations dealing with technology, software, and world trade.
David L. Hodge has been President and CEO of the Company since February 1998.
Mr. Hodge has been a director of the Company since September 1997. Mr. Hodge is
a graduate of West Point, and has over 30 years experience in software
development. His last position was vice president in charge of product
development for the Cable and Broad band Solutions Group of Cincinnati Bell
Information Systems (CBIS). Prior to CBIS, Mr. Hodge held various senior
management positions at Ernst & Young, CBS/Newtrend, Anacomp and Great Western
Bank. Notable projects completed by Mr. Hodge include the development and
delivery for production of the client/server-based Precedent 2000 system
currently used to provide customer care and billing services to a large segment
of the Telecommunications personal communication systems (PCS) market, a
client/server based Centrex provisioning system for British Telecom in the
United Kingdom and several products for the banking industry for advanced
imaging and document management. In addition to his technical management
responsibilities at CBIS, Mr. Hodge led initial CBIS efforts to attain ISO 9000
compliance. This initiative led to the ISO 9000 certification of a major
international data system serving British Telecom.
Charles J. Caserta has been an officer and a director of the Company since
1989. Mr. Caserta co-founded the Predecessor in 1981 and served as its Chairman
until November 1987 and as its Vice President of Sales until 1989. Mr. Caserta
has over ten years of consulting and marketing experience in EFT system design,
sales and service. Mr. Caserta is a graduate of Villanova University with a B.A.
degree in English.
Simon J. Theobald has been a director of the Company since December 1994 and
was the Director of Sales and Marketing of the European Division based in London
between 1992 and July, 1997 and has been Managing Director of Europe, Middle
East and Africa ("EMEA") since July, 1997. From 1986 to April 1992, he was
employed by Applied Communications Inc., a subsidiary of Transaction Systems
Architects, Inc. Mr. Theobald has more than fifteen years experience in the
electronic funds transfer industry. Mr. Theobald is a graduate of De-Havilland
College with qualifications in computer studies and technology.
Carmen A. Pascuito has been Secretary of the Company since December 1996 and
its Controller since 1989. Mr. Pascuito joined the Predecessor in 1985 as a
staff accountant and became its controller in 1988. Mr. Pascuito is a graduate
of Siena College with a B.B.A. degree in Accounting.
Arnold Wells has been a director of the Company since 1986. Since 1976, Mr.
Wells has been a private investor and consultant in the health and
communications fields. Mr. Wells organized Wells Television (subsequently named
Wells National Services). In 1978, Mr. Wells formed WellsArt Limited, a company
which is engaged in the publishing and licensing work of prominent artists. Mr.
Wells is a graduate of Western Reserve University with a B.A. degree.
John P. Singleton has been a director of the Company since April 1997. In
July 1997 he was appointed Chairman of its Executive Committee. Since 1992, Mr.
Singleton has been General Manager, Business Development of IBM/Integrated
Systems Solution Corporation. Between 1982-1992, he held several positions with
Security Pacific Corporation ranging from Senior Vice President Central
Information Group to Vice Chairman and Chief Operating Officer and member of the
Office of the Chairman. Mr. Singleton is a graduate of Arizona State University
with a B.S. degree in Business Management.
DuWayne J. Peterson has been a director of the Company since July 1997. Mr.
Peterson is President of DuWayne Peterson Associates, a consulting firm
specializing in the effective management of information technology. Prior to
forming his firm in 1991, he held the position of Executive Vice President,
Operations, Systems and Telecommunications at Merrill Lynch. Mr. Peterson holds
a B.S. degree from M.I.T. and an MBA from UCLA.
Per Olof Ezelius has been a director of the Company since May 1998. Mr.
Ezelius has held the office of President and CEO of NCI since October 1992.
Since starting with NCI in 1986 where he launched the European Sales operation,
Mr. Ezelius has also held positions of Vice President of Worldwide sales and
Chief Operating Officer. Prior to NCI, Mr. Ezelius held the position of Vice
President of Marketing and Project Management for Inter Innovation AB in
Stockholm, Sweden. Mr. Ezelius started his career in 1971 with systems design
and application software development for the first generation of programmable
branch automation systems.
Frank A. Pascuito and Carmen A. Pascuito are brothers.
The Company has appointed an audit committee consisting of Directors Arnold
Wells, John P. Singleton, and DuWayne J. Peterson. John P. Singleton and DuWayne
Peterson are independent directors.
The Company has also appointed an executive committee, a compensation
committee, an acquisition committee, and a strategic planning committee. The
members of the executive committee are Arnold Wells, Frank A. Pascuito, David L.
Hodge, DuWayne J. Peterson, and John P. Singleton. The members of the
compensation committee are David L. Hodge, DuWayne J. Peterson, and John P.
Singleton. The members of the acquisition committee are Frank A. Pascuito, John
P. Singleton, Simon J. Theobald, and Per Olof Ezelius. The members of the
strategic planning committee are Simon J. Theobald, John P. Singleton, Per Olof
Ezelius, and Frank A. Pascuito. Section 16(a) of the Securities Exchange Act of
1934 ("Exchange Act") requires the Company's officers and directors, and persons
who own more than 10% of the Company's Common Stock, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than 10% stockholders are required by
regulations promulgated under the Exchange Act to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that during the fiscal year
ended April 30, 1998, no officer, director or greater than 10% beneficial owner
was late with his filings other than Messr. John Shahda, a beneficial owner, who
was late in filing his Form 3.
ITEM 10. Executive Compensation
The following table sets forth information concerning compensation paid or
accrued by the Company or its subsidiary for services rendered during the fiscal
years ended April 30, 1998, 1997 and 1996 by its Chief Executive Officer and
each of its executive officers whose compensation exceeded $100,000 during its
fiscal year end April 30, 1998.
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term
Compensation
Other
Annual Securities
Name and Fiscal Compen- Underlying
Principal Position Year Salary Bonus sation Option(s)
- ----------------------- -------- ---------- ------- --------- ------------
David Hodge.............. 1998 $41,538 $ - $10,500(1) 60,000
President and CEO
Frank Pascuito........... 1998 114,810 50,000 - 18,722
Chairman 1997 94,061 (2) 50,305 - 87,485
1996 88,000 (2) - - -
Charles Caserta.......... 1998 119,759 - - 18,723
Vice President of 1997 102,132 (3) 70,984 - 92,463
Business Development 1996 90,794 (3) - - -
Simon Theobald........... 1998 206,408 - - 15,000
Vice President of 1997 183,790 - - 25,000
Sales and Marketing 1996 106,436 - - -
Per Olof Ezelius......... 1998 55,767 100,000 - 18,000
President and CEO/NCI 1997 - - - -
1996 - - - -
- --------
(1) Amount in Other Annual Compensation represents amounts paid for board member
fees prior to appointment of President and CEO.
(2) Does not include accrued interest of $2,367 and $5,706 for the fiscal years
ended April 30, 1997, 1996, respectively, for salaries earned but deferred. The
interest rate on such deferred salaries was 12% per annum. See "Certain
Relationships and Related Transactions."
(3) Does not include accrued interest of $2,899 and $6,862 for the fiscal years
ended April 30, 1997, 1996, respectively, for salaries earned but deferred. The
interest rate on such deferred salaries was 12% per annum. See " Certain
Relationships and Related Transactions."
Set forth below with respect to the executive officers set forth in the Summary
Compensation Table (the "Named Officers") is further information concerning
options to purchase Common Stock under the Company's stock option plans, and
employment agreements.
<TABLE>
<CAPTION>
Option Grants in Fiscal Year Ended April 30, 1998
--------------------------------------------------------------------------------------------------------------------------------
Number of
Shares % of Total
of Common Stock Options
Underlying Granted to
Options Employees in Per Share Expiration
Name Granted Fiscal Year Exercise Price Date
- ------- ----------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Frank A. Pascuito...............13,722 4.1 % $4.88 02/03/08
Frank A. Pascuito................5,000 1.5 % $3.22 04/01/08
Charles J. Caserta..............13,723 4.1 % $4.88 02/03/08
Charles J. Caserta...............5,000 1.5 % $3.22 04/01/08
David L. Hodge..................10,000 3.0 % $6.88 09/09/07
David L. Hodge..................30,000 9.0 % $4.25 03/09/08
David L. Hodge..................20,000 6.0 % $4.25 03/08/08
Simon J. Theobald...............15,000 4.5 % $4.71 02/23/08
Per Olof Ezelius................18,000 5.4 % $5.00 01/29/08
</TABLE>
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Number of Shares Underlying Unexercised In-the-Money
of Common Stock Options as of April 30, 1998 Options as of April 30, 1998(1)
Acquired on ----------------------------- -------------------------------
Name Exercise Value Realized Exercisable Unexercisable Exercisable Unexercisable
--------------------- ---------------- ----------------- ------------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
David L. Hodge
President and CEO........0 $0 12,370 47,630 $0 $0
Frank Pascuito,
Chairman.................12,445 $53,140 139,557 0 $69,238 $0
Charles Caserta,
Vice President of
Business Development....7,467 $31,884 144,536 0 $69,238 $0
Simon Theobald,
Managing Director
of EMEA.................0 $0 52,589 22,411 $70,004 $11,696
Per Olof Ezelius,
President and CEO/NCI....0 $0 1,477 16,523 $0 $0
- --------
(1) Based on a market price of $2.94 per share at April 30, 1998.
</TABLE>
EMPLOYMENT AGREEMENTS
In May, 1998, the Company entered into employment agreements, or amended or
restated prior employment agreements (the "Employment Agreements") with each of
Messrs. David Hodge, Frank Pascuito and Simon Theobald (each an "Executive").
The initial term of Mr. Hodge's Employment Agreement extends from February
15, 1998 to February 14, 2001, and is automatically renewed annually thereafter.
Under Mr. Hodge's Employment Agreement, Mr. Hodge will receive (i) an annual
base salary of $200,000, subject to an increase commencing on June 1, 1998 based
on the increase in the consumer price index and periodic review after May 31,
1999; (ii) an annual bonus (which shall not exceed 50% of the annual base
salary) based on the achievement of performance goals agreed to by the Executive
and the Board; (iii) stock options granted immediately under the Plan for the
purchase of 50,000 shares of the Company's common stock and 25,000 shares on
each anniversary of the execution of the Agreement; (iv) stock appreciation
rights based on 30,000 shares of the Company's common stock to be granted
immediately and on each anniversary of the execution of this Agreement; (v) life
insurance or death benefits in the amount of $500,000; (vi) an annuity of
$40,000 per year for the joint lives of the Executive and his spouse. If the
Company is sold or transferred (as described in the Employment Agreement), even
if the Executive is not terminated, the Executive shall receive (on a "grossed
up" basis to cover taxes incurred) 6% of the first $10 million in consideration,
8% of the next $10 million, and 10% of any consideration received in excess of
$20 million.
The initial term of Mr. Pascuito's Employment agreement extends from January
1, 1997 to December 31, 1999. Automatically renewed annually thereafter for
consecutive one-year. Mr. Pascuito will receive (i) an annual base salary of
$130,000; (ii) a commission; (iii) an annual performance bonus; (iv) stock
options previously granted for the purchase of 75,000 shares of the Company's
common stock at $5.00 per share; (v) stock appreciation rights based on 10,000
shares of the Company's common stock to be granted immediately and on each
anniversary of the execution of this Agreement. If the Company is sold or
transferred (as described in the Employment Agreement even if the Executive is
not terminated, the Executive shall receive (on a "grossed up" basis to cover
taxes incurred) 4% of the first $10 million in consideration, 6% of the next $10
million, and 8% of any consideration received in excess of $20 million.
The initial term of Mr. Theobald's Employment Agreement extends from February
28, 1998 to December 31, 1999. Automatically renewed annually thereafter. Mr.
Theobald will receive: (i) an annual base salary composed of a fixed portion
totaling $112,500 per year; (ii) a commission (iii) an annual performance bonus;
(iv) stock options (previously granted) for the purchase of 15,000 shares of the
Company's common stock; (v) stock appreciation rights based on 5,000 shares of
the Company's common stock to be granted immediately and on each anniversary of
the execution of this Agreement. . If the Company is sold or transferred (as
described in the Employment Agreement), even if the Executive is not terminated,
the Executive shall receive (on a "grossed up" basis to cover taxes incurred) 2%
of the first $10 million in consideration, 4% of the next $10 million, and 6% of
any consideration received in excess of $20 million.
Each of the three agreements provides automobile allowances and allowances for
club membership.
The Employment Agreement's of Messrs. Pascuito and Theobald, provide that
where a termination is for death or disability, the executive shall receive: his
annual fixed salary accrued and other benefits and compensation, but no less
than 6 months fixed salary. Additionally, all unvested stock options and SAR's
which have been or are scheduled to be granted pursuant to the Agreement shall
immediately vest. Where a termination is due to a "Change in Control," without
cause or by the Executive for good reason as defined in the Agreement provides
that the Company will pay compensation and certain allowances and benefits to
the Executive through the end of the then-applicable term.
The Employment Agreement of Mr. Hodge, provides that where the Agreement is
terminated due to death, disability or termination of the Company for "Cause,"
the Executive shall receive: 6 months of his annual salary, accrued compensation
and benefits to date plus other allowances. Where a termination is due to a
"Change in Control," without cause, or by the Executive for good reason, as
defined in the Agreement provides that the Company will pay compensation and
certain allowances and benefits to the Executive through the end of the then
applicable term. Additionally, all unvested stock options and SAR's which have
been or are scheduled to be granted pursuant to the Agreement shall immediately
vest.
Under the Employment Agreements a "Change in Control" includes (i) an
acquisition whereby immediately after such acquisition, a person holds
beneficial ownership of more than 50% of the total combined voting power of the
Company's then outstanding voting securities; (ii) if in any period of three
consecutive years after the date of the Employment Agreements, the then
incumbent board, ceases to constitute a majority of the Board for reasons other
than voluntary resignation, refusal by one or more Board members to stand for
election, or removal of one or more Board member for good cause; or (iii) the
Board of Directors or the stockholders of the Company approve (A) a merger,
consolidation or reorganization; (B) a complete liquidation or dissolution of
the Company; or (C) the agreement for the sale or other disposition of all or
substantially all of the assets of the Company.
On January 30, 1998, Mr. Per Olof Ezelius entered into an employment
agreement with Network Controls International, Inc. ("NCI") to serve as its
President and Chief Executive Officer for an initial term of three years and
three months, commencing January 30, 1998, and ending April 30, 2001 (the
"Original Employment Agreement"). On May 12, 1998, the Company entered into an
extension agreement (the "Extension Agreement") with Mr. Ezelius which provides
that the term of the covenant not to compete (as refereed to in the Original
Employment Agreement) is extended from a period of one-year to two-years
commencing from the expiration of the Original Employment Agreement. Such
Extension Agreement further provides that the Company grant to Mr. Ezelius: (i)
25,000 shares of common stock; (ii) 25,000 options to purchase Company common
stock (such exercise price being equal to the fair market value of such common
stock on May 12, 1998); and (iii) a cash bonus equal to $100,000.
The original employment agreement provides for Mr. Ezelius to receive an
annual base salary composed of a fixed portion totaling $150,000 per year and an
annual performance bonus.
The foregoing summaries are intended as general descriptions of the terms of
the Employment Agreements and the Extension Agreement, and are limited in their
entirety by the actual language of the Employment Agreements and the Extension
Agreement, which are included as Exhibits to this report.
Charles J. Caserta has entered into a three year employment agreement with the
Company, effective as of January 1, 1997, that provides for his employment as
President. Under this agreement, Messrs. Caserta will receive a base salary of
$110,000 per year for each of the first two years and an amount to be determined
by the Board of Directors for the third year. In addition, Messrs. Caserta will
be generally entitled to commissions of 8% on revenues during any fiscal year in
excess of $425,000 pursuant to licenses agreements generated by their respective
sales efforts. The Board of Directors may in its discretion grant bonuses to
Messrs. Caserta. Pursuant to this employment agreement and not pursuant to any
option plan, Messrs. Caserta received options to purchase 75,000 shares of
Common Stock at an exercise price of $5.00 per share. The agreement contains a
restrictive covenant requiring the executive not to compete with the Company for
the term of the agreement, for two years following termination for cause or for
one year if such executive employment agreement is not renewed by the Company.
The agreement provides for a car allowance.
STOCK OPTION PLANS
The Company has two option plans: the 1996 Stock Option Plan (the "1996
Plan") and the 1988 Stock Option Plan (the "1988 Plan").
The 1996 Plan provides for the granting of options which are intended to
qualify either as incentive stock options ("Incentive Stock Options") within the
meaning of Section 422 of the Internal Revenue Code of 1986 or as options which
are not intended to meet the requirements of such section ("Nonstatutory Stock
Options"). The total number of shares of Common Stock reserved for issuance
under the 1996 Plan is 300,000. Options to purchase shares may be granted under
the 1996 Plan to persons who, in the case of Incentive Stock Options, are key
employees (including officers) of the Company or any subsidiary of the Company,
or, in the case of Nonstatutory Stock Options, are key employees (including
officers) or nonemployee directors of, or nonemployee consultants to, the
Company or any subsidiary of the Company.
The 1996 Plan provides for its administration by the Board of Directors or a
committee chosen by the Board of Directors, which has discretionary authority,
subject to certain restrictions, to determine the number of shares issued
pursuant to Incentive Stock Options and Nonstatutory Stock Options and the
individuals to whom, the times at which and the exercise price for which options
will be granted.
The exercise price of all Incentive Stock Options granted under the 1996 Plan
must be at least equal to the fair market value of such shares on the date of
the grant or, in the case of Incentive Stock Options granted to the holder of
more than 10% of the Company's Common Stock, at least 110% of the fair market
value of such shares on the date of the grant. The maximum exercise period for
which Incentive Stock Options may be granted is ten years from the date of grant
(five years in the case of an individual owning more than 10% of the Company's
Common Stock). The aggregate fair market value (determined at the date of the
option grant) of shares with respect to which Incentive Stock Options are
exercisable for the first time by the holder of the option during any calendar
year shall not exceed $100,000.
The 1996 Plan provides for the issuance of options to purchase Common Stock
to key employees, officers, directors and consultants. As of April 30, 1998,
there were options outstanding to purchase 321,500 shares of Common Stock under
the 1996 Plan, of which 35,000 are subject to shareholder ratification. All
options are exercisable at prices ranging from $4.25 to $7.31 per share and
expire in various years between 2005-2008. As of April 30, 1998, there were no
options available for grant to purchase shares of Common Stock under the 1996
Plan.
The 1988 Plan provides for the issuance of options to purchase Common Stock
to key employees, officers, directors and consultants. As of April 30, 1998,
there were options outstanding to purchase 227,635 shares of Common Stock under
the 1988 Plan. All options are exercisable at prices ranging from $.66 to $4.88
per share and expire in various years between 1997 - 2008. As of April 30, 1998,
there were no options available for grant to purchase shares of Common Stock
under the 1988 Plan.
The exercise price of all future option grants will be at least 85% of the
fair market value of the Common Stock on the date of grant.
ITEM 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding beneficial
ownership of the Common Stock and Preferred Stock as of July 29, 1998 by (i)
each stockholder known by the Company to be the beneficial owner of more than 5%
of the outstanding Common Stock and Preferred Stock, (ii) each director of the
Company, (iii) each Named Officer, (iv) and all directors and executive officers
as a group. Except as otherwise indicated, the Company believes that the
beneficial owners of the Common Stock and Preferred Stock listed below, based on
information furnished by such owners, have sole investment and voting power with
respect to such shares, subject to community property laws where applicable.
The table below does not reflect the number of shares of Common Stock which
may be acquired by an individual upon conversion of Preferred Stock which such
person may own. The following table does reflect Common Stock issuable pursuant
to stock options exercisable within sixty days.
<TABLE>
<CAPTION>
Name and Address of Number Of Shares Percentage
Beneficial Owner Title of Class Beneficially Owned of Class
--------------------------------------------------- --------------- -------------------- --------------
<S> <C> <C>
Frank Pascuito...................................... Common 326,188(1) 23.8%
Rensselaer Technology Park
300 Jordan Road
Troy, NY 12180
Charles J. Caserta.................................. Common 325,259(2) 23.9%
Rensselaer Technology Park
300 Jordan Road
Troy, NY 12180
Simon J. Theobald................................... Common 58,953(3) 4.6%
Little Elms, 12 Green Lane,
Croxley Green, Rickmansworth,
Hertfordshire, WD3 3HR England
Arnold Wells........................................ Common 10,500(4) .9%
1100 Madison Avenue
New York, NY 10028
John P. Singleton................................... Common 10,000(4) .8%
4331 Rosecliff Drive Preferred 11,000 .8%
Charlotte, NC 28277
DuWayne J. Peterson................................. Common 10,000(4) .8%
225 South Lake Ave.
Pasadena, Ca. 91101
David L. Hodge...................................... Common 19,162(5) 1.5%
300 Jordan Road Preferred 5,000 .4%
Troy, NY 12180
Per Olof Ezelius.................................... Common 68,000(6) 5.4%
Nine Woodlawn Green Preferred 92,094 6.7%
Charlotte, NC 28217
John Shahda......................................... Common 150,000 12.3%
30 S. Pearl Street
Albany, NY 12207
All directors and executive officers as a group (8
persons) ........................................... Common 828,062(7) 49.9%
Preferred 108,094 7.9%
</TABLE>
- --------
(1) Includes 139,557 shares issuable upon exercise of stock options.
(2) Includes 144,536 shares issuable upon exercise of stock options.
(3) Includes 58,933 shares issuable upon exercise of stock options.
(4) Includes 10,000 shares issuable upon exercise of stock options.
(5) Includes 19,162 shares issuable upon exercise of stock options.
(6) Includes 43,000 shares issuable upon exercise of stock options, the issuance
of 25,000 shares of Common Stock pursuant to the terms of an extension agreement
and 62,456 shares of Preferred Stock returnable pursuant to the Merger
Agreement.
(7) Includes 435,188 shares issuable upon exercise of stock options.
ITEM 12. Certain Relationships and Related Transactions
IFS has issued a purchase order for $259,600 to Euro-Tech International
("ETI") to obtain ISO 9000 registration. ETI is an Arizona based corporation
that specializes in guiding companies through the ISO 9000 certification
process. ISO 9000 is an established international business standard. ISO 9000
requires that the core processes of company's business is documented, understood
and followed by company personnel. ISO 9000 is becoming a standard for companies
in the global market. ETI is also a subsidiary of Tech Metrics International,
Inc. of which Mr. David L. Hodge, President and CEO of IFS International, Inc.
is a director.
Frank Pascuito deferred salaries for the five fiscal years ended April 30,
1995 in the aggregate amount of $60,765. Such deferred salaries bore interest at
the rate of 12% per annum until September 30, 1996, which interest aggregated
$31,013 as of such date and was also deferred. As of April 30, 1997, all
deferred salaries and interest have been paid.
Charles Caserta deferred salaries for the five fiscal years ended April 30,
1995 in the aggregate amount of $62,439. Such deferred salaries bore interest at
the rate of 12% per annum until September 30, 1996, which interest aggregated
$34,464 as of such date and was also deferred. As of April 30, 1997, all
deferred salaries and interest have been paid.
On January 30, 1998 the Company acquired all of the outstanding shares of
capital stock of NCI Holdings, Inc. ("Holdings"). Pursuant to the terms of the
Merger Agreement, Per Olof Ezelius ("Ezelius"), the sole beneficial owner of
Holdings' capital stock, received 87,094 shares (the "Base Consideration") of
Preferred Stock valued at $620,545. The Company is obligated to register all of
these shares of Preferred Stock under the Securities Act of 1933. Twenty eight
thousand seventy (28,070) shares of the Base Consideration are being held in
escrow to secure certain warranties, representations, covenants and
indemnifications made by Ezelius (the "Indemnification Obligations"). The Base
Consideration may be reduced if the audited stockholder's equity of Holdings is
less than $1,250,000 as of January 30, 1998.
The acquisition of Holdings was accounted for as a purchase. The cost of the
acquisition was recorded net of an allowance for shares to be returned to the
Company pursuant to provisions of the Merger Agreement relating to stockholders'
equity deficiencies of Holdings as of January 30, 1998. Approximately 62,000
shares are returnable under the Merger Agreement.
Ezelius may receive additional shares of Preferred Stock (the "Additional
Shares") if the consolidated pre-tax profit of NCI exceeds certain levels during
each of the years ending April 30, 1999, 2000 and 2001 and during the three
years ending April 30, 2001. Any Additional Shares issued to Ezelius up to a
value of $200,000 will be held in escrow to further secure the Indemnification
Obligations. The Merger Agreement required Holdings to satisfy indebtedness to
former stockholders of Holdings and NCI arising pursuant to agreements for the
purchase of shares entered into in 1993 and 1995. Immediately prior to the
merger, the Company advanced $840,000 to Holdings, which was utilized to satisfy
existing indebtedness of Holdings as required by the Merger Agreement. Pursuant
to the terms of the Merger Agreement, Ezelius entered into a separate employment
agreement with NCI to serve as Chief Executive Officer of NCI for a period of 39
months, commencing January 30, 1998, at a base salary of $150,000 per year.
Ezelius also was granted options to purchase 18,000 shares of the Company's
Common Stock at $5.00 per share.
ITEM 13. Financial Statements, Exhibits and Reports on Form 8-K
(1) Consolidated Financial Statements and Auditor's Report
See Index to Consolidated Financial Statements on Page F-1.
(2) Exhibits
3.1 Certificate of Incorporation and amendments thereto of the Company (1)
3.2 By-laws, as amended, of the Company (1)
4.1 Certificate of Designation of the Series A Convertible Preferred Stock (2)
4.2 Form of certificate evidencing shares of Preferred Stock (1)
4.3 Form of certificate evidencing Warrants (1)
4.4 Form of certificate evidencing shares of Common Stock (1)
4.5 Warrant Agreement between the Company and the Underwriter (2)
4.6 Form of Warrant Agreement between the Company and American Stock Transfer
and Trust Company, as Warrant agent (1)
4.7 Debenture Investment Agreement, dated July 6, 1989, between the Company
and New York State Science and Technology Foundation, and amendments
thereto (1)
4.8 Loan Agreement, dated January 11, 1989, between the Company and North
Greenbush Industrial Development Agency and amendments thereto (1)
10.1* 1996 Stock Option Plan (1)
10.2* 1988 Stock Option Plan (1)
10.3 Lease Agreement, dated October 1, 1986 between the Company and Rensselaer
Polytechnic Institute and amendments thereto (the "Lease Agreement") (1)
10.4 Addendum A to the Lease Agreement, dated January 7, 1997. (1)
10.5 Digital Prime Contracting Agreement, dated June 6, 1994, between the
Company and Digital Equipment International BV (1)
10.6 Software Development and License Agreement, dated July 8, 1996,
between the Company and Visa International Service Association (1)
10.7* Employment Agreement, dated as of May 12, 1998 between the Company and
David L. Hodge.
10.8* Employment Agreement, dated as of May 12, 1998, between the Company and
Frank A. Pascuito.
10.9* Employment Agreement, dated as of May 12, 1998, between the Company and
Simon J. Theobald. (2)
10.10*Extension Agreement, dated as of May 12, 1998 between the Company and
Per Olof Ezelius.
10.11 Purchase and Sale Agreement, dated as of December 17, 1996, between the
Company and Trustco Bank, National Association. (1)
10.12 Form of Consulting and Investment Banking Agreement between the Company
and the Underwriter. (1)
10.13 Promissory Note, dated March 14, 1997, between the Company and Key Bank of
New York. (3)
10.14*Consulting agreement, dated April 9, 1997, between the Company and Jerald
Tishkoff.
10.15 Plan and Merger Agreement, dated as of January 30, 1998, between the
Company and NCI Holdings, Inc. (4)
21.1 Subsidiaries of the Company (1)
27 Financial Data Schedule
* Management contract or compensatory plan or arrangement.
1 Denotes document filed as an exhibit to the Company's Registration Statement
on Form SB-2 (File No. 333-11653) and incorporated herein by reference.
2 Denotes document filed as an exhibit to the Company's Quarterly Report on Form
10- QSB for the quarter ended January 31, 1997 and incorporated herein by
reference.
3 Denotes document filed as an exhibit to the Company's Current Report, dated ,
March 14, 1997 and incorporated herein by reference.
4 Denotes document filed as an exhibit to the Company's Current Report, dated ,
January 30, 1998 and incorporated herein by reference.
(3) Reports on Form 8-K filed during the three months ended April 30, 1998:
A current report was filed to disclose information under Item 2,
Acquisition or Disposition of Assets, and Item 7, Financial Statements and
Exhibits. On January 30, 1998, the merger of a wholly owned subsidiary of the
Company with and into NCI Holdings, Inc. was consummated pursuant to a Plan and
Merger Agreement dated January 30, 1998.
<PAGE>
IFS International, Inc.
Index to Consolidated Financial Statements
INDEPENDENT AUDITOR'S REPORT.................................................F-2
CONSOLIDATED FINANCIAL STATEMENTS
Balance sheet........................................................F-3
Statements of operations.............................................F-4
Statements of shareholders' equity (deficit).........................F-5
Statements of cash flows.............................................F-6
Notes to consolidated financial statements....................F-7 - F-18
F-1
<PAGE>
Independent Auditor's Report
To the Board of Directors and Shareholders
IFS International, Inc.
We have audited the accompanying consolidated balance sheet of IFS
International, Inc. and subsidiaries as of April 30, 1998, and the related
consolidated statements of operations, shareholders' equity (deficit), and cash
flows for each of the two years in the period ended April 30, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of IFS International,
Inc. and subsidiaries as of April 30, 1998, and the results of their operations
and their cash flows for each of the two years in the period ended April 30,
1998, in conformity with generally accepted accounting principles.
URBACH KAHN & WERLIN PC
Albany, New York
July 14, 1998
F-2
<PAGE>
<TABLE>
<CAPTION>
IFS International, Inc.
Consolidated Balance Sheet
April 30, 1998
- --------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
<S> <C>
Cash and cash equivalents $2,102,807
Trade accounts receivable, net 1,527,865
Costs and estimated earnings in excess of billings on uncompleted contracts 216,280
Other current assets 566,333
Inventory 72,299
- --------------------------------------------------------------------------------------------------------------------
Total current assets 4,485,584
- --------------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, net 2,715,003
- --------------------------------------------------------------------------------------------------------------------
OTHER ASSETS
Capitalized software and product enhancement costs, net 989,732
Excess of cost over fair value of net assets of business acquired, net 319,541
Other 109,803
- --------------------------------------------------------------------------------------------------------------------
Total other assets 1,419,076
- --------------------------------------------------------------------------------------------------------------------
$8,619,663
- --------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 250,059
Accounts payable 538,946
Accrued compensation and related liabilities 545,174
Other accrued expenses 532,512
Billings in excess of costs and estimated earnings on uncompleted contracts 108,288
Deferred revenue and customer deposits 866,503
- --------------------------------------------------------------------------------------------------------------------
Total current liabilities 2,841,482
- --------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT, less current maturities 1,365,078
- --------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
- --------------------------------------------------------------------------------------------------------------------
MINORITY INTEREST 45,600
- --------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Preferred stock $.001 par value; 25,000,000 shares authorized,
1,396,638 shares issued and outstanding 1,397
Common stock $.001 par value; 50,000,000 shares authorized,
1,137,353 issued and outstanding 1,137
Additional paid-in capital 8,241,451
Accumulated deficit (3,879,934)
Foreign currency translation adjustment 3,452
- --------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 4,367,503
- --------------------------------------------------------------------------------------------------------------------
$8,619,663
- --------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IFS International, Inc.
Consolidated Statements of Operations
Years Ended April 30, 1998 and 1997
- --------------------------------------------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------------------------------------------
Revenues:
<S> <C> <C>
Software license and installation contract fees $ 1,935,907 $2,547,912
Hardware sales 699,623 229,463
Service and maintenance revenue 2,572,804 955,843
Service and maintenance revenue
- --------------------------------------------------------------------------------------------------------------------
5,208,334 3,733,218
- --------------------------------------------------------------------------------------------------------------------
Cost of revenues:
Software license and installation contract fees 499,531 531,996
Hardware sales 210,718 181,581
Service and maintenance revenue 666,088 193,136
- --------------------------------------------------------------------------------------------------------------------
Gross profit 3,831,997 2,826,505
- --------------------------------------------------------------------------------------------------------------------
Operating expenses:
Research and development 1,054,043 514,882
Salaries 1,837,063 967,245
Selling, general and administrative 1,932,869 807,578
Rent 150,471 120,136
Other 178,930 34,247
- --------------------------------------------------------------------------------------------------------------------
5,153,376 2,444,088
- --------------------------------------------------------------------------------------------------------------------
Income (loss) from operations (1,321,379) 382,417
Other income (expense):
Litigation settlement costs - (100,000)
Interest expense (86,765) (85,111)
Interest income 169,219 52,283
Other income 76,552 38,347
- --------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (1,162,373) 287,936
Provision for income taxes 92,500 -
- --------------------------------------------------------------------------------------------------------------------
Income (loss) before minority interest (1,254,873) 287,936
Minority interest in income of majority-owned subsidiary (6,600) -
- --------------------------------------------------------------------------------------------------------------------
Net income (loss) $(1,261,473) $ 287,936
====================================================================================================================
Basic income (loss) per common share $(1.15) $.27
====================================================================================================================
Weighted average common shares outstanding 1,098,800 1,056,000
====================================================================================================================
Diluted income (loss) per common share $(1.15) $.18
====================================================================================================================
Weighted average common and common equivalent
shares outstanding 1,098,800 1,613,000
====================================================================================================================
See Notes to Consolidated Financial Statements.
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IFS International, Inc.
Consolidated Statements of Shareholders' Equity (Deficit)
Years Ended April 30, 1998 and 1997
- ------------------------------------------------------------------------------------------------------------------------------------
[-- Preferred Stock --][-- Common Stock --] Foreign
Additional Currency
Shares Par Shares Par Paid-In Accumulated Translation
Outstanding Value Outstanding Value Capital Deficit Adjustment Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at April 30, 1996 - $ - 1,009,361 $1,010 $2,177,611 $(2,906,397) $ - $(727,776)
Issuance of preferred
stock and warrants,
net of related public offering costs 1,380,000 1,380 - - 5,743,075 - - 5,744,455
Issuance of common stock and warrants - - 63,584 63 55,502 - - 55,565
Net income - - - - - 287,936 - 287,936
- ------------------------------------------------------------------------------------------------------------------------------------
Balances at April 30, 1997 1,380,000 1,380 1,072,945 1,073 7,976,188 (2,618,461) - 5,360,180
Issuance of preferred stock for
acquisition of NCI Holdings, Inc. 24,638 25 - - 175,521 - - 175,546
Issuance of common stock - - 56,408 56 89,742 - - 89,798
Conversion of preferred stock (8,000) (8) 8,000 8 - - - -
Foreign currency translation adjustment - - - - - - 3,452 3,452
Net loss - - - - - (1,261,473) - (1,261,473)
- ------------------------------------------------------------------------------------------------------------------------------------
Balances at April 30, 1998 1,396,638 $1,397 1,137,353 $1,137 $8,241,451 $(3,879,934) $3,452 $4,367,503
====================================================================================================================================
See Notes to Consolidated Financial Statements.
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IFS International, Inc.
Consolidated Statements of Cash Flows
Years Ended April 30, 1998 and 1997
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) $(1,261,473) $ 287,936
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization 420,524 243,420
Deferred taxes 27,222 -
Changes in operating assets and liabilities, net of effects of NCI
Holdings, Inc. acquisition:
Inventory 40,452 -
Trade accounts receivable, net (373,412) (587,503)
Costs, estimated earnings and billings on uncompleted contracts (65,287) 291,567
Other current assets 71,991 (44,988)
Accounts payable (115,663) (227,614)
Accrued expenses 285,062 (208,904)
Deferred revenue and customer deposits 238,781 68,034
Other liabilities - (12,515)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (731,803) (190,567)
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Facilities acquisition expenditures and equipment purchases (1,382,493) (1,264,352)
Purchase of NCI Holdings, Inc., net of cash acquired (595,919) -
Capitalized license costs (19,787) (11,408)
Capitalized software costs (531,639) (252,908)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (2,529,838) (1,528,668)
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on capital lease obligations - (2,733)
Payments on long-term debt (51,209) (35,728)
Proceeds from notes payable 208,376 1,481,624
Principal payments on notes payable - (500,000)
Proceeds from issuance of common and preferred stock 39,799 5,800,020
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 196,966 6,743,183
- ------------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 6,072 -
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (3,058,603) 5,023,948
Cash and cash equivalents:
Beginning of year 5,161,410 137,462
- ------------------------------------------------------------------------------------------------------------------------------------
End of year $2,102,807 $ 5,161,410
====================================================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest, net of capitalized amounts in 1998 $ 86,611 $ 135,975
====================================================================================================================================
Income taxes $ 16,235 $ 1,213
====================================================================================================================================
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND
FINANCING TRANSACTIONS
Short-term note payable converted to long-term debt $ 1,190,000 $ -
Capitalized interest $ 41,563 $ 11,227
====================================================================================================================================
PURCHASE OF NCI HOLDINGS, INC.
Fair value of assets acquired $ 1,934,000 $ -
Cash paid for capital stock (840,000) -
Preferred stock issued (176,000) -
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities assumed $ 918,000 $ -
====================================================================================================================================
See Notes to Consolidated Financial Statements.
F-6
</TABLE>
<PAGE>
IFS International, Inc.
Notes to Consolidated Financial Statements
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Description of Business
The consolidated financial statements include the accounts of IFS
International, Inc. (a Delaware Corporation) and its wholly-owned
subsidiaries, IFS International, Inc. (IFS) (a New York
Corporation), and Network Controls International, Inc. (NCI)
(formerly NCI Holdings, Inc.,) (all collectively referred to as the
Company). All significant intercompany accounts and transactions
have been eliminated.
The Company is engaged in the design and development of computer
software for use with automatic teller machines (ATMs), electronic
fund transfers (EFTs), and point of sale (POS) systems used by
financial institutions and retailers. The Company is also engaged
in the sale of computer equipment and software to the financial
services industry and provides its customers with support and
maintenance services for such systems.
A significant portion of the Company's sales and revenues are
derived from financial institutions and other customers located
outside of the United States (see Note 14). The Company extends
credit to its customers and generally requires deposits upon
execution of software development contracts.
With respect to foreign customers, collection may be more difficult
upon default.
Summary of Significant Accounting Policies
Use of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements
and reported amounts of revenue and expenses during the reporting
period, as well as amounts disclosed for contingencies. Among the
more significant estimates included in the financial statements
are the estimated costs to complete software installation
contracts, amortization of capitalized software costs and the
valuation allowance reducing the Company's deferred tax asset.
Actual results could differ from those estimates.
Revenue recognition:
Revenues from sales of hardware and software are recognized upon
shipment of product or upon satisfaction of material ongoing
commitments, if any. Revenue from software installation
contracts, except for the portion attributable to base license
fees for pilot programs which are recognized when pilot sites are
identified, is recognized on the percentage-of-completion method,
measured by the ratio of costs incurred to date to management's
estimates of total anticipated costs. This method is used because
management considers costs incurred to be the best available
measure of progress on software installation contracts. Because
of the inherent uncertainties in estimating contracts, it is at
least reasonably possible that the Company's estimates of costs
and revenues will change in the near term. Uncertainty inherent
in initial estimates is reduced progressively as work on the
contract nears completion.
F-7
<PAGE>
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Summary of Significant Accounting Policies, Continued
Revenue recognition, continued:
Deposits received in advance for hardware sales are deferred and
recognized as revenue upon installation and acceptance of the
system. Amounts received on service contracts are initially
deferred and recognized ratably over the life of the contract,
generally one year. With the exception of revenues earned through
foreign subsidiaries, all revenues derived outside of the United
States are denominated in U.S. dollars.
In October 1997, the AICPA issued SOP 97-2, Software Revenue
Recognition ("SOP 97-2"), which changes the requirements for
revenue recognition effective for transactions that the Company
will enter into beginning May 1, 1998. The criteria for
recognizing revenue under SOP 97-2 are generally more rigorous
than the previous accounting standard. Due to uncertainties which
exist with respect to the appropriate interpretations and manner
of implementation of SOP 97-2, the effect on the Company is
uncertain.
Cash and cash equivalents:
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. Cash
equivalents consist of money market funds which focus on high
quality, short-term money market instruments of all types.
Allowance for doubtful accounts:
Accounts receivable are stated net of an allowance for doubtful
accounts.
Bad debts are provided for on the allowance method based upon
historical experience and management's estimation of collection
losses on outstanding accounts receivable.
Inventories:
Inventories are stated at cost and consist principally of
hardware products for resale.
Property, plant and equipment:
Property, plant and equipment are stated at cost, with related
depreciation provided by the declining-balance and straight-line
methods over the estimated useful lives of the related assets,
ranging from three to forty years. Interest incurred on
obligations incurred to finance construction of building
improvements was capitalized in the cost of such improvements.
Capitalized software and product enhancement costs:
The cost of adding new functions and features (i.e.,
enhancements) to existing systems and the cost of development of
new systems, for which technological feasibility has been
established and which are not covered by outside funding, are
capitalized. Costs incurred in the establishment of technological
feasibility of new systems are expensed as incurred.
F-8
<PAGE>
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Summary of Significant Accounting Policies, Continued
Capitalized software and product enhancement costs, continued:
These costs are reported at the lower of unamortized cost or net
realizable value. Amortization is recorded over the estimated
marketing lives of the software and enhancements which range from
two to five years, and is computed on the greater of the
percent-of-revenue method, based on the total estimated future
revenues expected to be derived from sales of the software, or
the straight-line method. Adjustments are made to accelerate
amortization when, in management's estimation, the unamortized
capitalized costs exceed the net realizable value for specific
products.
Income taxes:
Current or deferred tax liabilities are recognized for the tax
consequences of all events recognized in the financial
statements. Deferred taxes are computed on the differences
between the financial reporting and the tax reporting basis of
assets and liabilities. The Company has not recognized the
benefit of any net operating loss carryforwards due to the
uncertainty of the realizability of such carryforwards. The
Company will file a consolidated Federal income tax return with
its domestic subsidiaries.
Accounting for stock-based compensation:
The Company records compensation expense for employee stock
options and warrants only if the current market price of the
underlying stock exceeds the exercise price on the date of the
grant in accordance with Accounting Principles Board Opinion No.
25 Accounting for Stock Issued to Employees ("APB 25"). On May 1,
1996, the Company adopted the disclosure provisions of Financial
Accounting Standard No. 123, Accounting for Stock-Based
Compensation. The Company has elected not to implement the fair
value based accounting method for employee and directors' stock
options and warrants, but has elected to disclose the pro forma
net loss and pro forma basic loss per share to account for
employee and directors' stock option and warrant grants, as if
such method had been used to account for such stock-based
compensation.
Foreign currency translation:
All assets and liabilities of foreign subsidiaries of NCI whose
functional currency is other than the U.S. dollar are translated
at exchange rates in effect at the balance sheet date, while the
parent's investment is translated at historical exchange rates.
Revenues and expenses of such subsidiaries are translated at
average exchange rates for the period. Translation gains and
losses are not included in determining net income but are
accumulated in a separate component of shareholders' equity.
Foreign currency transaction gains and losses, which are
generally not material, are included in other expense (income) in
the statement of operations when incurred.
F-9
<PAGE>
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Summary of Significant Accounting Policies, Continued
Basic and diluted net income (loss) per share:
Basic net income (loss) per share is computed using the weighted
average number of common shares outstanding during the period.
Diluted net income (loss) per share is computed using the
weighted average number of common and potential common shares
outstanding during the period. Potential common shares consist of
the incremental common shares issuable upon the exercise of stock
options and warrants (using the treasury stock method) and
convertible preferred stock which approximate 327,000 and 230,000
shares, respectively, in 1997. Potential common shares are
excluded from the computation if their effect is anti-dilutive,
as was the case for the year ended April 30, 1998.
Reclassification:
Certain items have been reclassified in the 1997 financials to
conform to the current year's presentation.
Recent accounting pronouncements:
In June 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income ("SFAS 130") and Statement of
Accounting Standards No. 131, Disclosures About Segments of an
Enterprise and Related Information ("SFAS 131"). SFAS 130
establishes standards for the reporting and display of
comprehensive income and its components in the financial
statements. Comprehensive income is comprised of net income
(loss), changes in the value of available-for-sale securities and
foreign currency translation adjustments, and other such items
disclosed in the statement of shareholders' equity (deficit).
SFAS 131 revises the manner in which public companies report
segment information in annual financial statements. The Company
will adopt SFAS 130 and SFAS 131 in the quarter ended July 31,
1998, and based on current circumstances, does not believe the
effect of adoption will be significant.
NOTE 2. ACQUISITION OF NCI HOLDINGS, INC.
In January 1998, the Company acquired NCI Holdings, Inc.
(Holdings). Holdings is the majority owner of NCI. NCI is engaged
primarily in the sale of computer equipment and software to
financial institutions. NCI also sells related services including
installation, training, consulting and programming. NCI, Inc. has
three wholly-owned subsidiaries which provide marketing and sales
support to customers in European markets. The subsidiaries are as
follows:
Network Controls GmbH (Germany)
Network Controls International Ltd. (London)
Network Controls International Espana, S.A. (Spain) (Inactive)
F-10
<PAGE>
NOTE 2. ACQUISITION OF NCI HOLDINGS, INC., CONTINUED
The Company acquired all of the outstanding shares of capital stock
of Holdings in exchange for $1.11 million, consisting of $840,000
in cash and $176,000 representing the fair value of 24,638 shares
of preferred stock. Costs incurred in connection with the
acquisition approximated $102,000. In accordance with provisions of
the acquisition agreement, the Company recorded the issuance of
preferred shares at an amount which considered an allowance for
equity deficiencies of NCI. Pursuant to the acquisition agreement,
additional preferred shares may be issued if the consolidated
pre-tax profits of NCI exceeds certain levels during each of the
three years ending April 30, 1999, 2000 and 2001 and during the
three year period ending April 30, 2001. These issuances will be
treated as additional purchase cost. The acquisition was accounted
for as a purchase and the operating results of NCI were included in
the consolidated financial statements commencing February 1, 1998.
The excess of the cost of acquiring NCI over the fair value of net
assets acquired, approximating $343,000, is being amortized over
eight years. Amortization approximated $23,000 for the period ended
April 30, 1998.
Pro forma selected results of operations for the years ended
April 30, 1998 and 1997, as if the acquisition had taken place at
the beginning of each of those years, are as follows:
-------------------------------------------------------------------
1998 1997
Revenues $ 7,825,000 $7,700,000
-------------------------------------------------------------------
Net loss $(1,341,000) $ (763,000)
-------------------------------------------------------------------
Basic loss per common share $(1.22) $(0.69)
-------------------------------------------------------------------
NOTE 3. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Costs and estimated earnings on uncompleted contracts are
summarized as follows:
-------------------------------------------------------------------
Expenditures on uncompleted contracts $ 377,051
-------------------------------------------------------------------
Estimated earnings thereon 939,546
-------------------------------------------------------------------
1,316,597
Less billings to date 1,208,605
-------------------------------------------------------------------
$ 107,992
===================================================================
Included in the accompanying balance sheet under the following
captions:
-------------------------------------------------------------------
Cost and estimated earnings in excess
of billings on uncompleted contracts $216,280
Billings in excess of costs and estimated
earnings on uncompleted contracts 108,288
-------------------------------------------------------------------
$107,992
===================================================================
F-11
<PAGE>
NOTE 4. PROPERTY, EQUIPMENT AND IMPROVEMENTS
Property, equipment and improvements consist of the following:
-------------------------------------------------------------------
Building $1,916,731
Machinery and equipment 1,658,535
Furniture and fixtures 467,918
Leasehold improvements 37,494
-------------------------------------------------------------------
4,080,678
-------------------------------------------------------------------
Less accumulated depreciation 1,365,675
-------------------------------------------------------------------
Property, equipment and improvements, net $2,715,003
===================================================================
During 1998, the Company completed the renovation of a building
purchased in 1997 to house the Company's New York facility.
Interest capitalized amounted to $41,563 and $11,227 for the years
ended April 30, 1998 and 1997, respectively. The land underlying
the facility is subject to a long-term ground lease arrangement
with no annual rental requirements.
Depreciation related to property, equipment, and improvements was
$178,930 and $65,216 for the years ended April 30, 1998 and 1997,
respectively.
NOTE 5. CAPITALIZED SOFTWARE AND PRODUCT ENHANCEMENT COSTS:
Capitalized software and product enhancement costs consist of the
following:
-------------------------------------------------------------------
Capitalized software and product enhancement costs $1,769,716
Less accumulated amortization (779,984)
-------------------------------------------------------------------
Capitalized software costs, net $ 989,732
===================================================================
Amortization expense approximated $218,600 and $173,000 for the
years ended April 30, 1998 and 1997, respectively.
NOTE 6. LINE OF CREDIT
The Company has available a $600,000 bank line of credit subject to
annual review. Borrowings under the line of credit accrue interest
at prime plus 3/4% and are secured by inventory, receivables,
property and equipment, and the personal guarantee of a Company
director. No amounts were outstanding under the line as of April
30, 1998.
F-12
<PAGE>
NOTE 7. LONG-TERM DEBT
Long-term debt consists of the following at April 30, 1998:
-------------------------------------------------- --------------
Restructured note payable, government
agency, principal and interest payments
of $3,804 per month, including interest
at 7.5%, due April 2002. This note is
unsecured and subordinated to all other debt. $ 162,909
Restructured convertible subordinated
debentures payable to a governmental agency
due in installments of $160,000, and $90,000
in 1999 and 2000, respectively. Interest is
payable quarterly at 7.5%. The debentures are
convertible into shares of common stock at
$5.74 per share through April 2000. At
April 30, 1998, approximately 43,500 shares
of common stock were issuable under this
conversion feature. 250,000
Mortgage payable, bank, requiring escalating
monthly principal payments ranging from $3,300
per month to $4,700 per month with a balloon
payment of $957,100 due in November 2002. The
note is secured by a mortgage on the Company's
New York operating facility. Interest is variable
and payable monthly, subject to a swap agreement,
which effectively fixes the interest rate at 8.98%. 1,170,200
Other long-term debt 32,028
-----------------------------------------------------------------
1,615,137
Less current portion 250,059
-----------------------------------------------------------------
$1,365,078
=================================================================
The Company's long-term debt obligations require compliance with
financial and non-financial covenants. As of April 30, 1998, the
Company was not in compliance with certain of these requirements,
however, covenant violation waivers have been received.
Aggregate maturities of long-term debt are as follows:
-------------------------------------------------------
Year Ending April 30
-------------------------------------------------------
1999 $ 250,059
2000 181,545
2001 99,641
2002 103,292
2003 980,600
-------------------------------------------------------
$1,615,137
=======================================================
NOTE 8. INCOME TAXES
The provision for income taxes for the year ended April 30, 1998
consists of deferred taxes attributable to revenue recognition
differences of approximately $27,000, and foreign taxes of
approximately $62,500. Deferred tax account balances at April 30,
1998 and 1997 were not material.
F-13
<PAGE>
NOTE 8. INCOME TAXES, CONTINUED
The provision for income taxes for the years ended April 30, 1998
and 1997 differs from the amount obtained by applying the U.S.
federal income tax to pretax income due to the following:
-------------------------------------------------------------------
1998 1997
-------------------------------------------------------------------
Federal income tax (benefit) at
statutory rates $(343,000) $ 87,750
State income tax (benefit), net
of federal benefits (123,000) 11,000
Change in valuation allowance
for net operating losses 373,500 (98,750)
-------------------------------------------------------------------
Provision for income taxes $ (92,500) $ -
===================================================================
At April 30, 1998, the Company has net operating loss carryforwards
of approximately $3,200,000, which begin to expire in 2004 to
offset future federal taxable income. Utilization of these
carryforwards may be limited due to the ownership change provisions
as enacted by the Tax Reform Act of 1986 and subsequent
legislation.
Because of the uncertainty as to realizability, the deferred tax
benefit attributable to net operating loss carryforwards at April
30, 1998 and 1997 of approximately $1,090,000 and $720,000,
respectively, has been offset by an equivalent valuation allowance.
NOTE 9. STOCK OPTION PLANS
The Company has two stock option plans (the 1988 Plan and the 1996
Plan) which provide for the granting of either options intended to
qualify as "incentive stock options" under the Internal Revenue
Code or "supplemental stock options" not intended to qualify. Under
both plans, the Board of Directors determines the exercise and
expiration dates of the options which may not be later than 10
years from the date of the grant. The purchase prices of the shares
under incentive stock options must be at least equal to the fair
market value of the common stock at the date of grant. Options
outstanding at April 30, 1998 under the 1988 Plan, may be exercised
at prices ranging from $.66 to $4.88 per share. At April 30, 1998,
no options were available for future issuance under this Plan. An
aggregate of 332,779 shares of common stock were originally
reserved in connection with the 1988 Plan.
The following table summarizes option activity during 1998 and 1997
under the 1988 Stock Option Plan:
-------------------------------------------------------------------
Shares Under Option
- - - - - Year Ended April 30 - - - - -
Weighted Weighted
Average Average
Exercise Exercise
1998 Price 1997 Price
-------------------------------------------------------------------
Outstanding beginning
of year 248,542 $1.37 281,884 $ 0.85
Granted 27,445 4.88 39,948 2.82
Exercised ($.67 to $2.50
per share) (20,908) (0.66) (63,004) (0.77)
Canceled (27,445) (0.66) (10,286) (1.23)
-------------------------------------------------------------------
Outstanding end of year 227,634 $ 1.94 248,542 $ 1.37
===================================================================
Exercisable 218,816 $ 1.86 224,760 $ 1.36
===================================================================
F-14
<PAGE>
NOTE 9. STOCK OPTION PLANS, CONTINUED
The weighted-average remaining contractual life of outstanding
options under the 1988 Plan is 6.39 years.
The following table summarizes option activity during 1998 and 1997
under the 1996 Stock Option Plan:
-------------------------------------------------------------------
Shares Under Option
- - - - Year Ended April 30 - - - -
-------------------------------------------------------------------
Weighted Weighted
Average Average
Exercise Exercise
1998 Price 1997 Price
-------------------------------------------------------------------
Outstanding beginning
of year 35,000 $ 6.75 - $ -
Granted 261,750 5.03 35,000 6.75
Exercised - - - -
Canceled (10,250) (5.51) - -
-------------------------------------------------------------------
Outstanding end
of year 286,500 $ 6.00 35,000 $ 6.75
===================================================================
Exercisable 112,578 $ 5.77 35,000 $ 6.75
===================================================================
An aggregate of 300,000 shares of common stock have been reserved
in connection with the 1996 Plan. The weighted-average remaining
contractual life of outstanding options under the 1996 Plan is 8.7
years. Options outstanding under the 1996 Plan may be exercised at
prices ranging from $4.25 to $7.31 per share. At April 30, 1998,
13,500 options were available for future issuance.
In accordance with APB 25, no employee compensation cost has been
recognized in accounting for the stock option plans in 1998 or
1997. Had compensation costs and fair values been determined
pursuant to FAS 123, net loss for 1998 would have increased by
approximately $723,000 and net income for 1997 would have decreased
by approximately $326,000. Basic loss per share would have
approximated $1.80 and $.04 in 1998 and 1997, respectively, under
FAS 123. The weighted average fair value of options granted during
1998 and 1997, for the purpose of FAS 123, is $5.02 and $4.62 per
share, respectively.
In accordance with FAS 123, the fair value of each option for 1997
was estimated on the grant date using the Black-Scholes Single
Option Model, assuming no dividend yield, and with the following
weighted-average assumptions, respectively: risk-free interest rate
of 6.5%; volatility factors of the expected market price of the
Company's common stock of 111.7%.
NOTE 10. LITIGATION SETTLEMENT EXPENSE
In 1997, the Company settled an outstanding litigation matter
alleging breach of contract by the Company, by the payment of
$100,000 in settlement costs.
F-15
<PAGE>
NOTE 11. EMPLOYEE BENEFIT PLANS
The Company has adopted qualified profit sharing plans with 401(k)
deferred compensation provisions. Substantially all employees are
eligible to participate in either of the plans. The plans provide
for contributions by the Company at the Board of Director's
discretion and on a matched basis. Contributions under the plans
approximated $19,200 during the year ended April 30, 1998 (none in
1997).
NOTE 12. COMMITMENTS AND CONTINGENCIES
The Company leases office space and certain equipment under
operating leases. The lease arrangements generally contain renewal
options at various terms. Future minimum lease payments under
noncancellable operating leases with an initial or remaining term
of one year or more are as follows:
------------------------------------------------------------
Year Ending April 30
1999 $ 49,100
2000 167,600
------------------------------------------------------------
$ 216,700
============================================================
NOTE 13. RELATED PARTY TRANSACTIONS
Certain officers/directors receive commissions based upon a
percentage of software license fees generated by their respective
sales efforts. Approximately $149,000 and $118,000 were earned
under the commission agreements during 1998 and 1997, respectively.
The Company had a consulting agreement with a director to provide
consulting services for an indefinite term. The agreement called
for the payment of monthly compensation and monthly travel and
housing expenses. Consulting fees under this arrangement, exclusive
of expense reimbursements, were approximately $162,000 and $68,000,
in 1998 and 1997, respectively. The agreement was canceled
effective April 30, 1998.
Accounts payable and accrued expenses include approximately
$37,700 and $53,200 as of April 30, 1998 and 1997, respectively,
due to these officers/directors.
The Company is a party to a consulting arrangement with an entity
affiliated with an organization in which an officer/director of IFS
serves as a director. This arrangement requires that consulting
fees of approximately $260,000 be paid ($35,000 were prepaid at
April 30,1998) to this entity in connection with "ISO 9000"
certification assistance.
NOTE 14. EXPORT REVENUES, MAJOR CUSTOMERS, CERTAIN CONCENTRATIONS
One domestic customer accounted for approximately 16% of total
revenues for the year ended April 30, 1998. Amounts due from this
customer at April 30, 1998 were approximately $91,000. A foreign
customer accounted for approximately 19% of total sales and service
revenue for the year ended April 30, 1997.
F-16
<PAGE>
NOTE 14. EXPORT REVENUES, MAJOR CUSTOMERS, CERTAIN CONCENTRATIONS, CONTINUED
Total revenues considered export revenues including sales of NCI's
foreign subsidiaries approximated $3,793,000 and $2,013,000, or 74%
and 54% of total revenues, for the years ended April 30, 1998 and
1997, respectively. Such revenues were derived primarily from
customers located in eastern Europe and the Far East.
Approximately 19% and 21% of the Company's total revenues for the
years ended April 30, 1998 and 1997, respectively, were derived
pursuant to a relationship with one computer manufacturer.
NOTE 15. PUBLIC OFFERING
In October and November 1996, in connection with a proposed public
offering, the Company approved a 1 for 10 reverse common stock
split, increased the number of preferred shares authorized to
25,000,000, and designated 20,000,000 of the preferred shares as
Series A Convertible. All share related and per share amounts have
been restated to give retroactive effect to the split.
In February 1997, the Company sold 1,380,000 shares of preferred
stock and 1,955,000 warrants to purchase preferred stock in a
public offering. Proceeds of the offering approximated $5,700,000
after deducting underwriting discounts and expenses. Proceeds of
the public offering were used to retire long-term debt, facilities
construction and renovation, and for working capital purposes.
The preferred stock is convertible, at the option of the holder,
into one share of the Company's common stock, subject to
adjustment, until February 2002 or earlier upon the occurrence of
certain events. Each warrant entitles the holder to purchase one
share of preferred stock at a price of $6.25 per share, subject to
adjustment, for a three year period beginning in February 1999, or
earlier upon the occurrence of certain events.
The Company also sold warrants to the underwriter to purchase
120,000 shares of preferred stock at $6.25 per share and 170,000
warrants to purchase an equivalent number of preferred shares at an
exercise price of $1.6875 per warrant, exercisable over a period of
four years commencing in February 1998.
In September 1996, also in connection with the public offering, the
Company obtained bridge financing and issued warrants to purchase
100,000 shares of common stock. The warrants are exercisable at
$2.50 per share, subject to adjustment, through September 2001.
NOTE 16. INTEREST RATE SWAP AGREEMENT AND FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company is a party to an interest rate swap agreement to reduce
the impact of changes in interest rates on its floating rate
mortgage (Note 7). This agreement effectively changes the interest
rate exposure to a fixed 8.98%. The interest rate swap agreement
matures at the time the related mortgage matures. The Company is
exposed to credit loss in the event of nonperformance by the bank,
however, the Company does not anticipate nonperformance. Interest
rate swap transactions generally involve exchanges of fixed and
floating interest payment obligations without exchanges of
underlying principal amounts. Consequently, the Company's exposure
to credit loss is significantly less than the mortgage principal
amount. The amount that would be payable at April 30, 1998 to
terminate the Company's swap agreement, based on a market
quotation, was approximately $35,100.
F-17
<PAGE>
NOTE 16. INTEREST RATE SWAP AGREEMENT AND FAIR VALUE OF FINANCIAL
INSTRUMENTS, CONTINUED
The fair value of the Company's other financial instruments,
consisting principally of cash equivalents and long-term debt, has
been estimated to approximate their carrying amounts, based on
current interest rates.
NOTE 17. SUBSEQUENT EVENT
On June 1, 1998, NCI was merged into Holdings and Holdings changed
its name to Network Controls International, Inc.
NOTE 18. FOURTH QUARTER RESULTS (UNAUDITED)
Operations for the fourth quarter of 1998 include adjustments
approximating $900,000 relating to the unanticipated cancellation
of certain software installations contracts, adjustments of service
revenues previously recognized, and increases in costs to complete
software installations contracts.
F-18
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
IFS INTERNATIONAL, INC.
(Registrant)
Date:__August 13, 1998___ By:__\s\ David L. Hodge___________
David L. Hodge, President and
Chief Executive Officer, Director
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Date:__ August 13, 1998___ By: \s\ David L. Hodge
David L. Hodge, President and
Chief Executive Officer, Director
Date:__ August 13, 1998___ By: \s\ Frank A. Pascuito
Frank A. Pascuito
Chairman, Director
Date:_____________________ By:
Charles J. Caserta,
Vice President of Business
Development, Director
Date:__ August 13, 1998___ By: \s\ Simon Theobald
Simon Theobald
Managing Director of EMEA, Director
Date:__ August 13, 1998___ By: \s\ Carmen A. Pascuito
Carmen A. Pascuito,
Controller and Secretary
Date:__ August 13, 1998___ By: \s\ Arnold Wells
Arnold Wells, Director
Date:__ August 13, 1998___ By: \s\ John P. Singleton
John P. Singleton, Director
Date:__ August 13, 1998___ By: \s\ DuWayne J. Peterson
DuWayne J. Peterson, Director
Date:__ August 13, 1998___ By: \s\ Per Olof Ezelius
Per Olof Ezelius, Director
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), dated as of May 12,
1998, is entered into by and among IFS International, Inc., a Delaware
corporation (the "Company"), whose principal executive office is located at
Rensselaer Technology Park, 300 Jordan Road, Troy, New York 12180, IFS
International, Inc., a New York corporation and a wholly owned subsidiary of the
Company, and any other subsidiary of the Company, (the Company and its
subsidiaries are sometimes collectively referred to in this Agreement as the
"Companies") and Simon Theobald (the "Executive"), an individual whose address
is ____________________________________ with reference to the following facts:
RECITALS:
WHEREAS, on February 24, 1998, the Companies retained the services of
the Executive as its Senior Vice President of Sale; and
WHEREAS, the Executive and the Companies wish to memorialize with this
Agreement their agreement as to the terms and conditions of the Executive's
employment with the Companies.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and for valuable consideration, the receipt and sufficiency of
which are hereby mutually acknowledged, the parties to this Agreement
(collectively "parties" and individually a "party") agree as follows:
AGREEMENT:
1. DEFINITIONS
Set forth below are definitions of capitalized terms which are
generally used throughout this Agreement and not defined elsewhere in it:
(a) "Affiliate" means any "Person" (as defined below)
controlling, controlled by, or under common control with a party.
(b) "Board" means the Board of Directors of the Company, as
such body may be reconstituted from time to time.
(c) "Change In Control" shall mean, subject to subsections
(iv) and (v) below, the occurrence of any of the following events:
(i) An acquisition of control by an "Acquiring
Person" where, immediately after the subject acquisition, such "Person" holds
"Beneficial Ownership" of more than fifty percent (50%) of the "Total Combined
Voting Power" of the Company's then outstanding "Voting Securities". The terms
in quotations in the immediately preceding sentence shall, for purposes of this
Agreement, have the following meanings:
<PAGE>
(A) "Acquiring Person" shall mean any
"Person" which acquires the defined percentage of securities,
with the exception of: (A) any Employee Benefit Plan (or a
trust forming a part thereof) maintained by the Companies (or
any of them), or any corporation or entity in which the
Companies (or any of them) hold fifty percent (50%) or more of
the "Voting Securities" (each, a "Controlled Subsidiary"); (B)
the Company or any Controlled Subsidiary; or (C) any "Person"
which acquires the threshold percentage of "Voting Securities"
through a "Non-Control Transaction" (as defined below);
(B) "Non-Control Transaction" shall mean any
transaction in which the stockholders of the Company
immediately before such transaction, directly or indirectly
own immediately following such transaction at least a majority
of the "Total Combined Voting Power" of the outstanding
"Voting Securities" of the surviving corporation (or other
entity) resulting from such transaction, in substantially the
same proportion as such stockholders' ownership of the "Voting
Securities" of the Company immediately before such
transaction;
(C) "Person," "Beneficial Ownership," "Total
Combined Voting Power" and "Voting Securities" shall have the
meanings ascribed to such terms in Sections 13(d) and 14(d) of
the Securities Exchange Act and Rule 13d-3 promulgated
thereunder; or
(ii) During any period of three (3) consecutive years after the date of this
Agreement, the individuals who constituted the Company's Board at the beginning
of such period (the "Incumbent Board") cease to constitute a majority of the
Company's Board, for any reason(s) other than (A) the voluntary resignation of
one or more Board members; (B) the refusal by one or more Board members to stand
for election to the Board; and/or (C) the removal of one or more Board members
for good cause; provided, however, (1) that if the nomination or election of any
new director of the Company was approved by a vote of at least a majority of the
Incumbent Board, such new director shall be deemed a member of the Incumbent
Board; and (2) that no individual shall be considered a member of the Incumbent
Board if such individual initially assumed office as a result of either an
actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated
under the Securities Exchange Act of 1934), or as a result of a solicitation of
proxies or consents by or on behalf of an Acquiring Person, other than a member
of the Board (a "Proxy Contest"), or as a result of any agreement intended to
avoid or settle any Election Contest or Proxy Contest; or
(iii) The Board or the stockholders of the Company
approve:
(A) A merger or consolidation or reorganization of the Company with:
(1)any Controlled Subsidiary, and such transaction is not a Non-Control
Transaction; or
(2) any other corporation or other entity, and such transaction is not a
Non-Control Transaction; or
(B) A complete liquidation or dissolution of the Company, and such transaction
is not a Non-Control Transaction; or
(C) An agreement for the sale or other disposition of all or substantially all
of the assets of the Company to (1) any Controlled Subsidiary, and such
transaction is not a Non-Control Transaction, or (2) to any other Person, and
such transaction is not a Non-Control Transaction.
(iv) Notwithstanding subsections (i) through (iii) above, a Change In Control
shall not be deemed to have occurred solely because any Person acquired
Beneficial Ownership of more than the threshold percentage of the outstanding
Voting Securities as a result of an acquisition of Voting Securities by the
Company (each, a "Redemption") which, by reducing the number of Voting
Securities outstanding, increased the percentage of outstanding Voting
Securities Beneficially Owned by such Person; provided, however, that if (A) a
Change In Control would occur as a result of a Redemption but for the operation
of this sentence, and (B) after such Redemption, such Person becomes the
Beneficial Owner of any additional Voting Securities, which increase the
percentage of the then outstanding Voting Securities Beneficially Owned by such
Person over the percentage owned as a result of the Redemption, then a Change In
Control shall be deemed to occur.
(v) Notwithstanding any other provision of this
subsection (c), if the Executive or an Affiliate of the Executive who is then
a stockholder or director of the Company, either: (i) expressly voted in favor
of the transaction constituting the Change In Control in such Person's capacity
as either a stockholder or as a director of the Company; or (ii) expressly
abstained from voting (other than by reason of an "interest" in a matter or
transaction); and/or (iii) failed or refused to vote, then the transaction shall
not constitute a Change in Control.
(d) "Disability" (or the related term "Disabled") means any of
the following: (i) the receipt of any disability insurance benefits by the
Executive; (ii) a declaration by a court of competent jurisdiction that the
Executive is legally incompetent; (iii) the Executive's material inability due
to medically documented mental or physical illness or disability to fully
perform the Executive's regular duties of his employment, for a three (3) month
continuous period, or for six (6) cumulative months within any one (1) year
continuous period; or (iv) the reasonable determination by the Chief Executive
Officer that the Executive will not be able to fully perform the Executive's
regular duties of his employment for a three (3) month continuous period. If the
Chief Executive Officer determines that the Executive is Disabled under
subsection (iv) above, and the Executive disagrees with the conclusion of the
Chief Executive Officer, then the Company shall engage a qualified independent
physician reasonably acceptable to the Executive to examine the Executive at the
sole expense of the Company. The determination of such physician shall be
provided in writing to the parties and shall be final and binding upon the
parties for all purposes of this Agreement. The Executive hereby consents to
examination in the manner set forth above, and waives any physician-patient
privilege arising from any such examination as it relates to the determination
of the purported disability. If the parties cannot agree upon a physician, a
physician shall be appointed by the American Arbitration Association according
to the rules and practices of the American Arbitration Association from
time-to-time in force.
(e) "Person" (other than for purposes of determining a Change
in Control) means an individual or natural person, a corporation, partnership
(limited or general), joint-venture, association, business trust, limited
liability company or partnership, trust (whether revocable or irrevocable),
pension or profit sharing plan, individual retirement account, or fiduciary or
custodial arrangement.
(f) "Termination By Companies For Cause" means a termination
of the Executive caused by a determination of two-thirds of the Company's Board,
excluding the Executive if then a member of the Board, that one of the following
events has occurred:
(i) Any of the Executive's representations or warranties in this Agreement is
not materially true, accurate and/or complete;
(ii) The Executive has intentionally and continually
breached or wrongfully failed and/or refused to fulfill and/or perform
(A) any of the Executive's obligations, promises or covenants under this
Agreement, or (B) any of the warranties, obligations, promises or covenants in
any agreement (other than this Agreement) entered into between the Companies (or
any of them) and the Executive, without cure, if any, as provided in such
agreement;
(iii) The Executive has intentionally failed and/or
refused to obey any lawful and proper order or directive of the Board or
the Chief Executive Officer, and/or the Executive has intentionally interfered
with the compliance by other employees of the Companies (or any of them) with
any such orders or directives;
(iv) The Executive has intentionally breached the
Executive's fiduciary duties to the Companies (or any of them);
(v) The Executive has intentionally caused the
Companies (or any of them) to be convicted of a crime, or to incur criminal
penalties in material amounts;
(vi) The Executive has committed: (A) any act of
fraud, misrepresentation, theft, embezzlement or misappropriation, and/or
any other dishonest act against the Companies (or any of them); or (B) any other
offense involving moral turpitude, which offense is followed by conviction or by
final action of any court of law; or (C) a felony;
(vii) The Executive repeatedly and
intemperately uses alcohol or drugs, to the extent that such use (A) interferes
with
or is likely to interfere with the Executive's ability to perform the
Executive's duties, and/or (B) endangers or is likely to endanger the life,
health, safety, or property of the Executive, the Companies (or any of them), or
any other person;
(viii) The Executive has intentionally
demonstrated or committed such acts of racism, sexism or other discrimination as
would tend to bring the Companies (or any of them) into public scandal or
ridicule, or could otherwise result in material and substantial harm to the
business, reputation, operations, affairs or financial position of the Companies
(or any of them); and/or
(ix) The Executive engaged in other conduct
constituting legal cause for termination.
No act, nor failure to act, on the Executive's part
shall be considered "intentional" unless the Executive has acted, or failed to
act, with a lack of good faith and with a lack of reasonable belief that the
Executive's action or failure to act was in the best interests of the Companies
(or any of them). In the event the Executive is both Disabled and the provisions
of subsection (vii) of this section 1(f) are applicable, the Companies shall
have the right to deem such event as a Termination By Companies For Cause.
(g) "Termination By Executive For Good Reason" means the
Executive's termination of this Agreement based on his reasonable determination
that one of the following events has occurred:
(i) Any of the representations or warranties in this Agreement made by the
Companies are not materially true, accurate and/or complete;
(ii) The Companies (or any of them) intentionally and continually breach or
wrongfully fail to fulfill or perform (A) their obligations, promises or
covenants under this Agreement; or (B) any warranties, obligations, promises or
covenants in any agreement (other than this Agreement) entered into between the
Companies (or any of them) and the Executive, without cure, if any, as provided
in such agreement;
(iii) The Companies terminate this Agreement and the Executive's employment
hereunder, and such termination does not constitute Termination By Companies For
Cause;
<PAGE>
(iv) Without the consent of the Executive, the
Companies: (A) substantially alter or materially diminish the position, nature,
status, prestige or responsibilities of the Executive from those in effect by
mutual agreement of the parties from time-to-time; (B) assign additional duties
or responsibilities to the Executive which are wholly and clearly inconsistent
with the position, nature, status, prestige or responsibilities of the Executive
then in effect; or (C) remove or fail to reappoint or re-elect the Executive to
the Executive's offices under this Agreement (as they may be changed or
augmented from time-to-time with the consent of the Executive), or as a director
of the Company, except in connection with the Disability of the Executive;
(v) Without the ratification (express or implied) of
the Executive, the Executive is removed from the Board without his
consent; or the Company fails to nominate or reappoint the Executive to the
Board (unless the Executive is deceased or Disabled, or such removal or failure
is attributable to an event which would constitute Termination By Companies For
Cause), or if the Executive is so nominated, the stockholders of the Company
fail to re-elect the Executive to the Board;
(vi) The Companies (or any of them) intentionally
require the Executive to commit or participate in any felony or other
serious crime; and/or
(vii) The Companies (or any of them) engage in other
conduct constituting legal cause for termination.
If any of the events described in this section 1(g)
occurs, and such event is reasonably susceptible of being cured, the Companies
shall be entitled to a grace period of thirty (30) days following receipt of
written notice of such event to effect such cure.
2. EMPLOYMENT OBLIGATIONS
(a) Engagement; Duties. The Companies hereby engage the
Executive as the Senior Vice President of Sales. The Executive shall be in
charge of the Companies' world-wide sales. The Executive accepts such engagement
upon the terms and conditions set forth below. The Executive shall do and
perform all services, acts, or things necessary or advisable that an individual
performing like duties would customarily be empowered and authorized to do and
perform in order to discharge his duties under this Agreement, by law and under
the Bylaws of the Companies.
The Executive shall report solely to the Chief Executive Officer of the Company.
The Executive's responsibilities with respect to the Companies may be changed or
supplemented by the Chief Executive Officer from time-to-time, in his
discretion. The Executive shall be reasonably available to travel as the needs
of the business of the Companies may require.
(b) Performance. The Executive shall devote the Executive's
entire and undivided business time, energy, abilities and attention solely and
exclusively to the performance of the Executive's duties hereunder and the
business of the Companies. The Executive shall at all times faithfully, loyally,
conscientiously, diligently and, to the best of the Executive's ability, perform
all of the Executive's duties and obligations under this Agreement, and
otherwise promote the interests and welfare of the Companies, all consistent
with the highest and best standards of the Companies' industry. The Executive:
(i) shall strictly comply with and adhere to all applicable laws, and the
Companies' Articles of Incorporation, Bylaws and policies; (ii) shall obey all
reasonable rules and regulations and policies now in effect or as subsequently
modified governing the conduct of employees of the Companies, and (iii) shall
not commit any acts of gross negligence, willful misconduct, dishonesty, fraud
or misrepresentation, racism, sexism or other discrimination, or any other acts
which would tend to bring the Companies (or any of them) into public scandal or
ridicule, or would otherwise result in material harm to the business or
reputation of the Companies or any of them.
(c) Facilities and Services. The Companies shall provide such
support staff, facilities, equipment and supplies as are reasonably necessary or
suitable for the adequate performance of the Executive's duties and obligations
under this Agreement, including technical and secretarial help.
3. TERM
(a) Initial Term. Unless this Agreement is previously
terminated by either party as provided in sections 11 or 12 below, the Companies
hereby employ the Executive pursuant to the terms of this Agreement, and the
Executive hereby accepts such employment, for the period beginning on February
24, 1998 and ending on December 31, 1999 (the "Initial Term").
(b) Automatic Renewal; Termination by the Companies. This
Agreement will be automatically renewed for additional and consecutive one (1)
year terms (each, a "Renewal Term") following the expiration of each Initial or
Renewal Term, (each a "Term"), unless either party gives written notice to the
other party, no later than sixty (60) days prior to the expiration of the then
pending Term, of its or his election not to automatically renew this Agreement
for an additional year.
4. COMPENSATION
(a) Annual Base Salary. During the Term, the Companies shall
pay to the Executive an annual base salary which shall consist of a fixed
portion and a commission portion. (Together, the fixed portion and the
commission portion shall be hereinafter referred to as the "Annual Salary.") The
fixed portion of the Annual Salary shall initially be in the amount of One
Hundred Twelve Thousand Five Hundred United States dollars (US$112,500). The
commission portion of the Annual Salary shall consist of: (i) an amount which
equals 8% of gross revenues earned on the sale of the Companies' licenses and
services obtained through the efforts of the Executive, and (ii) an amount which
shall be computed as the difference between the commissions earned by each of
the remaining sales employees as a result of his or her sale of the Companies'
licenses and services and 8% of such sales (sometimes called a "commission
over-ride"). The Annual Salary shall be subject to any Tax Withholdings and/or
Employee Deductions that are applicable. The fixed portion of the Annual Salary
shall be paid to the Executive in equal installments in accordance with the
periodic payroll practices of the Companies for executive employees. The
percentage portion of the Annual Salary shall be paid to the Executive by the
Companies within thirty (30) days from the date of the end of each fiscal
quarter.
(b) Performance Bonus. The Chief Executive Officer shall from
time-to-time, but not less than one (1) time per year, evaluate the performance
of the Executive and award to the Executive a performance bonus (the
"Performance Bonus") in such amount as the Chief Executive Officer may
determine, in his sole discretion, to be reasonable, after taking into
consideration other compensation paid or payable to the Executive under this
Agreement, as well as the financial and non-financial progress of the business
of the Companies and the contributions of the Executive toward that progress.
Payment of the Performance Bonus shall be subject to any applicable Tax
Withholdings and/or Employee Deductions.
(c) Annual Review. Commencing on June 1, 1999, and on each
June 1st thereafter, the fixed portion of the Annual Salary then effective shall
be increased (but not decreased) by an amount: (i) which shall reflect the
increase, if any, in the cost of living during the previous 12 months by adding
to the fixed portion of the Annual Salary an amount computed by multiplying the
fixed portion of the Annual Salary by the percentage by which the level of the
Consumer Price Index for the Troy, New York Metropolitan Area, as reported on
June 1st of the new year by the Bureau of Labor Statistics of the United States
Department of Labor has increased over its level as of June 1st of the prior
year; and (ii) which will maintain the Executive's compensation at a level
consistent with the compensation paid to executive officers holding similar
positions in the software industry. Additionally, commencing on June 1, 1999,
and on each June 1st thereafter (or more frequently if it is deemed necessary)
the Chief Executive Officer shall review the fixed portion of the Executive's
Annual Salary to determine whether to otherwise increase the Executive's
compensation, without any obligation by the Chief Executive Officer to authorize
such increase.
(d) Participation In Employee Benefit Plans. The Executive
shall have the same rights, privileges, benefits and opportunities to
participate in any of the Companies' employee benefit plans which may now or
hereafter be in effect on a general basis for executive officers or employees,
including its qualified retirement plans and its non-qualified deferred
compensation plans. The Companies may delete coverages and otherwise amend and
change the type and quantity of insurance coverage it provides in its sole
discretion, but in no event shall coverage be provided which is less
comprehensive than coverage then being provided to other senior management
employees of the Companies. In the event the Executive receives payments from a
disability plan maintained by the Companies (or any of them), the Companies
shall have the right to offset such payments against the Annual Salary otherwise
payable to the Executive during the period for which payments are made by such
disability plan.
(e) Stock Options. The Executive acknowledges receipt of
options to purchase fifteen thousand (15,000) shares of the Company's common
stock which options are subject to the terms and conditions of the Company's
stock option plan in effect at the time of the grant of the options. The
Executive shall also be entitled to receive a minimum of fifteen thousand
(15,000) options to purchase the Company's common stock on each succeeding
anniversary of the execution of this Agreement, the terms and conditions of such
options to be governed by the stock option plan in effect at the time of the
grant of the options. Subject to the requirements of any state or federal
securities laws of the United States, the common stock to be acquired by
exercise of the options granted hereunder shall be freely tradeable. The
Executive shall be entitled to exercise the options with cash or with other
common stock of the Company or with any other consideration acceptable to the
Company. The provisions of this section 4(e) shall control in the event that
they conflict with the provisions of any other agreements entered into by the
Executive and the Company which govern the vesting and exercise of options
granted to the Executive, including the Company's stock option plan(s).
(f) Stock Appreciation Rights. Subject to the receipt of any
approval required by the By-laws of the Company, the General Corporation Law of
Delaware and/or any federal or state securities laws, the Company shall grant to
the Executive, upon execution of this Agreement, stock appreciation rights
("SAR") based on five thousand (5,000) shares of the Company's common stock and,
on each anniversary of the execution of this Agreement, the Executive shall
receive additional SARs based on five thousand shares (5,000) of the Company's
common stock. These grants shall be governed by a separate Stock Appreciation
Rights Agreement which shall set forth all material terms and conditions of the
SARs. Upon exercise of the SARs, the Executive shall receive from the Companies
an amount equal to the excess of the fair market value of the SAR shares
exercised over the fair market value of the SAR shares as of the date of the
grant. Such amount shall be paid to the Executive, at the Executive's option, in
cash or with the Company's common stock.
(g) Payment of Compensation. The Annual Salary and Performance Bonus shall be
paid entirely by the Company or in part by the Company and any other subsidiary,
as they may mutually agree.
5. ALLOWANCES
The Companies shall provide a late model luxury automobile to
the Executive for his use during the term of this Agreement, and shall pay all
purchase-installment and/or lease payments to acquire such automobile, as well
as the cost to insure the automobile. If the Companies fail to provide the
automobile during any portion of the term of this Agreement, the Companies shall
pay to the Executive the sum of Six Hundred United States dollars (US$600) for
each month an automobile is not provided, to reimburse the Executive for the
cost of an automobile and for the payment of insurance in connection therewith.
The Companies shall additionally reimburse the Executive for all gasoline,
operation, maintenance and repair costs associated with the Executive's use of
the automobile upon submission of itemized receipts therefore. Payment and/or
provision of the aforesaid allowance shall be subject to any applicable Tax
Withholdings and/or Employee Deductions. The Executive shall be responsible for
all income taxes imposed on the Executive by reason of the automobile allowance.
6. BUSINESS EXPENSES
During the Term of this Agreement the Executive is authorized
to incur, and the Companies shall directly pay or reimburse to the Executive,
his reasonable and necessary business expenses, duly and actually incurred in
connection with the duties and services to be performed by the Executive
pursuant to this Agreement, including without limitation entertainment, meals,
travel, lodging and other similar out-of-pocket expenses, upon the Executive's
submission to the Companies of itemized expense statements setting forth the
date, purpose and amount of the expense incurred, together with corresponding
receipts showing payment by the Executive in cases where he seeks reimbursement,
all in conformity with business expense payment and/or reimbursement policies
established by the Companies from time to time, all of which shall comply with
the substantiation requirements of any applicable taxing authorities, and
regulations promulgated by such authorities thereto, pertaining to the
deductibility of such expenses. Direct payment and/or reimbursement shall be
made by the Companies no later than fifteen (15) days from the date that the
foregoing documentation is submitted by the Executive.
7. TAX WITHHOLDINGS AND EMPLOYEE DEDUCTIONS
The Companies shall be entitled to deduct from any payments to
the Executive pursuant to the terms of this Agreement (including any payments
arising from the early termination of this Agreement), amounts sufficient to
cover any applicable federal, state, and/or local income tax withholdings and/or
deductions as may be required in connection with such payment, including without
limitation old-age and survivor's and other social security payments, state
disability and other withholdings payment as may be required by the tax laws or
regulations of any applicable jurisdiction (collectively, the "Tax
Withholdings"), as well as all other elective employee deductions applicable to
such payment such as, for example, deductions relating to any Employee Benefit
Plan in which the Executive participates (collectively, the "Employee
Deductions").
8. PERSONAL TIME-OFF
The Executive shall be entitled in each calendar year during
the term of this Agreement to such number of personal time-off days for such
purposes, including vacations and time for personal affairs ("Personal
Time-Off") as are approved by the Chief Executive Officer, but not less than
fifteen (15) business days. Personal Time-Off shall be in addition to regular
paid holidays provided to all employees of the Company. The Executive's
compensation shall be paid in full with respect to approved Personal Time-Off
days. Should the Executive fail to use all Personal Time-Off days in any
calendar year, the Executive shall have the option of (i) receiving payment for
such days on a pro rata basis, or (ii) "carrying-over" unused Personal Time-Off
days to succeeding years. Personal time-off shall be taken during a period or
periods mutually satisfactory to both the Companies and the Executive.
9. INSURANCE
If requested by the Companies, the Executive shall submit to
such physical examinations and otherwise take such actions and execute and
deliver such documents as may be reasonably necessary to enable the Companies,
at their expense and for their benefit, to obtain disability and/or life
insurance on the life of the Executive. The Executive represents and warrants
that he has no reason to believe that he is not insurable for disability or life
coverage with a reputable insurance company at rates now prevailing for healthy
persons of the Executive's age and gender.
<PAGE>
10. NONCOMPETITION, NONSOLICITATION AND NONINTERFERENCE
AND PROPRIETARY PROPERTY AND CONFIDENTIAL
INFORMATION PROVISIONS.
(a) Noncompetition.
(1) "Applicable Definitions" For purposes of this section 10, the following
capitalized terms shall have the definitions set forth below:
i. "Business Segments" - The term "Business Segments" is defined as each of
the Companies' products or product lines.
ii. "Competitive Business" - The term "Competitive Business" is defined as
any business that directly competes with the Companies' Business Segments,
whether such business is conducted by a proprietorship, partnership,
corporation or other entity or venture.
iii. "Territory" - The term "Territory" is defined as the geographic area
(both within the United States and internationally) in which each Business
Segment is carried on including, by way of example and not limitation, the
entire geographic area in which the Companies conduct various phases of
such Business Segment, including purchasing, production, distribution,
promotional and marketing activities, and sales.
(2) Covenant Not To Compete. The Executive hereby covenants and agrees that
during the term of this Agreement, and for a
period of one (1) year from the date this Agreement is terminated or expires,
the Executive shall not, with respect to each Business Segment and within the
boundaries of the Territory applicable to such Business Segment, without the
prior written consent of the Companies (which consent may be withheld in the
sole and absolute discretion of Companies), directly or indirectly, either alone
or in association or in connection with or on behalf of any person, firm,
partnership, corporation or other entity or venture now existing or hereafter
created: (i) be or become interested or engaged in, directly or indirectly, with
any Competitive Business including, without limitation, being or becoming an
organizer, investor, lender, partner, joint venturer, stockholder, officer,
director, employee, manager, independent sales representative, associate,
consultant, agent, supplier, vendor, vendee, lessor, or lessee to any
Competitive Business, or (ii) in any manner associate with, or aid or abet or
give information or financial assistance to any Competitive Business, or (iii)
use or permit the use of the Executive's name or any part thereof to be used or
employed in connection with any Competitive Business (collectively and
severally, the "Noncompetition Covenants"). Notwithstanding the foregoing, the
provisions of this section 10(a)2 shall not be deemed to prevent the purchase or
ownership by the Executive as a passive investment of the outstanding capital
shares of any publicly held corporation, so long as any other obligation or duty
under the Noncompetition Covenants are not breached.
(3) Separate Covenants. The Noncompetition Covenants shall be construed to
be divided into separate and distinct
Noncompetition Covenants with respect to (i) each Business Segment and (ii) each
matter or type of conduct described therein. Each of such divided Noncompetition
Covenants shall be separate and distinct from all such other Noncompetition
Covenants with respect to the same or any other Business Segment.
(4) Acknowledgements. The Executive acknowledges that: (i) the covenants
and the restrictions contained in the
Noncompetition Covenants are necessary, fundamental, and required for the
protection of the business of the Companies; (ii) the Noncompetition Covenants
relate to matters which are of a special, unique and extraordinary value; and
(iii) a breach of any of the Noncompetition Covenants will result in irreparable
harm and damages which cannot be adequately compensated by a monetary award.
(5) Judicial Limitation. Notwithstanding the foregoing, if at any time a
court of competent jurisdiction holds that any
portion of any Noncompetition Covenant is unenforceable by reason of its
extending for too great a period of time or over too great a geographical area
or by reason of its being too extensive in any other respect, such
Noncompetition Covenant shall be interpreted to extend only over the maximum
period of time, maximum geographical area, or maximum extent in all other
respects, as the case may be, as to which it may be enforceable, all as
determined by such court in such action.
(b) Nonsolicitation and Noninterference.
(1) Covenants. The Executive hereby covenants and agrees that during the
term of this Agreement, and for a period of two (2)
years from the date this Agreement terminates or expires, the Executive shall
not, either for the Executive's own account or directly or indirectly in
conjunction with or on behalf of any person, partnership, corporation or other
entity or venture:
i. Solicit or employ or attempt to solicit or employ
any person who is then or has, within twelve (12) months prior thereto,
been an officer, partner, manager, agent or employee of the Companies
or any affiliate of the Companies whether or not such a person would
commit a breach of that person's contract of employment with the
Companies (or any of them), if any, by reason of leaving the service of
the Companies (the "Nonsolicitation Covenant"); or
ii. On behalf of, directly or indirectly, any
Competitive Business (as such term is defined in section 10 (a)1.ii.,
or for the purpose of or with the reasonably foreseeable effect of
harming the business of the Companies, solicit the business of any
person, firm or company which is then, or has been at any time during
the preceding twelve (12) months prior to such solicitation, a
customer, client, contractor, supplier or vendor of the Companies (or
any of them) (the "Noninterference Covenant)".
(2) Acknowledgments. Each of the parties acknowledges that: (i) the
covenants and the restrictions contained in the
Nonsolicitation and Noninterference Covenants are necessary, fundamental, and
required for the protection of the Companies' businesses; (ii) such Covenants
relate to matters which are of a special, unique and extraordinary value; and
(iii) a breach of either of such Covenants will result in irreparable harm and
damages which cannot be adequately compensated by a monetary award.
(3) Judicial Limitation. Notwithstanding the foregoing, if at any time,
despite the express agreement of the Companies and
the Executive, a court of competent jurisdiction holds that any portion of any
Nonsolicitation or Noninterference Covenant is unenforceable by reason of its
extending for too great a period of time or by reason of its being too extensive
in any other respect, such Covenant shall be interpreted to extend only over the
maximum period of time or to the maximum extent in all other respects, as the
case may be, as to which it may be enforceable, all as determined by such court
in such action.
(c) Proprietary Property; Confidential Information.
(1) "Applicable Definitions" For purposes of this section 10(c), the
following capitalized terms shall have the definitions set forth below:
i. "Confidential Information" - The term
"Confidential Information" is collectively and severally defined as any
information, matter or thing of a secret, confidential or private
nature, whether or not so labeled, which is connected with the business
or methods of operation of the Companies (or any of them) or concerning
any of their suppliers, customers, licensors, licensees or others with
whom the Companies (or either of them) have a business relationship,
and which has current or potential value to the Companies (or any of
them) or the unauthorized disclosure of which could be detrimental to
the Companies (or any of them). Confidential Information shall be
broadly defined and shall include, by way of example and not
limitation,: (i) matters of a business nature available only to
management and owners of the Companies of which the Executive may
become aware (such as information concerning customers, vendors and
suppliers, including their names, addresses, credit or financial
status, buying or selling habits, practices, requirements, and any
arrangements or contracts that the Companies may have with such
parties, the Companies' marketing methods, plans and strategies, the
costs of materials, the prices for which the Companies obtain or have
obtained or at which the Companies sell or have sold their products or
services, the Companies' manufacturing and sales costs, the amount of
compensation paid to employees of the Companies and other terms of
their employment, financial information such as financial statements,
budgets and projections, and the terms of any contracts or agreements
the Companies have entered into) and (ii) matters of a technical nature
(such as product information, trade secrets, know-how, formulae,
innovations, inventions, devices, discoveries, techniques, formats,
processes, methods, specifications, designs, patterns, schematics,
data, compilation of information, test results, and research and
development projects). For purposes of the foregoing, the term "trade
secrets" shall mean the broadest and most inclusive interpretation of
trade secrets as defined by the Uniform Trade Secrets Act and cases
interpreting the scope of the Uniform Trade Secrets Act.
ii. "Proprietary Property" - The term "Proprietary
Property" is collectively and severally defined as any written or
tangible property owned or used by the Companies in connection with the
business of the Companies, whether or not such property also qualifies
as Confidential Information. Proprietary Property shall be broadly
defined and shall include, by way of example and not limitation,
products, samples, equipment, files, lists, books, notebooks, records,
documents, memoranda, reports, patterns, schematics, compilations,
designs, drawings, data, test results, contracts, agreements,
literature, correspondence, spread sheets, computer programs and
software, computer print outs, other written and graphic records, and
the like, whether originals, copies, duplicates or summaries thereof,
affecting or relating to the business of Company, financial statements,
budgets, projections, invoices.
(2) Ownership of Proprietary Property. The Executive acknowledges that all
Proprietary Property which the Executive may prepare, use, observe, come
into possession of and/or control shall, at all times, remain the sole and
exclusive property of the Companies. The Executive shall, upon demand by
the Companies at any time, or upon the cessation of the Executive's
employment, irrespective of the time, manner, cause or lack of cause of
such cessation, immediately deliver to the Companies or their designated
agent, in good condition, ordinary wear and tear and damage by any cause
beyond the reasonable control of the Executive excepted, all items of the
Proprietary Property which are or have been in the Executive's possession
or under his control, as well as a statement describing the disposition of
all items of the Proprietary Property beyond the Executive's possession or
control in the event that the Executive has not previously returned such
items of the Proprietary Property to the Companies.
(3) Agreement Not to Use or Divulge Confidential Information. The Executive
agrees that he will not, in any fashion, form or manner, unless
specifically consented to in writing by the Companies, either directly or
indirectly use, divulge, transmit or otherwise disclose or cause to be
used, divulged, transmitted or otherwise disclosed to any person, firm or
corporation, in any manner whatsoever (other than in the Executive's
performance of duties for the Companies or except as required by law) any
Confidential Information of any kind, nature or description. The foregoing
provisions shall not be construed to prevent the Executive from making use
of or disclosing information which is in the public domain through no fault
of the Executive, provided, however, specific information shall not be
deemed to be in the public domain merely because it is encompassed by some
general information that is published or in the public domain or in the
Executive's possession prior to the Executive's employment with the
Companies.
(4) Acknowledgment of Secrecy. The Executive acknowledges that the
Confidential Information is not generally known to the public or to other
persons who can obtain economic value from its disclosure or use and that
the Confidential Information derives independent economic value thereby,
and the Executive agrees that he shall take all efforts reasonably
necessary to maintain the secrecy and confidentiality of the Confidential
Information and to otherwise comply with the terms of this Agreement.
(5) Inventions, Discoveries. The Executive acknowledges that any
inventions, discoveries or trade secrets, whether patentable or not, made
or found by the Executive in the scope of his employment with the Companies
constitute property of the Companies and that any rights therein now held
or hereafter acquired by the Executive individually or in any capacity are
hereby transferred and assigned to the Companies, and agrees to execute and
deliver any confirmatory assignments, documents or instruments of any
nature necessary to carry out the intent of this section when requested by
the Companies without further compensation therefor, whether or not the
Executive is at the time employed by the Companies. Provided, however,
notwithstanding the foregoing, the Executive shall not be required to
assign his rights in any invention which the Executive developed entirely
on his own time without using the Companies' equipment, supplies,
facilities or trade secret information except for those inventions that
either:
(i) Relate at the time of conception or reduction to
practice of the invention to the Companies' business, or actual or
demonstrably anticipated research or development of the Companies; or
(ii) Result from any work performed by the Executive
for the Companies.
The Executive understands that he bears the full burden of
proving to the Companies that an invention qualifies fully under this section
10(c)(5).
11. TERMINATION OF AGREEMENT BEFORE EXPIRATION OF TERM
(a) Death or Disability. Notwithstanding any other term of
this Agreement, the applicable Term shall terminate upon the death or Disability
of the Executive.
(b) Change In Control. Notwithstanding any other term of this
Agreement, the applicable Term shall, at the election of the Executive delivered
by written notice to the Company, terminate effective upon a Change In Control.
(c) Termination of Agreement by Companies for Cause. The
Companies may terminate this Agreement and the Executive's employment hereunder
at any time in the event such termination constitutes Termination By Companies
For Cause, upon giving written notice to the Executive specifying in reasonable
detail (i) the event which constitutes the cause; (ii) the pertinent facts and
circumstances underlying the cause; and (iii) the effective date of the
termination (not to exceed ninety {90} days from the date of such notice, but
which date may, at the Companies' election, be effective upon receipt of said
written notice by the Executive). Such notice shall also afford the Executive an
opportunity to be heard in person by the Board (with the assistance of the
Executive's legal counsel, if the Executive so desires). Such hearing shall be
held reasonably promptly after such notice but, in any event, before the
effective date of the prospective termination.
(d) Termination of Agreement by Executive for Good Reason. The
Executive may terminate this Agreement and the Executive's employment hereunder
at any time in the event such termination constitutes Termination By Executive
For Good Reason, upon giving written notice to the Companies specifying in
reasonable detail (i) the event which constitutes the good reason; (ii) the
pertinent facts and circumstances underlying the good reason; and (iii) the
effective date of termination (which, in the case of an event described in
section 1(g) which is reasonably susceptible of being cured, shall not be less
than thirty {30} days from the date of such notice).
<PAGE>
12. EFFECT OF TERMINATION ATTRIBUTABLE TO DEATH OR DISABILITY; TERMINATION
BY COMPANIES FOR CAUSE; TERMINATION BY EXECUTIVE WITHOUT GOOD REASON
In the event the Executive's employment hereunder is
terminated before the expiration of a Term, and such termination is attributable
to (i) an event defined as Death or Disability; (ii) an event defined as
Termination By Companies For Cause; and/or (iii) termination by the Executive
which does not constitute Termination By Executive For Good Reason, then all
rights and obligations of the Companies and the Executive under section 2
[Employment Obligations], section 4 [Compensation], section 5 [Allowances],
section 6 [Business Expenses] and section 8 [Personal Time-Off] shall terminate
as of the effective date of the termination; provided, however:
(a) The Companies shall pay the fixed portion of the
Executive's accrued but unpaid Annual Salary and Personal Time-Off days through
the effective date of the termination on or before the close of business on such
effective date, provided, however, if the Executive is employed for less than
the entire number of business days in such pay period, the fixed portion of the
Annual Salary for such pay period shall be prorated on the basis of the number
of business days during which the Executive was actually employed during such
pay period, divided by the actual number of business days in such pay period and
further, provided, that if the termination is due to the death or Disability of
the Executive, then the Companies shall also pay to the Executive or his estate
the fixed portion of the Executive's then effective Annual Salary as set forth
in section 4(a), said payment to be calculated for the balance of the year
during which the death or Disability occurred, but in no event shall such
payment total less than one-half of the Annual Salary for the year;
(b) The Companies shall pay the commission portion of the
Executive's accrued but unpaid Annual Salary through the effective date of the
termination within fifteen (15) days from such date if the Companies have
sufficient information to compute the commission portion by that date; provided,
however, that if the Companies do not have sufficient information to compute the
commission portion of the Annual Salary by such date, then the Companies shall
pay the commission portion of the Executive's accrued but unpaid Annual Salary
as soon thereafter as it may be computed, but in any event not later than thirty
(30) days from the date of the end of the fiscal quarter following the effective
date of the termination;
(c) The Companies shall pay the Executive's accrued but unpaid Performance
Bonus, if any;
(d) The Companies shall reimburse the Executive for the automobile
allowance incurred pursuant to section 5 prior to the effective date of the
termination;
(e) The Companies shall reimburse the Executive for any business expenses
incurred prior to the effective date of the termination, within three (3)
business days after the Executive's submission of the Executive's expense
report to the Companies;
(f) If the Executive's termination is due to his death or Disability, all
stock options which have been or are scheduled to be granted during the
Term of this Agreement pursuant to section 4(e) shall become fully vested
at the grant price;
(g) If the Executive's termination is due to his death or Disability, all
SARs which have been or are scheduled to be granted during the Term of this
Agreement pursuant to section 4(f) shall become fully vested;
(h) The Executive shall not be entitled to continue to participate in any
Employee Benefit Plans except to the extent provided in such plans for
terminated participants, or as may be required by applicable law.
Notwithstanding the foregoing, amounts which are vested in any Employee
Benefit Plans, including stock options and SARs, shall be payable in
accordance with such plan.
13. EFFECT OF TERMINATION WHERE TERMINATION ATTRIBUTABLE TO CHANGE IN
CONTROL; TERMINATION BY EXECUTIVE FOR GOOD REASON; TERMINATION BY COMPANIES
WITHOUT CAUSE
In the event the Executive's employment hereunder is
terminated before the expiration of a Term, and such termination is attributable
to (i) an event defined as a Change in Control; (ii) an event defined as a
Termination by Executive for Good Reason; and/or (iii) termination by the
Companies which does not constitute a Termination By Companies for Cause; then
all rights and obligations of the Companies and the Executive under section 2
[Employment Obligations], section 4 [Compensation], section 5 [Allowances],
section 6 [Business Expenses], and section 8 [Personal Time-Off] shall terminate
as of the effective date of the termination date; provided, however:
(a) The Companies shall pay to the Executive, in a lump sum
and without discount to present value, the fixed portion of the Executive's then
effective Annual Salary as set forth in section 4(a), said payment to be
calculated for the balance of the Term of this Agreement;
(b) The Companies shall pay to the Executive, in a lump sum
and without discount to present value, the commission portion of the Executive's
Annual Salary calculated, in accordance with section 4(a), for the balance of
the Term of this Agreement. Such calculation shall be based upon the gross
revenues earned during the twelve (12) month period immediately preceding the
Executive's termination;
(c) The Companies shall pay to the Executive, in a lump sum
and without discount to present value, the Executive's declared Performance
Bonus;
(d) All stock options which have been or are scheduled to be
granted during the Term of this Agreement pursuant to section 4(e) shall become
fully vested at the grant price and the Companies shall pay to the Executive a
sum which shall permit the Executive to exercise, in his sole and absolute
discretion, all or some of the options;
(e) The Executive shall be entitled to exercise all SARs which
have been or are scheduled to be granted during the Term of this Agreement
pursuant to section 4(f);
(f) At the election of the Executive, the Companies shall (i)
provide to the Executive and his spouse and dependents, for a period of twelve
(12) months, medical, dental, and vision insurance and, to the Executive,
disability insurance, which benefits shall be comparable to the benefits
received by the Executive at the time of termination of his employment; or (ii)
provide to the Executive additional compensation, payable on a monthly basis,
which would approximate the cost to the Executive to obtain such comparable
benefits;
(g) The Companies shall reimburse the Executive for the
Executive's business expenses incurred through the effective date of the
termination, within three (3) business days of the Executive's submission of the
Executive's expense report to the Companies.
The Companies shall gross-up the compensation or remuneration
paid to the Executive pursuant to subsections (a), (b) and (c) above to cover
the payment of any and all taxes, of any kind or nature, that are incurred by
the Executive as a result of his receipt of the foregoing compensation.
The Executive shall not be required to mitigate the amount of
any payment pursuant to this section 13 by seeking other employment or
otherwise, and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to the Executive in any subsequent employment.
The provisions of this section 13 shall not be deemed to prejudice the rights of
the Companies or the Executive to any remedy or damages to which such party may
be entitled by reason of a breach of this Agreement by the other party, whether
at law or equity.
14. REMUNERATION ON SALE OR TRANSFER
Irrespective of whether or not the Executive's employment is
terminated, if there is a (i) Change of Control; or (ii) transfer or sale of all
or substantially all of the assets of the Company(ies) which is not a Change of
Control; or (iii) transfer or sale of Beneficial Ownership of more than fifty
percent (50%) of the Total Combined Voting Power of the Company's then
outstanding Voting Securities which does not constitute a Change of Control,
then the Companies shall pay to the Executive an amount equal to 2% of the first
$10 million United States dollars in value received by the Companies (including
cash, securities, debt or any other form of property) in connection with such
Change of Control, transfer or sale, 4% of the next $10 million United States
dollars in value received by the Companies in connection with such Change of
Control, transfer or sale, and 6% of any value received by the Companies in
excess of $20 million United States dollars in connection with such Change of
Control, transfer or sale, provided, however, the remuneration paid to the
Executive pursuant to this section 14 shall, in any event, not be less than Two
Hundred Thousand United States dollars (US$200,000). The Companies shall
gross-up the remuneration paid to the Executive pursuant to this section 14 to
cover the payment of any and all taxes, of any kind or nature, that are incurred
by the Executive as a result of his receipt of the foregoing remuneration.
15. REPRESENTATIONS AND WARRANTIES OF PARTIES
(a) By All Parties. Each of the parties to this Agreement
hereby represents and warrants to each of the other parties to this Agreement,
each of which is deemed to be a separate representation and warranty, as
follows:
(i) Organization, Power and Authority. Such party has all requisite
corporate or other power and authority to enter into this Agreement.
(ii) Authorization and Validity of Agreement. This Agreement has been duly
executed and delivered by such party and, assuming due authorization,
execution and delivery by all of the other parties hereto, is valid and
binding upon such party in accordance with its terms, except as limited by:
(1) bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditor rights generally; and
(2) general principles of equity (regardless of whether such enforcement is
considered in a proceeding in equity or at law).
(iii) No Breach or Conflict. Neither the execution or delivery of this
Agreement, nor the performance by such party of the transactions
contemplated herein: (i) if such party is an entity, will breach or
conflict with any of the provisions of such party's governing
organizational documents; or (ii) to the best of such party's knowledge and
belief, will such actions violate or constitute an event of default under
any agreement or other instrument to which such party is a party.
(b) By Executive. The Executive hereby represents and warrants
to the Companies that the Executive is not Disabled at the time of the execution
and delivery of this Agreement by the Executive.
16. MISCELLANEOUS
(a) Preparation of Agreement; Costs and Expenses. This
Agreement was prepared by the Companies solely on behalf of such party. Each
party acknowledges that: (i) he or it had the advice of, or sufficient
opportunity to obtain the advice of, legal counsel separate and independent of
legal counsel for any other party hereto; (ii) the terms of the transactions
contemplated by this Agreement are fair and reasonable to such party; and (iii)
such party has voluntarily entered into the transactions contemplated by this
Agreement without duress or coercion. Each party further acknowledges that such
party was not represented by the legal counsel of any other party hereto in
connection with the transactions contemplated by this Agreement, nor was he or
it under any belief or understanding that such legal counsel was representing
his or its interests. Except as expressly set forth in this Agreement, each
party shall pay all legal and other costs and expenses incurred or to be
incurred by such party in negotiating and preparing this Agreement; in
performing due diligence or retaining professional advisors; in performing any
transactions contemplated by this Agreement; or in complying with such party's
covenants, agreements and conditions contained herein. Each party agrees that no
conflict, omission or ambiguity in this Agreement, or the interpretation
thereof, shall be presumed, implied or otherwise construed against any other
party to this Agreement on the basis that such party was responsible for
drafting this Agreement.
(b) Cooperation. Each party agrees, without further
consideration, to cooperate and diligently perform any further acts, deeds and
things, and to execute and deliver any documents that may be reasonably
necessary or otherwise reasonably required to consummate, evidence, confirm
and/or carry out the intent and provisions of this Agreement, all without undue
delay or expense.
(c) Interpretation.
(i) Survival. All representations and warranties made by any party in
connection with any transaction contemplated by this Agreement shall
survive the execution and delivery of this Agreement, and the performance
or consummation of any transaction described in this Agreement.
(ii) Entire Agreement/No Collateral Representations. Each party expressly
acknowledges and agrees that this Agreement, and the agreements and
documents referenced herein: (1) are the final, complete and exclusive
statement of the agreement of the parties with respect to the subject
matter hereof; (2) supersede any prior or contemporaneous agreements,
memorandums, proposals, commitments, guaranties, assurances,
communications, discussions, promises, representations, understandings,
conduct, acts, courses of dealing, warranties, interpretations or terms of
any kind, whether oral or written (collectively and severally, the "prior
agreements"), and in particular the Prior Agreement,, and that any such
prior agreements (and the Prior Agreement) are of no force or effect except
as expressly set forth herein; and (3) may not be varied, supplemented or
contradicted by evidence of prior agreements, or by evidence of subsequent
oral agreements. No prior drafts of this Agreement, and no words or phrases
from any prior drafts, shall be admissible into evidence in any action or
suit involving this Agreement.
(iii) Amendment; Waiver; Forbearance. Except as expressly provided herein,
neither this Agreement nor any of its terms, provisions, obligations or
rights may be amended, modified, supplemented, augmented, rescinded,
discharged or terminated (other than by performance), except by a written
instrument or instruments signed by all of the parties to this Agreement.
No waiver of any breach of any term, provision or agreement, or of the
performance of any act or obligation under this Agreement, or of any
extension of time for performance of any such act or obligation, or of any
right granted under this Agreement, shall be effective and binding unless
such waiver shall be in a written instrument or instruments signed by each
party claimed to have given or consented to such waiver. Except to the
extent that the party or parties claimed to have given or consented to a
waiver may have otherwise agreed in writing, no such waiver shall be deemed
a waiver or relinquishment of any other term, provision, agreement, act,
obligation or right granted under this Agreement, or of any preceding or
subsequent breach thereof. No forbearance by a party in seeking a remedy
for any noncompliance or breach by another party hereto shall be deemed to
be a waiver by such forbearing party of its rights and remedies with
respect to such noncompliance or breach, unless such waiver shall be in a
written instrument or instruments signed by the forbearing party.
(iv) Remedies Cumulative. The remedies of each party under this Agreement
are cumulative and shall not exclude any other remedies to which such party
may be lawfully entitled.
(v) Severability. If any term or provision of this Agreement or the
application thereof to any person or circumstance shall, to any extent, be
determined to be invalid, illegal or unenforceable under present or future
laws, then, and in that event: (1) the performance of the offending term or
provision (but only to the extent its application is invalid, illegal or
unenforceable) shall be excused as if it had never been incorporated into
this Agreement, and, in lieu of such excused provision, there shall be
added a provision as similar in terms and amount to such excused provision
as may be possible and be legal, valid and enforceable; and (2) the
remaining part of this Agreement (including the application of the
offending term or provision to persons or circumstances other than those as
to which it is held invalid, illegal or unenforceable) shall not be
affected thereby, and shall continue in full force and effect to the
fullest legal extent.
(vi) Parties in Interest. Nothing in this Agreement shall confer any rights
or remedies under or by reason of this Agreement on any persons other than
the parties hereto and their respective successors and assigns, if any, or
as may be permitted hereunder; nor shall anything in this Agreement relieve
or discharge the obligation or liability of any third person to any party
to this Agreement; nor shall any provision give any third person any right
of subrogation or action over or against any party to this Agreement.
(vii) No Reliance Upon Prior Representation. Each party acknowledges that:
(1) no other party has made any oral representation or promise which would
induce them prior to executing this Agreement to change their position to
their detriment, to partially perform, or to part with value in reliance
upon such representation or promise; and (2) such party has not so changed
its position, performed or parted with value prior to the time of the
execution of this Agreement, or such party has taken such action at its own
risk.
(viii) Headings; References; Incorporation; Gender; Statutory References.
The headings used in this Agreement are for convenience and reference
purposes only, and shall not be used in construing or interpreting the
scope or intent of this Agreement or any provision hereof. References to
this Agreement shall include all amendments or renewals thereof. All
cross-references in this Agreement, unless specifically directed to another
agreement or document, shall be construed only to refer to provisions
within this Agreement. Any Exhibit referenced in this Agreement shall be
construed to be incorporated in this Agreement by such reference. As used
in this Agreement, each gender shall be deemed to include the other gender,
including neutral genders appropriate for entities, if applicable, and the
singular shall be deemed to include the plural, and vice versa, as the
context requires. Any reference to statutes or laws will include all
amendments, modifications, or replacements of the specific sections and
provisions concerned.
(d) Enforcement.
(i) Applicable Law. This Agreement and the rights and remedies of each
party arising out of or relating to this Agreement (including, without
limitation, equitable remedies) shall (with the exception of the applicable
securities laws) be solely governed by, interpreted under, and construed
and enforced in accordance with the laws (without regard to the conflicts
of law principles) of the State of New York, as if this Agreement were
made, and as if its obligations are to be performed, wholly within the
State of New York.
(ii) Consent to Jurisdiction; Service of Process. Any "action or
proceeding" (as such term is defined below) arising out of or relating to
this Agreement shall be filed in and heard and litigated solely before the
state courts of New York. Each party generally and unconditionally accepts
the exclusive jurisdiction of such courts and venue therein; consents to
the service of process in any such action or proceeding by certified or
registered mailing of the summons and complaint in accordance with the
notice provisions of this Agreement; and waives any defense or right to
object to venue in said courts based upon the doctrine of "forum non
conveniens." The term "action or proceeding" is defined as any and all
claims, suits, actions, hearings, arbitrations or other similar
proceedings, including appeals and petitions therefrom, whether formal or
informal, governmental or non-governmental, or civil or criminal.
(iii) Waiver of Right to Jury Trial. Each party hereby waives such party's
respective right to a jury trial of any claim or cause of action based upon
or arising out of this Agreement. Each party acknowledges that this waiver
is a material inducement to each other party hereto to enter into the
transaction contemplated hereby; that each other party has already relied
upon this waiver in entering into this Agreement; and that each other party
will continue to rely on this waiver in their future dealings. Each party
warrants and represents that such party has reviewed this waiver with such
party's legal counsel, and that such party has knowingly and voluntarily
waived its jury trial rights following consultation with such legal
counsel.
(iv) Consent to Specific Performance and Injunctive Relief and Waiver of
Bond or Security. Each party acknowledges that the other party(s) hereto
may, as a result of such party's breach of its covenants and obligations
under this Agreement, sustain immediate and long-term substantial and
irreparable injury and damage which cannot be reasonably or adequately
compensated by damages at law. Consequently, each party agrees that in the
event of such party's breach or threatened breach of its covenants and
obligations hereunder, the other non-breaching party(s) shall be entitled
to obtain from a court of competent equitable relief including, without
limitation, enforcement of all of the provisions of this Agreement by
specific performance and/or temporary, preliminary and/or permanent
injunctions enforcing any of the rights of such non-breaching party(s),
requiring performance by the breaching party, or enjoining any breach by
the breaching party, all without proof of any actual damages that have been
or may be caused to such non-breaching party(s) by such breach or
threatened breach and without the posting of bond or other security in
connection therewith. The party against whom such action or proceeding is
brought waives the claim or defense therein that the party bringing the
action or proceeding has an adequate remedy at law and such party shall not
allege or otherwise assert the legal position that any such remedy at law
exists. Each party agrees and acknowledges: (i) that the terms of this
subsection are fair, reasonable and necessary to protect the legitimate
interests of the other party(s); (ii) that this waiver is a material
inducement to the other party(s) to enter into the transaction contemplated
hereby; (iii) that the other party(s) has already relied upon this waiver
in entering into this Agreement; and (iv) that each party will continue to
rely on this waiver in their future dealings. Each party warrants and
represents that such party has reviewed this provision with such party's
legal counsel, and that such party has knowingly and voluntarily waived its
rights following consultation with legal counsel.
(v) Recovery of Fees and Costs. If any party institutes or should the
parties otherwise become a party to any action or proceeding based upon or
arising out of this Agreement including, without limitation, to enforce or
interpret this Agreement or any provision hereof, or for damages by reason
of any alleged breach of this Agreement or any provision hereof, or for a
declaration of rights in connection herewith, or for any other relief,
including equitable relief, in connection herewith, the "prevailing party"
(as such term is defined below) in any such action or proceeding, whether
or not such action or proceeding proceeds to final judgment or
determination, shall be entitled to receive from the non-prevailing party
as a cost of suit, and not as damages, all fees, costs and expenses of
enforcing any right of the prevailing party (collectively, "fees and
costs"), including without limitation, (1) reasonable attorneys' fees and
costs and expenses, (2) witness fees (including experts engaged by the
parties, but excluding shareholders, officers, employees or partners of the
parties), (3) accountants' fees, (4) fees of other professionals, and (5)
any and all other similar fees incurred in the prosecution or defense of
the action or proceeding; including, without limitation, fees incurred in
the following: (A) postjudgment motions; (B) contempt proceedings; (C)
garnishment, levy, and debtor and third party examinations; (D) discovery;
and (E) bankruptcy litigation. All of the aforesaid fees and costs shall be
deemed to have accrued upon the commencement of such action and shall be
paid whether or not such action is prosecuted to judgment. Any judgment or
order entered in such action shall contain a specific provision providing
for the recovery of attorney the aforesaid fees, costs and expenses
incurred in enforcing such judgment and an award of prejudgment interest
from the date of the breach at the maximum rate of interest allowed by law.
The term "prevailing party" is defined as the party who is determined to
prevail by the court after its consideration of all damages and equities in
the action or proceeding, whether or not the action or proceeding proceeds
to final judgment (the court shall retain the discretion to determine that
no party is the prevailing party in which case no party shall be entitled
to recover its costs and expenses under this subsection).
(e) Arbitration.
(i) Jurisdiction. The parties hereby agree that all controversies, claims
and matters of difference arising out of or in connection with to the
transactions contemplated by this Agreement (collectively, the
"Controversies"), shall, to the maximum extent allowed by law, be resolved
by binding arbitration (an "Arbitration Proceeding") before the American
Arbitration Association (the "Arbitration Authority") according to the
rules and practices of the Arbitration Authority from time-to-time in
force. Without limiting the generality of the foregoing, the following
shall be considered Controversies for this purpose: (A) all questions
relating to the breach of any obligation, warranty, promise, right or
condition hereunder; (B) the failure of any party to deny or reject a claim
or demand of any other party; and (C) any question as to whether the right
to arbitrate a certain dispute exists. This agreement to arbitrate shall be
self-executing without the necessity of filing any action in any court and
shall be specifically enforceable under the prevailing arbitration law.
(ii) Initiation. A party shall institute an Arbitration Proceeding by
sending written notice of an intent to arbitrate (the "Arbitration Notice")
to the other parties and to the Arbitration Authority pursuant to the rules
and regulations of the Arbitration Authority. The Arbitration Notice shall
set forth a description of the dispute, the amount in controversy, and the
remedy sought. An Arbitration Proceeding may proceed in the absence of any
party if the Arbitration Notice has been properly given to such party.
(iii) Selection of Arbitrator. Within ten (10) business days after receipt
of an Arbitration Notice by the parties, they shall mutually agree upon a
single arbitrator (the "Arbitrator") selected from a panel of retired
judges from the Arbitration Authority. If the parties are unable to agree
upon the Arbitrator, then the parties shall, within fifteen (15) business
days after receipt of an Arbitration Notice by the parties, obtain a list
of panelists from the Arbitration Authority equal to the number of parties
plus one. The Arbitration Authority shall arrange and conduct a conference
in person and/or by telephone with all of the parties at a mutually
acceptable time no earlier than ten (10) business days, and no later than
twenty (20) business days, after its delivery of the list of panelists. At
such conference, the parties shall, in such order as determined by the
Arbitration Authority, strike one name from such list (with no party being
allowed to strike a name previously stricken), and the remaining panelist
shall be the Arbitrator. In the event two or more parties desire to strike
the name of the same arbitrator, then the first party to notify the
Arbitration Authority of their decision shall be deemed to have stricken
such name, in which case such other party or parties must strike another
name.
(iv) Representation. Each party shall have the right to be represented by
legal counsel throughout the Arbitration.
(v) Discovery. The parties shall have the right to engage any and all
discovery pertaining to civil litigation as they would be entitled to
pursuant to the laws of civil procedure of the state of New York.
<PAGE>
(vi) Application of Law; Scope of Powers; Written Decision. The Arbitrator
shall apply such principles of law and shall endeavor to decide the
controversy as though the Arbitrator was a judge in a New York court of
law.
(vii) Written Decision. The Arbitrator shall prepare a written decision,
signed by the Arbitrator, that shall be sent to the parties within thirty
(30) calendar days following the conclusion of the hearing. The written
statement will be supported by written findings of fact and conclusions of
law which adequately set forth the basis of the Arbitrator's decision and
which cite the statutes and precedents applied and relied upon in reaching
said decision.
(viii) Awards. The parties agree to abide by any award, judgment, decree or
order rendered in any Arbitration Proceeding by the Arbitrator. The award,
judgment, decree or order of the Arbitrator, and the findings of the
Arbitrator, shall be final, conclusive and binding upon the parties hereto.
Any judgment, decree or order of relief granted by the Arbitrator may be
entered or obtained in any court of competent jurisdiction, state or
federal, in the county in which the residence or principal office of a
non-prevailing party is located, as a basis for judgment and for the
issuance of execution for its collection and, at the election of the party
making such filing, with the clerk of one or more other courts, state or
federal, having jurisdiction over the party against whom such an award is
rendered, or such party's property.
(f) Assignment and Delegation; Successors and Assigns.
(i) Prohibition Against Assignment or Delegation. Except as specifically
provided in this Agreement, neither party may sell, license, transfer or
assign (whether directly or indirectly, or by merger, consolidation,
conversion, sale of assets, sale or exchange of securities, or by operation
of law, or otherwise) any of such party's rights or interests or delegate
such party's duties or obligations under this Agreement, in whole or in
part, including to any subsidiary or any Affiliate, without the prior
written consent of the other party, which consent may be withheld in such
other party's sole discretion, provided, however:
(A) Subject to subsections (B) and (C)
below, the Companies may, with the prior written consent of the Executive,
which consent the Executive shall not unreasonably withhold, assign all of the
rights and delegate all of the obligations of the Companies under this Agreement
to any other Person in connection with the transfer or sale of the entire
business of the Company(ies), or the merger or consolidation of the Companies
with or into any other Person, so long as such transferee, purchaser or
surviving Person shall expressly assumes such obligations of the Companies;
(B) Notwithstanding subsection (A) above to
the contrary, no assignment or transfer under subsection (A) may be
effectuated unless the proposed transferee or assignee first executes such
agreements (including a restated employment agreement) in such form as Executive
may deem reasonably satisfactory to (1) evidence the assumption by the proposed
transferee or assignee of the obligations of the Companies; and (2) to ensure
that the Executive continues to receive such rights, benefits and protections
(both legal and economic) as were contemplated by the Executive when entering
into this Agreement; and
(C) Notwithstanding subsection (A) above to the contrary: (1) any
assumption by a successor or assign under subsection (A) above shall in no way
release the Companies from any of their obligations or liabilities while a party
to this Agreement; and (2) any merger, consolidation, reorganization, sale or
conveyance under subsection (A) above shall not be deemed to abrogate the rights
of the Executive elsewhere contained in this Agreement, including without
limitation those resulting from a Change In Control.
Any purported assignment or transfer in violation of the terms of this
subsection 16(e) shall be null and void ab initio and of no force and
effect, and shall vest no rights or interests in the purported assignee or
transferee.
(ii) Successors and Assigns. Subject to subsection
16(e)(i) above, each and every representation, warranty, covenant,
condition and provision of this Agreement as it relates to each party hereto
shall be binding upon and shall inure to the benefit of such party and his, her
or its respective successors and permitted assigns, spouses, heirs, executors,
administrators and personal and legal representatives, including without
limitation any successor (whether direct or indirect, or by merger,
consolidation, conversion, purchase of assets, purchase of securities or
otherwise).
(g) Counterparts; Electronically Transmitted Documents. This
Agreement may be executed in counterparts, each of which shall be deemed an
original, and all of which together shall constitute one and the same
instrument, binding on all parties hereto. Any signature page of this Agreement
may be detached from any counterpart of this Agreement and reattached to any
other counterpart of this Agreement identical in form hereto by having attached
to it one or more additional signature pages. If a copy or counterpart of this
Agreement is originally executed and such copy or counterpart is thereafter
transmitted electronically by facsimile or similar device, such facsimile
document shall for all purposes be treated as if manually signed by the party
whose facsimile signature appears.
(h) Notices. Unless otherwise specifically provided in this
Agreement, all notices, demands, requests, consents, approvals or other
communications (collectively and severally called "notices") required or
permitted to be given hereunder, or which are given with respect to this
Agreement, shall be in writing, and shall be given by: (i) personal delivery
(which form of notice shall be deemed to have been given upon delivery), (ii) by
telegraph or by private airborne/overnight delivery service (which forms of
notice shall be deemed to have been given upon confirmed delivery by the
delivery agency), (iii) by electronic or facsimile or telephonic transmission,
provided the receiving party has a compatible device or confirms receipt thereof
(which forms of notice shall be deemed delivered upon confirmed transmission or
confirmation of receipt), or (iv) by mailing in the United States mail by
registered or certified mail, return receipt requested, postage prepaid (which
forms of notice shall be deemed to have been given upon the fifth {5th} business
day following the date mailed. Notices shall be addressed at the addresses first
set forth above, or to such other address as the party shall have specified in a
writing delivered to the other parties in accordance with this paragraph. Any
notice given to the estate of a party shall be sufficient if addressed to the
party as provided in this section.
WHEREFORE, the parties hereto have executed this Agreement in the City
of Albany, State of New York, as of the date first set forth above.
COMPANIES: IFS INTERNATIONAL, INC.
a Delaware corporation
By:
IFS INTERNATIONAL, INC.
a New York corporation
By:
<PAGE>
EXECUTIVE: SIMON THEOBALD
an individual
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), dated as of May 12,
1998, is entered into by and among IFS International, Inc., a Delaware
corporation (the "Company"), whose principal executive office is located at
Rensselaer Technology Park, 300 Jordan Road, Troy, New York 12180, IFS
International, Inc., a New York corporation and a wholly owned subsidiary of the
Company, and any other subsidiary of the Company, (the Company and its
subsidiaries are sometimes collectively referred to in this Agreement as the
"Companies") and Frank A. Pascuito (the "Executive"), an individual whose
address is 1 Feather Foil Way, Ballston Spa, New York 12020 with reference to
the following facts:
RECITALS:
WHEREAS, on January 1, 1997, the Company and the Executive entered into
that certain Employment Agreement (the "Prior Agreement") whereby the Company
retained the services of the Executive as the Chairman of its Board of Directors
and as an Officer of its wholly owned subsidiary, IFS International, Inc. (the
"New York Subsidiary") to render executive and managerial services for both
companies; and
WHEREAS, pursuant to section 9.B. of the Prior Agreement, the Company
and the Executive now desire to amend and restate the terms and conditions of
the Executive's employment by the Companies.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and for valuable consideration, the receipt and sufficiency of
which are hereby mutually acknowledged, the parties to this Agreement
(collectively "parties" and individually a "party") agree as follows:
AGREEMENT:
1. DEFINITIONS
Set forth below are definitions of capitalized terms which are
generally used throughout this Agreement and not defined elsewhere in it:
(a) "Affiliate" means any "Person" (as defined below)
controlling, controlled by, or under common control with a party.
(b) "Board" means the Board of Directors of the Company, as
such body may be reconstituted from time to time.
(c) "Change In Control" shall mean, subject to subsections
(iv) and (v) below, the occurrence of any of the following events:
(i) An acquisition of control by an "Acquiring
Person" where, immediately after the subject acquisition, such "Person" holds
"Beneficial Ownership" of more than fifty percent (50%) of the "Total Combined
Voting Power" of the Company's then outstanding "Voting Securities". The terms
in quotations in the immediately preceding sentence shall, for purposes of this
Agreement, have the following meanings:
<PAGE>
(A) "Acquiring Person" shall mean any
"Person" which acquires the defined percentage of securities,
with the exception of: (A) any Employee Benefit Plan (or a
trust forming a part thereof) maintained by the Companies (or
any of them), or any corporation or entity in which the
Companies (or any of them) hold fifty percent (50%) or more of
the "Voting Securities" (each, a "Controlled Subsidiary"); (B)
the Company or any Controlled Subsidiary; or (C) any "Person"
which acquires the threshold percentage of "Voting Securities"
through a "Non-Control Transaction" (as defined below);
(B) "Non-Control Transaction" shall mean any
transaction in which the stockholders of the Company
immediately before such transaction, directly or indirectly
own immediately following such transaction at least a majority
of the "Total Combined Voting Power" of the outstanding
"Voting Securities" of the surviving corporation (or other
entity) resulting from such transaction, in substantially the
same proportion as such stockholders' ownership of the "Voting
Securities" of the Company immediately before such
transaction;
(C) "Person," "Beneficial Ownership," "Total
Combined Voting Power" and "Voting Securities" shall have the
meanings ascribed to such terms in Sections 13(d) and 14(d) of
the Securities Exchange Act and Rule 13d-3 promulgated
thereunder; or
(ii) During any period of three (3) consecutive years after the date of
this Agreement, the individuals who constituted the Company's Board at the
beginning of such period (the "Incumbent Board") cease to constitute a majority
of the Company's Board, for any reason(s) other than (A) the voluntary
resignation of one or more Board members; (B) the refusal by one or more Board
members to stand for election to the Board; and/or (C) the removal of one or
more Board members for good cause; provided, however, (1) that if the nomination
or election of any new director of the Company was approved by a vote of at
least a majority of the Incumbent Board, such new director shall be deemed a
member of the Incumbent Board; and (2) that no individual shall be considered a
member of the Incumbent Board if such individual initially assumed office as a
result of either an actual or threatened "Election Contest" (as described in
Rule 14a-11 promulgated under the Securities Exchange Act of 1934), or as a
result of a solicitation of proxies or consents by or on behalf of an Acquiring
Person, other than a member of the Board (a "Proxy Contest"), or as a result of
any agreement intended to avoid or settle any Election Contest or Proxy Contest;
or
(iii) The Board or the stockholders of the Company
approve:
(A) A merger or consolidation or reorganization of the Company
with:
(1) any Controlled Subsidiary, and such transaction is not a Non-Control
Transaction; or
(2) any other corporation or other entity, and such transaction is not a
Non-Control Transaction; or
(B) A complete liquidation or dissolution of the Company, and such
transaction is not a Non-Control Transaction; or
(C) An agreement for the sale or other disposition of all or substantially
all of the assets of the Company to (1) any Controlled Subsidiary, and such
transaction is not a Non-Control Transaction, or (2) to any other Person, and
such transaction is not a Non-Control Transaction.
(iv) Notwithstanding subsections (i) through (iii)
above, a Change In Control shall not be deemed to have occurred solely
because any Person acquired Beneficial Ownership of more than the threshold
percentage of the outstanding Voting Securities as a result of an acquisition of
Voting Securities by the Company (each, a "Redemption") which, by reducing the
number of Voting Securities outstanding, increased the percentage of outstanding
Voting Securities Beneficially Owned by such Person; provided, however, that if
(A) a Change In Control would occur as a result of a Redemption but for the
operation of this sentence, and (B) after such Redemption, such Person becomes
the Beneficial Owner of any additional Voting Securities, which increase the
percentage of the then outstanding Voting Securities Beneficially Owned by such
Person over the percentage owned as a result of the Redemption, then a Change In
Control shall be deemed to occur.
(v) Notwithstanding any other provision of this
subsection (c), if the Executive or an Affiliate of the Executive who is then
a stockholder or director of the Company, either: (i) expressly voted in favor
of the transaction constituting the Change In Control in such Person's capacity
as either a stockholder or as a director of the Company; or (ii) expressly
abstained from voting (other than by reason of an "interest" in a matter or
transaction); and/or (iii) failed or refused to vote, then the transaction shall
not constitute a Change in Control.
(d) "Disability" (or the related term "Disabled") means any of
the following: (i) the receipt of any disability insurance benefits by the
Executive; (ii) a declaration by a court of competent jurisdiction that the
Executive is legally incompetent; (iii) the Executive's material inability due
to medically documented mental or physical illness or disability to fully
perform the Executive's regular duties of his employment, for a three (3) month
continuous period, or for six (6) cumulative months within any one (1) year
continuous period; or (iv) the reasonable determination by the Chief Executive
Officer that the Executive will not be able to fully perform the Executive's
regular duties of his employment for a three (3) month continuous period. If the
Chief Executive Officer determines that the Executive is Disabled under
subsection (iv) above, and the Executive disagrees with the conclusion of the
Chief Executive Officer, then the Company shall engage a qualified independent
physician reasonably acceptable to the Executive to examine the Executive at the
sole expense of the Company. The determination of such physician shall be
provided in writing to the parties and shall be final and binding upon the
parties for all purposes of this Agreement. The Executive hereby consents to
examination in the manner set forth above, and waives any physician-patient
privilege arising from any such examination as it relates to the determination
of the purported disability. If the parties cannot agree upon a physician, a
physician shall be appointed by the American Arbitration Association according
to the rules and practices of the American Arbitration Association from
time-to-time in force.
(e) "Person" (other than for purposes of determining a Change
in Control) means an individual or natural person, a corporation, partnership
(limited or general), joint-venture, association, business trust, limited
liability company or partnership, trust (whether revocable or irrevocable),
pension or profit sharing plan, individual retirement account, or fiduciary or
custodial arrangement.
(f) "Termination By Companies For Cause" means a termination
of the Executive caused by a determination of two-thirds of the Company's Board,
excluding the Executive if then a member of the Board, that one of the following
events has occurred:
(i) Any of the Executive's representations or warranties in this Agreement
is not materially true, accurate and/or complete;
(ii) The Executive has intentionally and continually breached or wrongfully
failed and/or refused to fulfill and/or perform (A) any of the Executive's
obligations, promises or covenants under this Agreement, or (B) any of the
warranties, obligations, promises or covenants in any agreement (other than this
Agreement) entered into between the Companies (or any of them) and the
Executive, without cure, if any, as provided in such agreement;
(iii) The Executive has intentionally failed and/or
refused to obey any lawful and proper order or directive of the Board or
the Chief Executive Officer, and/or the Executive has intentionally interfered
with the compliance by other employees of the Companies (or any of them) with
any such orders or directives;
(iv) The Executive has intentionally breached the Executive's fiduciary
duties to the Companies (or any of them);
(v) The Executive has intentionally caused the Companies (or any of them)
to be convicted of a crime, or to incur criminal penalties in material amounts;
(vi) The Executive has committed: (A) any act of fraud, misrepresentation,
theft, embezzlement or misappropriation, and/or any other dishonest act against
the Companies (or any of them); or (B) any other offense involving moral
turpitude, which offense is followed by conviction or by final action of any
court of law; or (C) a felony;
(vii) The Executive repeatedly and intemperately uses alcohol or drugs, to
the extent that such use (A) interferes with or is likely to interfere with the
Executive's ability to perform the Executive's duties, and/or (B) endangers or
is likely to endanger the life, health, safety, or property of the Executive,
the Companies (or any of them), or any other person;
(viii) The Executive has intentionally demonstrated or committed such acts
of racism, sexism or other discrimination as would tend to bring the Companies
(or any of them) into public scandal or ridicule, or could otherwise result in
material and substantial harm to the business, reputation, operations, affairs
or financial position of the Companies (or any of them); and/or
(ix) The Executive engaged in other conduct constituting legal cause for
termination.
No act, nor failure to act, on the Executive's part
shall be considered "intentional" unless the Executive has acted, or failed to
act, with a lack of good faith and with a lack of reasonable belief that the
Executive's action or failure to act was in the best interests of the Companies
(or any of them). In the event the Executive is both Disabled and the provisions
of subsection (vii) of this section 1(f) are applicable, the Companies shall
have the right to deem such event as a Termination By Companies For Cause.
(g) "Termination By Executive For Good Reason" means the
Executive's termination of this Agreement based on his reasonable determination
that one of the following events has occurred:
(i) Any of the representations or warranties in
this Agreement made by the Companies are not materially true, accurate and/or
complete;
(ii) The Companies (or any of them) intentionally and
continually breach or wrongfully fail to fulfill or perform (A) their
obligations, promises or covenants under this Agreement; or (B) any warranties,
obligations, promises or covenants in any agreement (other than this Agreement)
entered into between the Companies (or any of them) and the Executive, without
cure, if any, as provided in such agreement;
(iii) The Companies terminate this Agreement and the
Executive's employment hereunder, and such termination does not constitute
Termination By Companies For Cause;
<PAGE>
(iv) Without the consent of the Executive, the
Companies: (A) substantially alter or materially diminish the position, nature,
status, prestige or responsibilities of the Executive from those in effect by
mutual agreement of the parties from time-to-time; (B) assign additional duties
or responsibilities to the Executive which are wholly and clearly inconsistent
with the position, nature, status, prestige or responsibilities of the Executive
then in effect; or (C) remove or fail to reappoint or re-elect the Executive to
the Executive's offices under this Agreement (as they may be changed or
augmented from time-to-time with the consent of the Executive), or as a director
of the Company, except in connection with the Disability of the Executive;
(v) Without the ratification (express or implied) of
the Executive, the Executive is removed from the Board without his
consent; or the Company fails to nominate or reappoint the Executive to the
Board (unless the Executive is deceased or Disabled, or such removal or failure
is attributable to an event which would constitute Termination By Companies For
Cause), or if the Executive is so nominated, the stockholders of the Company
fail to re-elect the Executive to the Board;
(vi) The Companies (or any of them) intentionally
require the Executive to commit or participate in any felony or other
serious crime; and/or
(vii) The Companies (or any of them) engage in other
conduct constituting legal cause for termination.
If any of the events described in this section 1(g)
occurs, and such event is reasonably susceptible of being cured, the Companies
shall be entitled to a grace period of thirty (30) days following receipt of
written notice of such event to effect such cure.
2. EMPLOYMENT OBLIGATIONS
(a) Engagement; Duties. The Company hereby engages the
Executive as the Chairman of its Board of Directors and the New York Subsidiary
hereby engages the Executive as an Executive Officer. The Executive accepts such
engagements upon the terms and conditions set forth below. The Executive shall
do and perform all services, acts, or things necessary or advisable that an
individual performing like duties would customarily be empowered and authorized
to do and perform by law and under the Bylaws of the Companies, including, but
not limited to, providing investor and public relations, acting as liaison to
the investment banking community, and presiding over meetings of the Board.
The Executive shall report solely to the Company's Chief Executive Officer.
The Executive's responsibilities with respect to the Companies may be changed or
supplemented by the Chief Executive Officer from time-to-time, in his
discretion. The Executive shall be reasonably available to travel as the needs
of the business of the Companies may require.
(b) Performance. The Executive shall devote the Executive's
entire and undivided business time, energy, abilities and attention solely and
exclusively to the performance of the Executive's duties hereunder and the
business of the Companies. The Executive shall at all times faithfully, loyally,
conscientiously, diligently and, to the best of the Executive's ability, perform
all of the Executive's duties and obligations under this Agreement, and
otherwise promote the interests and welfare of the Companies, all consistent
with the highest and best standards of the Companies' industry. The Executive:
(i) shall strictly comply with and adhere to all applicable laws, and the
Companies' Articles of Incorporation, Bylaws and policies; (ii) shall obey all
reasonable rules and regulations and policies now in effect or as subsequently
modified governing the conduct of employees of the Companies, and (iii) shall
not commit any acts of gross negligence, willful misconduct, dishonesty, fraud
or misrepresentation, racism, sexism or other discrimination, or any other acts
which would tend to bring the Companies (or any of them) into public scandal or
ridicule, or would otherwise result in material harm to the business or
reputation of the Companies or any of them.
(c) Facilities and Services. The Companies shall provide such
support staff, facilities, equipment and supplies as are reasonably necessary or
suitable for the adequate performance of the Executive's duties and obligations
under this Agreement, including technical and secretarial help.
3. TERM
(a) Initial Term. Unless this Agreement is previously
terminated by either party as provided in sections 11 or 12 below, the Companies
hereby employ the Executive pursuant to the terms of this Agreement, and the
Executive hereby accepts such employment, for the period beginning on January 1,
1997 and ending on December 31, 1999 (the "Initial Term").
(b) Automatic Renewal; Termination by the Companies. This
Agreement will be automatically renewed for additional and consecutive one (1)
year terms (each, a "Renewal Term") following the expiration of each Initial or
Renewal Term, (each a "Term"), unless either party gives written notice to the
other party, no later than sixty (60) days prior to the expiration of the then
pending Term, of its or his election not to automatically renew this Agreement
for an additional year.
4. COMPENSATION
(a) Annual Base Salary. During the Term, the Companies shall
pay to the Executive an annual base salary which shall consist of a fixed
portion and a commission portion. (Together, the fixed portion and the
commission portion shall be hereinafter referred to as the "Annual Salary.") The
fixed portion of the Annual Salary shall initially be in the amount of One
Hundred Thirty Thousand dollars ($130,000). The commission portion of the Annual
Salary shall consist of an amount which equals 8% of gross revenues earned in
excess of $425,000 derived from installations of the Companies' products
pursuant to license agreements obtained through the efforts of the Executive,
provided, however, that the Executive shall not be entitled to receive any
commission on the license agreements entered into by the Companies for the first
seven sites of the Visa Smart Card pilot program and, provided further, that the
percentage of gross revenues to be paid to the Executive on "designated house
accounts" shall be determined in the sole discretion of the Board. The Board
shall determine, in its sole and absolute discretion, which accounts shall be
"designated house accounts" and shall notify the Executive, in writing, of such
designations. The Annual Salary shall be subject to any Tax Withholdings and/or
Employee Deductions that are applicable. The fixed portion of the Annual Salary
shall be paid to the Executive in equal installments in accordance with the
periodic payroll practices of the Companies for executive employees. The
percentage portion of the Annual Salary shall be paid to the Executive by the
Companies within thirty (30) days from the date of the end of each fiscal
quarter.
(b) Performance Bonus. The Chief Executive Officer shall from
time-to-time, but not less than one (1) time per year, evaluate the performance
of the Executive and award to the Executive a performance bonus (the
"Performance Bonus") in such amount as the Chief Executive Officer may
determine, in his sole discretion, to be reasonable, after taking into
consideration other compensation paid or payable to the Executive under this
Agreement, as well as the financial and non-financial progress of the business
of the Companies and the contributions of the Executive toward that progress.
Payment of the Performance Bonus shall be subject to any applicable Tax
Withholdings and/or Employee Deductions.
(c) Annual Review. Commencing on June 1, 1999, and on each
June 1st thereafter, the fixed portion of the Annual Salary then effective shall
be increased (but not decreased) by an amount: (i) which shall reflect the
increase, if any, in the cost of living during the previous 12 months by adding
to the fixed portion of the Annual Salary an amount computed by multiplying the
fixed portion of the Annual Salary by the percentage by which the level of the
Consumer Price Index for the Troy, New York Metropolitan Area, as reported on
June 1st of the new year by the Bureau of Labor Statistics of the United States
Department of Labor has increased over its level as of June 1st of the prior
year; and (ii) which will maintain the Executive's compensation at a level
consistent with the compensation paid to executive officers holding similar
positions in the software industry. Additionally, commencing on June 1, 1999,
and on each June 1st thereafter (or more frequently if it is deemed necessary)
the Chief Executive Officer shall review the fixed portion of the Executive's
Annual Salary to determine whether to otherwise increase the Executive's
compensation, without any obligation by the Chief Executive Officer to authorize
such increase.
(d) Participation In Employee Benefit Plans. The Executive
shall have the same rights, privileges, benefits and opportunities to
participate in any of the Companies' employee benefit plans which may now or
hereafter be in effect on a general basis for executive officers or employees,
including its qualified retirement plans and its non-qualified deferred
compensation plans. The Companies may delete coverages and otherwise amend and
change the type and quantity of insurance coverage it provides in its sole
discretion, but in no event shall coverage be provided which is less
comprehensive than coverage then being provided to other senior management
employees of the Companies. In the event the Executive receives payments from a
disability plan maintained by the Companies (or any of them), the Companies
shall have the right to offset such payments against the Annual Salary otherwise
payable to the Executive during the period for which payments are made by such
disability plan.
(e) Stock Options. The Executive acknowledges receipt of
options to purchase seventy-five thousand (75,000) shares of the Company's
common stock at an exercise price of Five dollars ($5.00) per share, which
options are not subject to the terms and conditions of the Company's stock
option plan but which shall be governed by a stock option agreement by and
between the Company and the Executive. The Executive shall be entitled to
exercise the options for a period of ten (10) years from the date of grant,
which the parties acknowledge is January 1, 1997. Subject to the requirements of
any state or federal securities laws of the United States, the common stock to
be acquired by exercise of the options granted hereunder shall be freely
tradeable. The Executive shall be entitled to exercise the options with cash or
with other common stock of the Company or with any other consideration
acceptable to the Company. The provisions of this section 4(e) shall control in
the event that they conflict with the provisions of any other agreements entered
into by the Executive and the Company which govern the vesting and exercise of
options granted to the Executive, including the Company's stock option plan(s).
(f) Stock Appreciation Rights. Subject to the receipt of any
approval required by the By-laws of the Company, the General Corporation Law of
Delaware and/or any federal or state securities laws, the Company shall grant to
the Executive, upon execution of this Agreement, stock appreciation rights
("SAR") based on ten thousand (10,000) shares of the Company's common stock and,
on each anniversary of the execution of this Agreement, the Executive shall
receive additional SARs based on ten thousand shares (10,000) of the Company's
common stock. These grants shall be governed by a separate Stock Appreciation
Rights Agreement which shall set forth all material terms and conditions of the
SARs. Upon exercise of the SARs, the Executive shall receive from the Companies
an amount equal to the excess of the fair market value of the SAR shares
exercised over the fair market value of the SAR shares as of the date of the
grant. Such amount shall be paid to the Executive, at the Executive's option, in
cash or with the Company's common stock.
(g) Payment of Compensation. The compensation to be paid hereunder shall be
paid entirely by the Company or in part by the Company and any other subsidiary,
as they may mutually agree.
5. ALLOWANCES
The Companies shall provide a late model luxury automobile to
the Executive for his use during the term of this Agreement, and shall pay all
purchase-installment and/or lease payments to acquire such automobile, as well
as the cost to insure the automobile. If the Companies fail to provide the
automobile during any portion of the term of this Agreement, the Companies shall
pay to the Executive the sum of Six Hundred dollars ($600) for each month an
automobile is not provided, to reimburse the Executive for the cost of an
automobile and for the payment of insurance in connection therewith. The
Companies shall additionally reimburse the Executive for all gasoline,
operation, maintenance and repair costs associated with the Executive's use of
the automobile upon submission of itemized receipts therefore. Payment and/or
provision of the aforesaid allowance shall be subject to any applicable Tax
Withholdings and/or Employee Deductions. The Executive shall be responsible for
all income taxes imposed on the Executive by reason of the automobile allowance.
6. BUSINESS EXPENSES
During the Term of this Agreement the Executive is authorized
to incur, and the Companies shall directly pay or reimburse to the Executive,
his reasonable and necessary business expenses, duly and actually incurred in
connection with the duties and services to be performed by the Executive
pursuant to this Agreement, including without limitation entertainment, meals,
travel, lodging and other similar out-of-pocket expenses, upon the Executive's
submission to the Companies of itemized expense statements setting forth the
date, purpose and amount of the expense incurred, together with corresponding
receipts showing payment by the Executive in cases where he seeks reimbursement,
all in conformity with business expense payment and/or reimbursement policies
established by the Companies from time to time, all of which shall comply with
the substantiation requirements of any applicable taxing authorities, and
regulations promulgated by such authorities thereto, pertaining to the
deductibility of such expenses. Direct payment and/or reimbursement shall be
made by the Companies no later than fifteen (15) days from the date that the
foregoing documentation is submitted by the Executive.
7. TAX WITHHOLDINGS AND EMPLOYEE DEDUCTIONS
The Companies shall be entitled to deduct from any payments to
the Executive pursuant to the terms of this Agreement (including any payments
arising from the early termination of this Agreement), amounts sufficient to
cover any applicable federal, state, and/or local income tax withholdings and/or
deductions as may be required in connection with such payment, including without
limitation old-age and survivor's and other social security payments, state
disability and other withholdings payment as may be required by the tax laws or
regulations of any applicable jurisdiction (collectively, the "Tax
Withholdings"), as well as all other elective employee deductions applicable to
such payment such as, for example, deductions relating to any Employee Benefit
Plan in which the Executive participates (collectively, the "Employee
Deductions").
8. PERSONAL TIME-OFF
The Executive shall be entitled in each calendar year during
the term of this Agreement to such number of personal time-off days for such
purposes, including vacations and time for personal affairs ("Personal
Time-Off") as are approved by the Chief Executive Officer, but not less than
fifteen (15) business days. Personal Time-Off shall be in addition to regular
paid holidays provided to all employees of the Company. The Executive's
compensation shall be paid in full with respect to approved Personal Time-Off
days. Should the Executive fail to use all Personal Time-Off days in any
calendar year, the Executive shall have the option of (i) receiving payment for
such days on a pro rata basis, or (ii) "carrying-over" unused Personal Time-Off
days to succeeding years. Personal time-off shall be taken during a period or
periods mutually satisfactory to both the Companies and the Executive.
9. INSURANCE
If requested by the Companies, the Executive shall submit to
such physical examinations and otherwise take such actions and execute and
deliver such documents as may be reasonably necessary to enable the Companies,
at their expense and for their benefit, to obtain disability and/or life
insurance on the life of the Executive. The Executive represents and warrants
that he has no reason to believe that he is not insurable for disability or life
coverage with a reputable insurance company at rates now prevailing for healthy
persons of the Executive's age and gender.
10. NONCOMPETITION, NONSOLICITATION AND NONINTERFERENCE
AND PROPRIETARY PROPERTY AND CONFIDENTIAL
INFORMATION PROVISIONS.
(a) Noncompetition.
(1) "Applicable Definitions" For purposes of this section 10, the following
capitalized terms shall have the definitions set forth below:
i. "Business Segments" - The term "Business Segments" is defined as each of
the Companies' products or product lines.
ii. "Competitive Business" - The term "Competitive Business" is defined as
any business that directly competes with the Companies' Business Segments,
whether such business is conducted by a proprietorship, partnership, corporation
or other entity or venture.
iii. "Territory" - The term "Territory" is defined as the geographic area
(both within the United States and internationally) in which each Business
Segment is carried on including, by way of example and not limitation, the
entire geographic area in which the Companies conduct various phases of such
Business Segment, including purchasing, production, distribution, promotional
and marketing activities, and sales.
(2) Covenant Not To Compete. The Executive hereby covenants and agrees that
during the term of this Agreement, and for a period of one (1) year from the
date this Agreement is terminated or expires, the Executive shall not, with
respect to each Business Segment and within the boundaries of the Territory
applicable to such Business Segment, without the prior written consent of the
Companies (which consent may be withheld in the sole and absolute discretion of
Companies), directly or indirectly, either alone or in association or in
connection with or on behalf of any person, firm, partnership, corporation or
other entity or venture now existing or hereafter created: (i) be or become
interested or engaged in, directly or indirectly, with any Competitive Business
including, without limitation, being or becoming an organizer, investor, lender,
partner, joint venturer, stockholder, officer, director, employee, manager,
independent sales representative, associate, consultant, agent, supplier,
vendor, vendee, lessor, or lessee to any Competitive Business, or (ii) in any
manner associate with, or aid or abet or give information or financial
assistance to any Competitive Business, or (iii) use or permit the use of the
Executive's name or any part thereof to be used or employed in connection with
any Competitive Business (collectively and severally, the "Noncompetition
Covenants"). Notwithstanding the foregoing, the provisions of this section
10(a)2 shall not be deemed to prevent the purchase or ownership by the Executive
as a passive investment of the outstanding capital shares of any publicly held
corporation, so long as any other obligation or duty under the Noncompetition
Covenants are not breached.
(3) Separate Covenants. The Noncompetition Covenants shall be construed to
be divided into separate and distinct Noncompetition Covenants with respect to
(i) each Business Segment and (ii) each matter or type of conduct described
therein. Each of such divided Noncompetition Covenants shall be separate and
distinct from all such other Noncompetition Covenants with respect to the same
or any other Business Segment.
(4) Acknowledgements. The Executive acknowledges that: (i) the covenants
and the restrictions contained in the Noncompetition Covenants are necessary,
fundamental, and required for the protection of the business of the Companies;
(ii) the Noncompetition Covenants relate to matters which are of a special,
unique and extraordinary value; and (iii) a breach of any of the Noncompetition
Covenants will result in irreparable harm and damages which cannot be adequately
compensated by a monetary award.
(5) Judicial Limitation. Notwithstanding the foregoing, if at any time a
court of competent jurisdiction holds that any portion of any Noncompetition
Covenant is unenforceable by reason of its extending for too great a period of
time or over too great a geographical area or by reason of its being too
extensive in any other respect, such Noncompetition Covenant shall be
interpreted to extend only over the maximum period of time, maximum geographical
area, or maximum extent in all other respects, as the case may be, as to which
it may be enforceable, all as determined by such court in such action.
(b) Nonsolicitation and Noninterference.
(1) Covenants. The Executive hereby covenants and agrees that during the
term of this Agreement, and for a period of two (2) years from the date this
Agreement terminates or expires, the Executive shall not, either for the
Executive's own account or directly or indirectly in conjunction with or on
behalf of any person, partnership, corporation or other entity or venture:
i. Solicit or employ or attempt to solicit or employ
any person who is then or has, within twelve (12) months prior thereto,
been an officer, partner, manager, agent or employee of the Companies
or any affiliate of the Companies whether or not such a person would
commit a breach of that person's contract of employment with the
Companies (or any of them), if any, by reason of leaving the service of
the Companies (the "Nonsolicitation Covenant"); or
ii. On behalf of, directly or indirectly, any
Competitive Business (as such term is defined in section 10 (a)1.ii.,
or for the purpose of or with the reasonably foreseeable effect of
harming the business of the Companies, solicit the business of any
person, firm or company which is then, or has been at any time during
the preceding twelve (12) months prior to such solicitation, a
customer, client, contractor, supplier or vendor of the Companies (or
any of them) (the "Noninterference Covenant)".
(2) Acknowledgments. Each of the parties acknowledges that: (i) the
covenants and the restrictions contained in the Nonsolicitation and
Noninterference Covenants are necessary, fundamental, and required for the
protection of the Companies' businesses; (ii) such Covenants relate to matters
which are of a special, unique and extraordinary value; and (iii) a breach of
either of such Covenants will result in irreparable harm and damages which
cannot be adequately compensated by a monetary award.
(3) Judicial Limitation. Notwithstanding the foregoing, if at any time,
despite the express agreement of the Companies and the Executive, a court of
competent jurisdiction holds that any portion of any Nonsolicitation or
Noninterference Covenant is unenforceable by reason of its extending for too
great a period of time or by reason of its being too extensive in any other
respect, such Covenant shall be interpreted to extend only over the maximum
period of time or to the maximum extent in all other respects, as the case may
be, as to which it may be enforceable, all as determined by such court in such
action.
(c) Proprietary Property; Confidential Information.
(1) "Applicable Definitions" For purposes of this section 10(c), the
following capitalized terms shall have the definitions set forth below:
i. "Confidential Information" - The term
"Confidential Information" is collectively and severally defined as any
information, matter or thing of a secret, confidential or private
nature, whether or not so labeled, which is connected with the business
or methods of operation of the Companies (or any of them) or concerning
any of their suppliers, customers, licensors, licensees or others with
whom the Companies (or either of them) have a business relationship,
and which has current or potential value to the Companies (or any of
them) or the unauthorized disclosure of which could be detrimental to
the Companies (or any of them). Confidential Information shall be
broadly defined and shall include, by way of example and not
limitation,: (i) matters of a business nature available only to
management and owners of the Companies of which the Executive may
become aware (such as information concerning customers, vendors and
suppliers, including their names, addresses, credit or financial
status, buying or selling habits, practices, requirements, and any
arrangements or contracts that the Companies may have with such
parties, the Companies' marketing methods, plans and strategies, the
costs of materials, the prices for which the Companies obtain or have
obtained or at which the Companies sell or have sold their products or
services, the Companies' manufacturing and sales costs, the amount of
compensation paid to employees of the Companies and other terms of
their employment, financial information such as financial statements,
budgets and projections, and the terms of any contracts or agreements
the Companies have entered into) and (ii) matters of a technical nature
(such as product information, trade secrets, know-how, formulae,
innovations, inventions, devices, discoveries, techniques, formats,
processes, methods, specifications, designs, patterns, schematics,
data, compilation of information, test results, and research and
development projects). For purposes of the foregoing, the term "trade
secrets" shall mean the broadest and most inclusive interpretation of
trade secrets as defined by the Uniform Trade Secrets Act and cases
interpreting the scope of the Uniform Trade Secrets Act.
ii. "Proprietary Property" - The term "Proprietary
Property" is collectively and severally defined as any written or
tangible property owned or used by the Companies in connection with the
business of the Companies, whether or not such property also qualifies
as Confidential Information. Proprietary Property shall be broadly
defined and shall include, by way of example and not limitation,
products, samples, equipment, files, lists, books, notebooks, records,
documents, memoranda, reports, patterns, schematics, compilations,
designs, drawings, data, test results, contracts, agreements,
literature, correspondence, spread sheets, computer programs and
software, computer print outs, other written and graphic records, and
the like, whether originals, copies, duplicates or summaries thereof,
affecting or relating to the business of Company, financial statements,
budgets, projections, invoices.
(2) Ownership of Proprietary Property. The Executive acknowledges that all
Proprietary Property which the Executive may prepare, use, observe, come into
possession of and/or control shall, at all times, remain the sole and exclusive
property of the Companies. The Executive shall, upon demand by the Companies at
any time, or upon the cessation of the Executive's employment, irrespective of
the time, manner, cause or lack of cause of such cessation, immediately deliver
to the Companies or their designated agent, in good condition, ordinary wear and
tear and damage by any cause beyond the reasonable control of the Executive
excepted, all items of the Proprietary Property which are or have been in the
Executive's possession or under his control, as well as a statement describing
the disposition of all items of the Proprietary Property beyond the Executive's
possession or control in the event that the Executive has not previously
returned such items of the Proprietary Property to the Companies.
(3) Agreement Not to Use or Divulge Confidential Information. The Executive
agrees that he will not, in any fashion, form or manner, unless specifically
consented to in writing by the Companies, either directly or indirectly use,
divulge, transmit or otherwise disclose or cause to be used, divulged,
transmitted or otherwise disclosed to any person, firm or corporation, in any
manner whatsoever (other than in the Executive's performance of duties for the
Companies or except as required by law) any Confidential Information of any
kind, nature or description. The foregoing provisions shall not be construed to
prevent the Executive from making use of or disclosing information which is in
the public domain through no fault of the Executive, provided, however, specific
information shall not be deemed to be in the public domain merely because it is
encompassed by some general information that is published or in the public
domain or in the Executive's possession prior to the Executive's employment with
the Companies.
(4) Acknowledgment of Secrecy. The Executive acknowledges that the
Confidential Information is not generally known to the public or to other
persons who can obtain economic value from its disclosure or use and that the
Confidential Information derives independent economic value thereby, and the
Executive agrees that he shall take all efforts reasonably necessary to maintain
the secrecy and confidentiality of the Confidential Information and to otherwise
comply with the terms of this Agreement.
(5) Inventions, Discoveries. The Executive acknowledges that any
inventions, discoveries or trade secrets, whether patentable or not, made or
found by the Executive in the scope of his employment with the Companies
constitute property of the Companies and that any rights therein now held or
hereafter acquired by the Executive individually or in any capacity are hereby
transferred and assigned to the Companies, and agrees to execute and deliver any
confirmatory assignments, documents or instruments of any nature necessary to
carry out the intent of this section when requested by the Companies without
further compensation therefor, whether or not the Executive is at the time
employed by the Companies. Provided, however, notwithstanding the foregoing, the
Executive shall not be required to assign his rights in any invention which the
Executive developed entirely on his own time without using the Companies'
equipment, supplies, facilities or trade secret information except for those
inventions that either:
(i) Relate at the time of conception or reduction to
practice of the invention to the Companies' business, or actual or
demonstrably anticipated research or development of the Companies; or
(ii) Result from any work performed by the Executive
for the Companies.
The Executive understands that he bears the full burden of
proving to the Companies that an invention qualifies fully under this section
10(c)(5).
11. TERMINATION OF AGREEMENT BEFORE EXPIRATION OF TERM
(a) Death or Disability. Notwithstanding any other term of
this Agreement, the applicable Term shall terminate upon the death or Disability
of the Executive.
(b) Change In Control. Notwithstanding any other term of this
Agreement, the applicable Term shall, at the election of the Executive delivered
by written notice to the Company, terminate effective upon a Change In Control.
(c) Termination of Agreement by Companies for Cause. The
Companies may terminate this Agreement and the Executive's employment hereunder
at any time in the event such termination constitutes Termination By Companies
For Cause, upon giving written notice to the Executive specifying in reasonable
detail (i) the event which constitutes the cause; (ii) the pertinent facts and
circumstances underlying the cause; and (iii) the effective date of the
termination (not to exceed ninety {90} days from the date of such notice, but
which date may, at the Companies' election, be effective upon receipt of said
written notice by the Executive). Such notice shall also afford the Executive an
opportunity to be heard in person by the Board (with the assistance of the
Executive's legal counsel, if the Executive so desires). Such hearing shall be
held reasonably promptly after such notice but, in any event, before the
effective date of the prospective termination.
(d) Termination of Agreement by Executive for Good Reason. The
Executive may terminate this Agreement and the Executive's employment hereunder
at any time in the event such termination constitutes Termination By Executive
For Good Reason, upon giving written notice to the Companies specifying in
reasonable detail (i) the event which constitutes the good reason; (ii) the
pertinent facts and circumstances underlying the good reason; and (iii) the
effective date of termination (which, in the case of an event described in
section 1(g) which is reasonably susceptible of being cured, shall not be less
than thirty {30} days from the date of such notice).
12. EFFECT OF TERMINATION ATTRIBUTABLE TO DEATH OR DISABILITY; TERMINATION
BY COMPANIES FOR CAUSE; TERMINATION BY EXECUTIVE WITHOUT GOOD REASON
In the event the Executive's employment hereunder is
terminated before the expiration of a Term, and such termination is attributable
to (i) an event defined as Death or Disability; (ii) an event defined as
Termination By Companies For Cause; and/or (iii) termination by the Executive
which does not constitute Termination By Executive For Good Reason, then all
rights and obligations of the Companies and the Executive under section 2
[Employment Obligations], section 4 [Compensation], section 5 [Allowances],
section 6 [Business Expenses] and section 8 [Personal Time-Off] shall terminate
as of the effective date of the termination; provided, however:
(a) The Companies shall pay the fixed portion of the
Executive's accrued but unpaid Annual Salary and Personal Time-Off days through
the effective date of the termination on or before the close of business on such
effective date, provided, however, if the Executive is employed for less than
the entire number of business days in such pay period, the fixed portion of the
Annual Salary for such pay period shall be prorated on the basis of the number
of business days during which the Executive was actually employed during such
pay period, divided by the actual number of business days in such pay period and
further, provided, that if the termination is due to the death or Disability of
the Executive, then the Companies shall also pay to the Executive or his estate
the fixed portion of the Executive's then effective Annual Salary as set forth
in section 4(a), said payment to be calculated for the balance of the year
during which the death or Disability occurred, but in no event shall such
payment total less than one-half of the Annual Salary for the year;
(b) The Companies shall pay the commission portion of the
Executive's accrued but unpaid Annual Salary through the effective date of the
termination within fifteen (15) days from such date if the Companies have
sufficient information to compute the commission portion by that date; provided,
however, that if the Companies do not have sufficient information to compute the
commission portion of the Annual Salary by such date, then the Companies shall
pay the commission portion of the Executive's accrued but unpaid Annual Salary
as soon thereafter as it may be computed, but in any event not later than thirty
(30) days from the date of the end of the fiscal quarter following the effective
date of the termination;
(c) The Companies shall pay the Executive's accrued but unpaid
Performance Bonus, if any;
(d) The Companies shall reimburse the Executive for the automobile
allowance incurred pursuant to section 5 prior to the effective date of the
termination;
(e) The Companies shall reimburse the Executive for any
business expenses incurred prior to the effective date of the termination,
within three (3) business days after the Executive's submission of the
Executive's expense report to the Companies;
(f) If the Executive's termination is due to his death or
Disability, all stock options which have been or are scheduled to be granted
during the Term of this Agreement pursuant to section 4(e) shall become fully
vested at the grant price;
(g) If the Executive's termination is due to his death or
Disability, all SARs which have been or are scheduled to be granted during the
Term of this Agreement pursuant to section 4(f) shall become fully vested;
(h) The Executive shall not be entitled to continue to
participate in any Employee Benefit Plans except to the extent provided in such
plans for terminated participants, or as may be required by applicable law.
Notwithstanding the foregoing, amounts which are vested in any Employee Benefit
Plans, including stock options and SARs, shall be payable in accordance with
such plan.
13. EFFECT OF TERMINATION WHERE TERMINATION ATTRIBUTABLE TO CHANGE IN
CONTROL; TERMINATION BY EXECUTIVE FOR GOOD REASON; TERMINATION BY COMPANIES
WITHOUT CAUSE
In the event the Executive's employment hereunder is
terminated before the expiration of a Term, and such termination is attributable
to (i) an event defined as a Change in Control; (ii) an event defined as a
Termination by Executive for Good Reason; and/or (iii) termination by the
Companies which does not constitute a Termination By Companies for Cause; then
all rights and obligations of the Companies and the Executive under section 2
[Employment Obligations], section 4 [Compensation], section 5 [Allowances],
section 6 [Business Expenses], and section 8 [Personal Time-Off] shall terminate
as of the effective date of the termination date; provided, however:
(a) The Companies shall pay to the Executive, in a lump sum
and without discount to present value, the fixed portion of the Executive's then
effective Annual Salary as set forth in section 4(a), said payment to be
calculated for the balance of the Term of this Agreement;
(b) The Companies shall pay to the Executive, in a lump sum
and without discount to present value, the commission portion of the Executive's
Annual Salary calculated, in accordance with section 4(a), for the balance of
the Term of this Agreement. Such calculation shall be based upon the gross
revenues earned during the twelve (12) month period immediately preceding the
Executive's termination;
(c) The Companies shall pay to the Executive, in a lump sum
and without discount to present value, the Executive's declared Performance
Bonus;
(d) All stock options which have been or are scheduled to be
granted during the Term of this Agreement pursuant to section 4(e) shall become
fully vested at the grant price and the Companies shall pay to the Executive a
sum which shall permit the Executive to exercise, in his sole and absolute
discretion, all or some of the options;
(e) The Executive shall be entitled to exercise all SARs which
have been or are scheduled to be granted during the Term of this Agreement
pursuant to section 4(f);
(f) At the election of the Executive, the Companies shall (i)
provide to the Executive and his spouse and dependents, for a period of twelve
(12) months, medical, dental, and vision insurance and, to the Executive,
disability insurance, which benefits shall be comparable to the benefits
received by the Executive at the time of termination of his employment; or (ii)
provide to the Executive additional compensation, payable on a monthly basis,
which would approximate the cost to the Executive to obtain such comparable
benefits;
(g) The Companies shall reimburse the Executive for the
Executive's business expenses incurred through the effective date of the
termination, within three (3) business days of the Executive's submission of the
Executive's expense report to the Companies.
The Companies shall gross-up the compensation or remuneration
paid to the Executive pursuant to subsections (a), (b) and (c) above to cover
the payment of any and all taxes, of any kind or nature, that are incurred by
the Executive as a result of his receipt of the foregoing compensation.
The Executive shall not be required to mitigate the amount of
any payment pursuant to this section 13 by seeking other employment or
otherwise, and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to the Executive in any subsequent employment.
The provisions of this section 13 shall not be deemed to prejudice the rights of
the Companies or the Executive to any remedy or damages to which such party may
be entitled by reason of a breach of this Agreement by the other party, whether
at law or equity.
14. REMUNERATION ON SALE OR TRANSFER
Irrespective of whether or not the Executive's employment is
terminated, if there is a (i) Change of Control; or (ii) transfer or sale of all
or substantially all of the assets of the Company(ies) which is not a Change of
Control; or (iii) transfer or sale of Beneficial Ownership of more than fifty
percent (50%) of the Total Combined Voting Power of the Company's then
outstanding Voting Securities which does not constitute a Change of Control,
then the Companies shall pay to the Executive an amount equal to 4% of the first
$10 million dollars in value received by the Companies (including cash,
securities, debt or any other form of property) in connection with such Change
of Control, transfer or sale, 6% of the next $10 million dollars in value
received by the Companies in connection with such Change of Control, transfer or
sale, and 8% of any value received by the Companies in excess of $20 million in
connection with such Change of Control, transfer or sale, provided, however, the
remuneration paid to the Executive pursuant to this section 14 shall, in any
event, not be less than Five Hundred Thousand dollars ($500,000). The Companies
shall gross-up the remuneration paid to the Executive pursuant to this section
14 to cover the payment of any and all taxes, of any kind or nature, that are
incurred by the Executive as a result of his receipt of the foregoing
remuneration.
15. REPRESENTATIONS AND WARRANTIES OF PARTIES
(a) By All Parties. Each of the parties to this Agreement
hereby represents and warrants to each of the other parties to this Agreement,
each of which is deemed to be a separate representation and warranty, as
follows:
(i) Organization, Power and Authority. Such party has all requisite
corporate or other power and authority to enter into this Agreement.
(ii) Authorization and Validity of Agreement. This Agreement has been duly
executed and delivered by such party and, assuming due authorization, execution
and delivery by all of the other parties hereto, is valid and binding upon such
party in accordance with its terms, except as limited by: (1) bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditor rights generally; and (2) general principles of
equity (regardless of whether such enforcement is considered in a proceeding in
equity or at law).
(iii) No Breach or Conflict. Neither the execution or
delivery of this Agreement, nor the performance by such party of the
transactions contemplated herein: (i) if such party is an entity, will breach or
conflict with any of the provisions of such party's governing organizational
documents; or (ii) to the best of such party's knowledge and belief, will such
actions violate or constitute an event of default under any agreement or other
instrument to which such party is a party.
(b) By Executive. The Executive hereby represents and warrants
to the Companies that the Executive is not Disabled at the time of the execution
and delivery of this Agreement by the Executive.
<PAGE>
16. SEAT ON BOARD OF DIRECTORS
The Executive is currently a member of the Board of Directors
of the Company. During the Term, the Company shall nominate and solicit proxies
or votes in favor of the election of the Executive to the Board of Directors of
the Company. The Executive shall serve as a member of the Board without
additional compensation unless the other members of the Board vote to pay him
the same stipend paid to other Directors who are also full time employees of the
Company.
17. MISCELLANEOUS
(a) Preparation of Agreement; Costs and Expenses. This
Agreement was prepared by the Companies solely on behalf of such party. Each
party acknowledges that: (i) he or it had the advice of, or sufficient
opportunity to obtain the advice of, legal counsel separate and independent of
legal counsel for any other party hereto; (ii) the terms of the transactions
contemplated by this Agreement are fair and reasonable to such party; and (iii)
such party has voluntarily entered into the transactions contemplated by this
Agreement without duress or coercion. Each party further acknowledges that such
party was not represented by the legal counsel of any other party hereto in
connection with the transactions contemplated by this Agreement, nor was he or
it under any belief or understanding that such legal counsel was representing
his or its interests. Except as expressly set forth in this Agreement, each
party shall pay all legal and other costs and expenses incurred or to be
incurred by such party in negotiating and preparing this Agreement; in
performing due diligence or retaining professional advisors; in performing any
transactions contemplated by this Agreement; or in complying with such party's
covenants, agreements and conditions contained herein. Each party agrees that no
conflict, omission or ambiguity in this Agreement, or the interpretation
thereof, shall be presumed, implied or otherwise construed against any other
party to this Agreement on the basis that such party was responsible for
drafting this Agreement.
(b) Cooperation. Each party agrees, without further
consideration, to cooperate and diligently perform any further acts, deeds and
things, and to execute and deliver any documents that may be reasonably
necessary or otherwise reasonably required to consummate, evidence, confirm
and/or carry out the intent and provisions of this Agreement, all without undue
delay or expense.
(c) Interpretation.
(i) Survival. All representations and warranties made by any party in
connection with any transaction contemplated by this Agreement shall survive the
execution and delivery of this Agreement, and the performance or consummation of
any transaction described in this Agreement.
(ii) Entire Agreement/No Collateral Representations. Each party expressly
acknowledges and agrees that this Agreement, and the agreements and documents
referenced herein: (1) are the final, complete and exclusive statement of the
agreement of the parties with respect to the subject matter hereof; (2)
supersede any prior or contemporaneous agreements, memorandums, proposals,
commitments, guaranties, assurances, communications, discussions, promises,
representations, understandings, conduct, acts, courses of dealing, warranties,
interpretations or terms of any kind, whether oral or written (collectively and
severally, the "prior agreements"), and in particular the Prior Agreement,, and
that any such prior agreements (and the Prior Agreement) are of no force or
effect except as expressly set forth herein; and (3) may not be varied,
supplemented or contradicted by evidence of prior agreements, or by evidence of
subsequent oral agreements. No prior drafts of this Agreement, and no words or
phrases from any prior drafts, shall be admissible into evidence in any action
or suit involving this Agreement.
(iii) Amendment; Waiver; Forbearance. Except as expressly provided herein,
neither this Agreement nor any of its terms, provisions, obligations or rights
may be amended, modified, supplemented, augmented, rescinded, discharged or
terminated (other than by performance), except by a written instrument or
instruments signed by all of the parties to this Agreement. No waiver of any
breach of any term, provision or agreement, or of the performance of any act or
obligation under this Agreement, or of any extension of time for performance of
any such act or obligation, or of any right granted under this Agreement, shall
be effective and binding unless such waiver shall be in a written instrument or
instruments signed by each party claimed to have given or consented to such
waiver. Except to the extent that the party or parties claimed to have given or
consented to a waiver may have otherwise agreed in writing, no such waiver shall
be deemed a waiver or relinquishment of any other term, provision, agreement,
act, obligation or right granted under this Agreement, or of any preceding or
subsequent breach thereof. No forbearance by a party in seeking a remedy for any
noncompliance or breach by another party hereto shall be deemed to be a waiver
by such forbearing party of its rights and remedies with respect to such
noncompliance or breach, unless such waiver shall be in a written instrument or
instruments signed by the forbearing party.
(iv) Remedies Cumulative. The remedies of each party under this Agreement
are cumulative and shall not exclude any other remedies to which such party may
be lawfully entitled.
(v) Severability. If any term or provision of this
Agreement or the application thereof to any person or circumstance shall,
to any extent, be determined to be invalid, illegal or unenforceable under
present or future laws, then, and in that event: (1) the performance of the
offending term or provision (but only to the extent its application is invalid,
illegal or unenforceable) shall be excused as if it had never been incorporated
into this Agreement, and, in lieu of such excused provision, there shall be
added a provision as similar in terms and amount to such excused provision as
may be possible and be legal, valid and enforceable; and (2) the remaining part
of this Agreement (including the application of the offending term or provision
to persons or circumstances other than those as to which it is held invalid,
illegal or unenforceable) shall not be affected thereby, and shall continue in
full force and effect to the fullest legal extent.
(vi) Parties in Interest. Nothing in this Agreement
shall confer any rights or remedies under or by reason of this Agreement
on any persons other than the parties hereto and their respective successors and
assigns, if any, or as may be permitted hereunder; nor shall anything in this
Agreement relieve or discharge the obligation or liability of any third person
to any party to this Agreement; nor shall any provision give any third person
any right of subrogation or action over or against any party to this Agreement.
(vii) No Reliance Upon Prior Representation. Each party acknowledges that:
(1) no other party has made any oral representation or promise which would
induce them prior to executing this Agreement to change their position to their
detriment, to partially perform, or to part with value in reliance upon such
representation or promise; and (2) such party has not so changed its position,
performed or parted with value prior to the time of the execution of this
Agreement, or such party has taken such action at its own risk.
(viii) Headings; References; Incorporation; Gender; Statutory References.
The headings used in this Agreement are for convenience and reference purposes
only, and shall not be used in construing or interpreting the scope or intent of
this Agreement or any provision hereof. References to this Agreement shall
include all amendments or renewals thereof. All cross-references in this
Agreement, unless specifically directed to another agreement or document, shall
be construed only to refer to provisions within this Agreement. Any Exhibit
referenced in this Agreement shall be construed to be incorporated in this
Agreement by such reference. As used in this Agreement, each gender shall be
deemed to include the other gender, including neutral genders appropriate for
entities, if applicable, and the singular shall be deemed to include the plural,
and vice versa, as the context requires. Any reference to statutes or laws will
include all amendments, modifications, or replacements of the specific sections
and provisions concerned.
<PAGE>
(d) Enforcement.
(i) Applicable Law. This Agreement and the rights and remedies of each
party arising out of or relating to this Agreement (including, without
limitation, equitable remedies) shall (with the exception of the applicable
securities laws) be solely governed by, interpreted under, and construed and
enforced in accordance with the laws (without regard to the conflicts of law
principles) of the State of New York, as if this Agreement were made, and as if
its obligations are to be performed, wholly within the State of New York.
(ii) Consent to Jurisdiction; Service of Process. Any "action or
proceeding" (as such term is defined below) arising out of or relating to this
Agreement shall be filed in and heard and litigated solely before the state
courts of New York. Each party generally and unconditionally accepts the
exclusive jurisdiction of such courts and venue therein; consents to the service
of process in any such action or proceeding by certified or registered mailing
of the summons and complaint in accordance with the notice provisions of this
Agreement; and waives any defense or right to object to venue in said courts
based upon the doctrine of "forum non conveniens." The term "action or
proceeding" is defined as any and all claims, suits, actions, hearings,
arbitrations or other similar proceedings, including appeals and petitions
therefrom, whether formal or informal, governmental or non-governmental, or
civil or criminal.
(iii) Waiver of Right to Jury Trial. Each party
hereby waives such party's respective right to a jury trial of any claim or
cause of action based upon or arising out of this Agreement. Each party
acknowledges that this waiver is a material inducement to each other party
hereto to enter into the transaction contemplated hereby; that each other party
has already relied upon this waiver in entering into this Agreement; and that
each other party will continue to rely on this waiver in their future dealings.
Each party warrants and represents that such party has reviewed this waiver with
such party's legal counsel, and that such party has knowingly and voluntarily
waived its jury trial rights following consultation with such legal counsel.
(iv) Consent to Specific Performance and Injunctive Relief and Waiver of
Bond or Security. Each party acknowledges that the other party(s) hereto may, as
a result of such party's breach of its covenants and obligations under this
Agreement, sustain immediate and long-term substantial and irreparable injury
and damage which cannot be reasonably or adequately compensated by damages at
law. Consequently, each party agrees that in the event of such party's breach or
threatened breach of its covenants and obligations hereunder, the other
non-breaching party(s) shall be entitled to obtain from a court of competent
equitable relief including, without limitation, enforcement of all of the
provisions of this Agreement by specific performance and/or temporary,
preliminary and/or permanent injunctions enforcing any of the rights of such
non-breaching party(s), requiring performance by the breaching party, or
enjoining any breach by the breaching party, all without proof of any actual
damages that have been or may be caused to such non-breaching party(s) by such
breach or threatened breach and without the posting of bond or other security in
connection therewith. The party against whom such action or proceeding is
brought waives the claim or defense therein that the party bringing the action
or proceeding has an adequate remedy at law and such party shall not allege or
otherwise assert the legal position that any such remedy at law exists. Each
party agrees and acknowledges: (i) that the terms of this subsection are fair,
reasonable and necessary to protect the legitimate interests of the other
party(s); (ii) that this waiver is a material inducement to the other party(s)
to enter into the transaction contemplated hereby; (iii) that the other party(s)
has already relied upon this waiver in entering into this Agreement; and (iv)
that each party will continue to rely on this waiver in their future dealings.
Each party warrants and represents that such party has reviewed this provision
with such party's legal counsel, and that such party has knowingly and
voluntarily waived its rights following consultation with legal counsel.
(v) Recovery of Fees and Costs. If any party institutes or should the
parties otherwise become a party to any action or proceeding based upon or
arising out of this Agreement including, without limitation, to enforce or
interpret this Agreement or any provision hereof, or for damages by reason of
any alleged breach of this Agreement or any provision hereof, or for a
declaration of rights in connection herewith, or for any other relief, including
equitable relief, in connection herewith, the "prevailing party" (as such term
is defined below) in any such action or proceeding, whether or not such action
or proceeding proceeds to final judgment or determination, shall be entitled to
receive from the non-prevailing party as a cost of suit, and not as damages, all
fees, costs and expenses of enforcing any right of the prevailing party
(collectively, "fees and costs"), including without limitation, (1) reasonable
attorneys' fees and costs and expenses, (2) witness fees (including experts
engaged by the parties, but excluding shareholders, officers, employees or
partners of the parties), (3) accountants' fees, (4) fees of other
professionals, and (5) any and all other similar fees incurred in the
prosecution or defense of the action or proceeding; including, without
limitation, fees incurred in the following: (A) postjudgment motions; (B)
contempt proceedings; (C) garnishment, levy, and debtor and third party
examinations; (D) discovery; and (E) bankruptcy litigation. All of the aforesaid
fees and costs shall be deemed to have accrued upon the commencement of such
action and shall be paid whether or not such action is prosecuted to judgment.
Any judgment or order entered in such action shall contain a specific provision
providing for the recovery of attorney the aforesaid fees, costs and expenses
incurred in enforcing such judgment and an award of prejudgment interest from
the date of the breach at the maximum rate of interest allowed by law. The term
"prevailing party" is defined as the party who is determined to prevail by the
court after its consideration of all damages and equities in the action or
proceeding, whether or not the action or proceeding proceeds to final judgment
(the court shall retain the discretion to determine that no party is the
prevailing party in which case no party shall be entitled to recover its costs
and expenses under this subsection).
(e) Arbitration.
(i) Jurisdiction. The parties hereby agree that all controversies, claims
and matters of difference arising out of or in connection with to the
transactions contemplated by this Agreement (collectively, the "Controversies"),
shall, to the maximum extent allowed by law, be resolved by binding arbitration
(an "Arbitration Proceeding") before the American Arbitration Association (the
"Arbitration Authority") according to the rules and practices of the Arbitration
Authority from time-to-time in force. Without limiting the generality of the
foregoing, the following shall be considered Controversies for this purpose: (A)
all questions relating to the breach of any obligation, warranty, promise, right
or condition hereunder; (B) the failure of any party to deny or reject a claim
or demand of any other party; and (C) any question as to whether the right to
arbitrate a certain dispute exists. This agreement to arbitrate shall be
self-executing without the necessity of filing any action in any court and shall
be specifically enforceable under the prevailing arbitration law.
(ii) Initiation. A party shall institute an
Arbitration Proceeding by sending written notice of an intent to arbitrate (the
"Arbitration Notice") to the other parties and to the Arbitration Authority
pursuant to the rules and regulations of the Arbitration Authority. The
Arbitration Notice shall set forth a description of the dispute, the amount in
controversy, and the remedy sought. An Arbitration Proceeding may proceed in the
absence of any party if the Arbitration Notice has been properly given to such
party.
(iii) Selection of Arbitrator. Within ten (10) business days after receipt
of an Arbitration Notice by the parties, they shall mutually agree upon a single
arbitrator (the "Arbitrator") selected from a panel of retired judges from the
Arbitration Authority. If the parties are unable to agree upon the Arbitrator,
then the parties shall, within fifteen (15) business days after receipt of an
Arbitration Notice by the parties, obtain a list of panelists from the
Arbitration Authority equal to the number of parties plus one. The Arbitration
Authority shall arrange and conduct a conference in person and/or by telephone
with all of the parties at a mutually acceptable time no earlier than ten (10)
business days, and no later than twenty (20) business days, after its delivery
of the list of panelists. At such conference, the parties shall, in such order
as determined by the Arbitration Authority, strike one name from such list (with
no party being allowed to strike a name previously stricken), and the remaining
panelist shall be the Arbitrator. In the event two or more parties desire to
strike the name of the same arbitrator, then the first party to notify the
Arbitration Authority of their decision shall be deemed to have stricken such
name, in which case such other party or parties must strike another name.
(iv) Representation. Each party shall have the right
to be represented by legal counsel throughout the Arbitration.
(v) Discovery. The parties shall have the right to
engage any and all discovery pertaining to civil litigation as they would
be entitled to pursuant to the laws of civil procedure of the state of New York.
(vi) Application of Law; Scope of Powers; Written Decision. The Arbitrator
shall apply such principles of law and shall endeavor to decide the controversy
as though the Arbitrator was a judge in a New York court of law.
(vii) Written Decision. The Arbitrator shall prepare
a written decision, signed by the Arbitrator, that shall be sent to the
parties within thirty (30) calendar days following the conclusion of the
hearing. The written statement will be supported by written findings of fact and
conclusions of law which adequately set forth the basis of the Arbitrator's
decision and which cite the statutes and precedents applied and relied upon in
reaching said decision.
(viii) Awards. The parties agree to abide by any
award, judgment, decree or order rendered in any Arbitration Proceeding by the
Arbitrator. The award, judgment, decree or order of the Arbitrator, and the
findings of the Arbitrator, shall be final, conclusive and binding upon the
parties hereto. Any judgment, decree or order of relief granted by the
Arbitrator may be entered or obtained in any court of competent jurisdiction,
state or federal, in the county in which the residence or principal office of a
non-prevailing party is located, as a basis for judgment and for the issuance of
execution for its collection and, at the election of the party making such
filing, with the clerk of one or more other courts, state or federal, having
jurisdiction over the party against whom such an award is rendered, or such
party's property.
(f) Assignment and Delegation; Successors and Assigns.
(i) Prohibition Against Assignment or Delegation. Except as specifically
provided in this Agreement, neither party may sell, license, transfer or assign
(whether directly or indirectly, or by merger, consolidation, conversion, sale
of assets, sale or exchange of securities, or by operation of law, or otherwise)
any of such party's rights or interests or delegate such party's duties or
obligations under this Agreement, in whole or in part, including to any
subsidiary or any Affiliate, without the prior written consent of the other
party, which consent may be withheld in such other party's sole discretion,
provided, however:
(A) Subject to subsections (B) and (C)
below, the Companies may, with the prior written consent of the Executive,
which consent the Executive shall not unreasonably withhold, assign all of the
rights and delegate all of the obligations of the Companies under this Agreement
to any other Person in connection with the transfer or sale of the entire
business of the Company(ies), or the merger or consolidation of the Companies
with or into any other Person, so long as such transferee, purchaser or
surviving Person shall expressly assumes such obligations of the Companies;
(B) Notwithstanding subsection (A) above to
the contrary, no assignment or transfer under subsection (A) may be
effectuated unless the proposed transferee or assignee first executes such
agreements (including a restated employment agreement) in such form as Executive
may deem reasonably satisfactory to (1) evidence the assumption by the proposed
transferee or assignee of the obligations of the Companies; and (2) to ensure
that the Executive continues to receive such rights, benefits and protections
(both legal and economic) as were contemplated by the Executive when entering
into this Agreement; and
(C) Notwithstanding subsection (A) above to the contrary: (1) any
assumption by a successor or assign under subsection (A) above shall in no way
release the Companies from any of their obligations or liabilities while a party
to this Agreement; and (2) any merger, consolidation, reorganization, sale or
conveyance under subsection (A) above shall not be deemed to abrogate the rights
of the Executive elsewhere contained in this Agreement, including without
limitation those resulting from a Change In Control.
Any purported assignment or transfer in violation of the terms of this
subsection 17(e) shall be null and void ab initio and of no force and effect,
and shall vest no rights or interests in the purported assignee or transferee.
(ii) Successors and Assigns. Subject to subsection
17(e)(i) above, each and every representation, warranty, covenant,
condition and provision of this Agreement as it relates to each party hereto
shall be binding upon and shall inure to the benefit of such party and his, her
or its respective successors and permitted assigns, spouses, heirs, executors,
administrators and personal and legal representatives, including without
limitation any successor (whether direct or indirect, or by merger,
consolidation, conversion, purchase of assets, purchase of securities or
otherwise).
(g) Counterparts; Electronically Transmitted Documents. This
Agreement may be executed in counterparts, each of which shall be deemed an
original, and all of which together shall constitute one and the same
instrument, binding on all parties hereto. Any signature page of this Agreement
may be detached from any counterpart of this Agreement and reattached to any
other counterpart of this Agreement identical in form hereto by having attached
to it one or more additional signature pages. If a copy or counterpart of this
Agreement is originally executed and such copy or counterpart is thereafter
transmitted electronically by facsimile or similar device, such facsimile
document shall for all purposes be treated as if manually signed by the party
whose facsimile signature appears.
(h) Notices. Unless otherwise specifically provided in this
Agreement, all notices, demands, requests, consents, approvals or other
communications (collectively and severally called "notices") required or
permitted to be given hereunder, or which are given with respect to this
Agreement, shall be in writing, and shall be given by: (i) personal delivery
(which form of notice shall be deemed to have been given upon delivery), (ii) by
telegraph or by private airborne/overnight delivery service (which forms of
notice shall be deemed to have been given upon confirmed delivery by the
delivery agency), (iii) by electronic or facsimile or telephonic transmission,
provided the receiving party has a compatible device or confirms receipt thereof
(which forms of notice shall be deemed delivered upon confirmed transmission or
confirmation of receipt), or (iv) by mailing in the United States mail by
registered or certified mail, return receipt requested, postage prepaid (which
forms of notice shall be deemed to have been given upon the fifth {5th} business
day following the date mailed. Notices shall be addressed at the addresses first
set forth above, or to such other address as the party shall have specified in a
writing delivered to the other parties in accordance with this paragraph. Any
notice given to the estate of a party shall be sufficient if addressed to the
party as provided in this section.
<PAGE>
WHEREFORE, the parties hereto have executed this Agreement in the City
of Albany, State of New York, as of the date first set forth above.
COMPANIES: IFS INTERNATIONAL, INC.
a Delaware corporation
By:
IFS INTERNATIONAL, INC.
a New York corporation
By:
EXECUTIVE: FRANK A. PASCUITO
an individual
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), dated as of May 12, 1998,
is entered into by and among IFS International, Inc., a Delaware corporation
(the "Company"), whose principal executive office is located at Rensselaer
Technology Park, 300 Jordan Road, Troy, New York 12180, IFS International, Inc.,
a New York corporation and a wholly owned subsidiary of the Company, and any
other subsidiary of the Company, (the Company and its subsidiaries are sometimes
collectively referred to in this Agreement as the "Companies") and David L.
Hodge (the "Executive"), an individual whose address is #5 Valley View
Boulevard, Unit 422, Rensselaer, New York 12144 with reference to the following
facts:
RECITALS:
WHEREAS, on December 17, 1997, the Company and the Executive entered
into that certain Employment Agreement (the "Prior Agreement") whereby the
Company retained the services of the Executive as its President and Chief
Executive Officer and as the President and the Chief Executive Officer of its
wholly owned subsidiary, IFS International, Inc. to render executive and
managerial services for both companies; and
WHEREAS, pursuant to section 13.A. of the Prior Agreement, the Company
and the Executive desire to amend and restate the terms and conditions of the
Executive's employment by the Companies.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and for valuable consideration, the receipt and sufficiency of
which are hereby mutually acknowledged, the parties to this Agreement
(collectively "parties" and individually a "party") agree as follows:
AGREEMENT:
1. DEFINITIONS
Set forth below are definitions of capitalized terms which are
generally used throughout this Agreement and not defined elsewhere in it:
(a) "Affiliate" means any "Person" (as defined below)
controlling, controlled by, or under common control with a party.
(b) "Board" means the Board of Directors of the Company, as
such body may be reconstituted from time to time.
(c) "Change In Control" shall mean, subject to subsections
(iv) and (v) below, the occurrence of any of the following events:
(i) An acquisition of control by an "Acquiring
Person" where, immediately after the subject acquisition, such "Person" holds
"Beneficial Ownership" of more than fifty percent (50%) of the "Total Combined
Voting Power" of the Company's then outstanding "Voting Securities". The terms
in quotations in the immediately preceding sentence shall, for purposes of this
Agreement, have the following meanings:
<PAGE>
(A) "Acquiring Person" shall mean any
"Person" which acquires the defined percentage of securities,
with the exception of: (A) any Employee Benefit Plan (or a
trust forming a part thereof) maintained by the Companies (or
any of them), or any corporation or entity in which the
Companies (or any of them) hold fifty percent (50%) or more of
the "Voting Securities" (each, a "Controlled Subsidiary"); (B)
the Company or any Controlled Subsidiary; or (C) any "Person"
which acquires the threshold percentage of "Voting Securities"
through a "Non-Control Transaction" (as defined below);
(B) "Non-Control Transaction" shall mean any
transaction in which the stockholders of the Company
immediately before such transaction, directly or indirectly
own immediately following such transaction at least a majority
of the "Total Combined Voting Power" of the outstanding
"Voting Securities" of the surviving corporation (or other
entity) resulting from such transaction, in substantially the
same proportion as such stockholders' ownership of the "Voting
Securities" of the Company immediately before such
transaction;
(C) "Person," "Beneficial Ownership," "Total
Combined Voting Power" and "Voting Securities" shall have the
meanings ascribed to such terms in Sections 13(d) and 14(d) of
the Securities Exchange Act and Rule 13d-3 promulgated
thereunder; or
(ii) During any period of three (3) consecutive years after the date of
this Agreement, the individuals who constituted the Company's Board at the
beginning of such period (the "Incumbent Board") cease to constitute a majority
of the Company's Board, for any reason(s) other than (A) the voluntary
resignation of one or more Board members; (B) the refusal by one or more Board
members to stand for election to the Board; and/or (C) the removal of one or
more Board members for good cause; provided, however, (1) that if the nomination
or election of any new director of the Company was approved by a vote of at
least a majority of the Incumbent Board, such new director shall be deemed a
member of the Incumbent Board; and (2) that no individual shall be considered a
member of the Incumbent Board if such individual initially assumed office as a
result of either an actual or threatened "Election Contest" (as described in
Rule 14a-11 promulgated under the Securities Exchange Act of 1934), or as a
result of a solicitation of proxies or consents by or on behalf of an Acquiring
Person, other than a member of the Board (a "Proxy Contest"), or as a result of
any agreement intended to avoid or settle any Election Contest or Proxy Contest;
or
(iii) The Board or the stockholders of the Company
approve:
(A) A merger or consolidation or reorganization of the Company
with:
(1) any Controlled Subsidiary, and such transaction is not a Non-Control
Transaction; or
(2) any other corporation
or other entity, and such transaction is not a Non-Control Transaction; or
(B) A complete liquidation or dissolution of the Company, and such
transaction is not a Non-Control Transaction; or
(C) An agreement for the sale or other disposition of all or
substantially all of the assets of the Company to (1) any
Controlled Subsidiary, and such transaction is not a
Non-Control Transaction, or (2) to any other Person, and such
transaction is not a Non-Control Transaction.
(iv) Notwithstanding subsections (i) through (iii)
above, a Change In Control shall not be deemed to have occurred solely
because any Person acquired Beneficial Ownership of more than the threshold
percentage of the outstanding Voting Securities as a result of an acquisition of
Voting Securities by the Company (each, a "Redemption") which, by reducing the
number of Voting Securities outstanding, increased the percentage of outstanding
Voting Securities Beneficially Owned by such Person; provided, however, that if
(A) a Change In Control would occur as a result of a Redemption but for the
operation of this sentence, and (B) after such Redemption, such Person becomes
the Beneficial Owner of any additional Voting Securities, which increase the
percentage of the then outstanding Voting Securities Beneficially Owned by such
Person over the percentage owned as a result of the Redemption, then a Change In
Control shall be deemed to occur.
(v) Notwithstanding any other provision of this
subsection (c), if the Executive or an Affiliate of the Executive who is then
a stockholder or director of the Company, either: (i) expressly voted in favor
of the transaction constituting the Change In Control in such Person's capacity
as either a stockholder or as a director of the Company; or (ii) expressly
abstained from voting (other than by reason of an "interest" in a matter or
transaction); and/or (iii) failed or refused to vote, then the transaction shall
not constitute a Change in Control.
(d) "Disability" (or the related term "Disabled") means any of
the following: (i) the receipt of any disability insurance benefits by the
Executive; (ii) a declaration by a court of competent jurisdiction that the
Executive is legally incompetent; (iii) the Executive's material inability due
to medically documented mental or physical illness or disability to fully
perform the Executive's regular duties of his employment, for a three (3) month
continuous period, or for six (6) cumulative months within any one (1) year
continuous period; or (iv) the reasonable determination by the Board that the
Executive will not be able to fully perform the Executive's regular duties of
his employment for a three (3) month continuous period. If the Board determines
that the Executive is Disabled under subsection (iv) above, and the Executive
disagrees with the conclusion of the Board, then the Company shall engage a
qualified independent physician reasonably acceptable to the Executive to
examine the Executive at the sole expense of the Company. The determination of
such physician shall be provided in writing to the parties and shall be final
and binding upon the parties for all purposes of this Agreement. The Executive
hereby consents to examination in the manner set forth above, and waives any
physician-patient privilege arising from any such examination as it relates to
the determination of the purported disability. If the parties cannot agree upon
a physician, a physician shall be appointed by the American Arbitration
Association according to the rules and practices of the American Arbitration
Association from time-to-time in force.
(e) "Person" (other than for purposes of determining a Change
in Control) means an individual or natural person, a corporation, partnership
(limited or general), joint-venture, association, business trust, limited
liability company or partnership, trust (whether revocable or irrevocable),
pension or profit sharing plan, individual retirement account, or fiduciary or
custodial arrangement.
(f) "Termination For Cause" means a termination of the
Executive caused by a determination of two-thirds of the Board of Directors of
IFS International, Inc., a Delaware corporation, excluding the Executive if then
a member of the Board, that one of the following events has occurred:
(i) Any of the Executive's representations or warranties in this Agreement
is not materially true, accurate and/or complete;
(ii) The Executive has intentionally and continually
breached or wrongfully failed and/or refused to fulfill and/or perform
(A) any of the Executive's obligations, promises or covenants under this
Agreement, or (B) any of the warranties, obligations, promises or covenants in
any agreement (other than this Agreement) entered into between the Companies (or
any of them) and the Executive, without cure, if any, as provided in such
agreement;
(iii) The Executive has intentionally failed and/or
refused to obey any lawful and proper order or directive of the Board,
and/or the Executive has intentionally interfered with the compliance by other
employees of the Companies (or any of them) with any such orders or directives;
(iv) The Executive has intentionally breached the
Executive's fiduciary duties to the Companies (or any of them);
(v) The Executive has intentionally caused the
Companies (or any of them) to be convicted of a crime, or to incur criminal
penalties in material amounts;
(vi) The Executive has committed: (A) any act of
fraud, misrepresentation, theft, embezzlement or misappropriation, and/or
any other dishonest act against the Companies (or any of them); or (B) any other
offense involving moral turpitude, which offense is followed by conviction or by
final action of any court of law; or (C) a felony;
(vii) The Executive repeatedly and
intemperately uses alcohol or drugs, to the extent that such use (A) interferes
with
or is likely to interfere with the Executive's ability to perform the
Executive's duties, and/or (B) endangers or is likely to endanger the life,
health, safety, or property of the Executive, the Companies (or any of them), or
any other person;
(viii) The Executive has intentionally
demonstrated or committed such acts of racism, sexism or other discrimination as
would tend to bring the Companies (or any of them) into public scandal or
ridicule, or could otherwise result in material and substantial harm to the
business, reputation, operations, affairs or financial position of the Companies
(or any of them); and/or
(ix) The Executive engaged in other conduct
constituting legal cause for termination.
No act, nor failure to act, on the Executive's part
shall be considered "intentional" unless the Executive has acted, or failed to
act, with a lack of good faith and with a lack of reasonable belief that the
Executive's action or failure to act was in the best interests of the Companies
(or any of them). In the event the Executive is both Disabled and the provisions
of subsection (vii) of this section 1(f) are applicable, the Companies shall
have the right to deem such event as a Termination For Cause.
(g) "Termination By Executive For Good Reason" means the
Executive's termination of this Agreement based on his reasonable determination
that one of the following events has occurred:
(i) Any of the representations or warranties in this Agreement made by the
Companies are not materially true, accurate and/or complete;
(ii) The Companies (or any of them) intentionally and
continually breach or wrongfully fail to fulfill or perform (A) their
obligations, promises or covenants under this Agreement; or (B) any warranties,
obligations, promises or covenants in any agreement (other than this Agreement)
entered into between the Companies (or any of them) and the Executive, without
cure, if any, as provided in such agreement;
(iii) The Companies terminate this Agreement and the
Executive's employment hereunder, and such termination does not constitute
Termination For Cause;
(iv) Without the consent of the Executive, the
Companies: (A) substantially alter or materially diminish the position, nature,
status, prestige or responsibilities of the Executive from those in effect by
mutual agreement of the parties from time-to-time; (B) assign additional duties
or responsibilities to the Executive which are wholly and clearly inconsistent
with the position, nature, status, prestige or responsibilities of the Executive
then in effect; or (C) remove or fail to reappoint or re-elect the Executive to
the Executive's offices under this Agreement (as they may be changed or
augmented from time-to-time with the consent of the Executive), or as a director
of the Company, except in connection with the Disability of the Executive;
(v) Without the ratification (express or implied) of
the Executive, the Executive is removed from the Board without his
consent; or the Company fails to nominate or reappoint the Executive to the
Board (unless the Executive is deceased or Disabled, or such removal or failure
is attributable to an event which would constitute Termination For Cause), or if
the Executive is so nominated, the stockholders of the Company fail to re-elect
the Executive to the Board;
(vi) The Companies (or any of them) intentionally
require the Executive to commit or participate in any felony or other
serious crime; and/or
(vii) The Companies (or any of them) engage in other
conduct constituting legal cause for termination.
If any of the events described in this section 1(g)
occurs, and such event is reasonably susceptible of being cured, the Companies
shall be entitled to a grace period of thirty (30) days following receipt of
written notice of such event to effect such cure.
2. EMPLOYMENT OBLIGATIONS
(a) Engagement; Duties. The Companies hereby engage the
Executive as their President and Chief Executive Officer, and the Executive
accepts such engagement, upon the terms and conditions set forth below. The
Executive shall do and perform all services, acts, or things necessary or
advisable that a President and a Chief Executive Officer would customarily be
empowered and authorized to do and perform by law and under the Bylaws of the
Companies.
The Executive shall report solely to the Board of Directors of the Company.
The Executive's responsibilities with respect to the Companies may be changed or
supplemented by the Board from time-to-time, in its discretion. The Executive
shall be reasonably available to travel as the needs of the business of the
Companies may require.
(b) Performance. The Executive shall devote the Executive's
entire and undivided business time, energy, abilities and attention solely and
exclusively to the performance of the Executive's duties hereunder and the
business of the Companies. The Executive shall at all times faithfully, loyally,
conscientiously, diligently and, to the best of the Executive's ability, perform
all of the Executive's duties and obligations under this Agreement, and
otherwise promote the interests and welfare of the Companies, all consistent
with the highest and best standards of the Companies' industry. The Executive:
(i) shall strictly comply with and adhere to all applicable laws, and the
Companies' Articles of Incorporation, Bylaws and policies; (ii) shall obey all
reasonable rules and regulations and policies now in effect or as subsequently
modified governing the conduct of employees of the Companies, and (iii) shall
not commit any acts of gross negligence, willful misconduct, dishonesty, fraud
or misrepresentation, racism, sexism or other discrimination, or any other acts
which would tend to bring the Companies (or any of them) into public scandal or
ridicule, or would otherwise result in material harm to the business or
reputation of the Companies or any of them. The Companies acknowledge that the
Executive is a member of the Board of Directors of Techmetrics International
Incorporated and that the Executive is required to spend a reasonable amount of
time in fulfilling the obligations related to that position. The Companies agree
that the Executive may continue to render services to Techmetrics International
Incorporated as a member of its Board of Directors and that the time spent in
rendering such services, so long as it is reasonable, will not constitute a
breach of this Agreement.
(c) Facilities and Services. The Companies shall provide such
support staff, facilities, equipment and supplies as are reasonably necessary or
suitable for the adequate performance of the Executive's duties and obligations
under this Agreement, including technical and secretarial help and the provision
of an appropriate home computer configuration as specified by the Executive.
3. TERM
(a) Initial Term. Unless this Agreement is previously
terminated by either party as provided in sections 11 or 12 below, the Companies
hereby employ the Executive pursuant to the terms of this Agreement, and the
Executive hereby accepts such employment, for the period beginning on February
15, 1998 and ending on February 14, 2001 (the "Initial Term").
(b) Automatic Renewal; Termination by the Companies. This
Agreement will be automatically renewed for additional and consecutive one (1)
year terms (each, a "Renewal Term") following the expiration of each Initial or
Renewal Term, (each a "Term"), unless either party gives written notice to the
other party, no later than sixty (60) days prior to the expiration of the then
pending Term, of its or his election not to automatically renew this Agreement
for an additional year.
4. COMPENSATION
(a) Annual Base Salary. During the term of this Agreement, the
Companies shall pay to the Executive an annual base salary of Two Hundred
Thousand dollars ($200,000) (the "Annual Salary.") The Annual Salary shall be
subject to any Tax Withholdings and/or Employee Deductions that are applicable.
(b) Annual Bonus. The Executive and the Board shall meet no
later than 90 days from the start of each of the Company's fiscal years to
establish performance standards and goals to be met by the Executive, which
standards and goals shall be based upon earnings, cash flows, EBITDA and other
objectives that are mutually agreed to by the Executives and the Board. During
the Term, the Companies shall pay to the Executive, no later than thirty (30)
days after the completion of each fiscal year, a cash bonus which shall be
computed as no more than 50% of the Executive's Annual Salary (the "Annual
Bonus") for each year in which the performance standards and goals are met or
exceeded by the Executive. Nothing in this section shall prevent the Executive
and the Board from mutually agreeing to an alternative computation of the Annual
Bonus, which may be implemented and paid to the Executive in place of the Annual
Bonus described herein. Any Annual Bonus calculated for payment to the Executive
for the period from February 1998 through June 1, 1999 shall take into
consideration the fact that the Executive will have been employed by the
Companies for a period of sixteen (16) months (rather than twelve (12) months)
prior to the calculation of the Annual Bonus. The Companies shall, therefore,
calculate the Annual Bonus for the period starting on June 1, 1998 and ending on
May 31, 1999 and add to it an additional 33 1/3% of the Annual Bonus amount. The
Annual Bonus shall be subject to any Applicable Tax Withholdings and/or Employee
Deductions.
(c) Annual Review. Commencing on June 1, 1998, and on each
June 1st thereafter, the Annual Salary then effective shall be increased (but
not decreased) by an amount: (i) which shall reflect the increase, if any, in
the cost of living during the previous 12 months by adding to the Annual Salary
an amount computed by multiplying the Annual Salary by the percentage by which
the level of the Consumer Price Index for the Troy, New York Metropolitan Area,
as reported on June 1st of the new year by the Bureau of Labor Statistics of the
United States Department of Labor has increased over its level as of June 1st of
the prior year; and (ii) which will maintain the Executive's compensation at a
level consistent with the compensation paid to executive officers holding
similar positions in the software industry. Additionally, commencing on June 1,
1999, and on each June 1st thereafter (or more frequently if it is deemed
necessary) the Board shall review the Executive's Annual Salary to determine
whether to otherwise increase the Executive's compensation, without any
obligation by the Board to authorize such increase. Any increase to the
Executive's Annual Salary made on June 1, 1999 shall take into consideration the
fact that the Executive will have been employed by the Companies for a period of
sixteen (16) months (rather than twelve (12) months) prior to such increase. The
Companies shall, therefore, calculate the Executive's annual increase for the
period starting on June 1, 1999 and ending on May 31, 2000 and add to it an
additional 33 1/3% of such increase.
(d) Participation In Employee Benefit Plans. The Executive
shall have the same rights, privileges, benefits and opportunities to
participate in any of the Companies' employee benefit plans which may now or
hereafter be in effect on a general basis for executive officers or employees,
including its qualified retirement plans and its non-qualified deferred
compensation plans. The Companies shall provide to the Executive, at the expense
of the Companies and not the Executive: (i) health, vision and dental insurance
covering the Executive, his spouse and his dependent children; (ii) disability
insurance; (iii) term life insurance insuring the life of the Executive for the
sum of Five Hundred Thousand dollars ($500,000) with the beneficiary to be named
by the Executive; and (iv) group term life insurance coverage in the amount of
Fifty Thousand dollar ($50,000) or such greater amount as may be available to
employees under such group term plan as the Companies may adopt from time to
time. As of the date of this Agreement the Companies have not yet obtained a
Five Hundred Thousand dollar ($500,000) term life insurance policy insuring the
life of the Executive, therefore, the Companies agree that, if the Executive
dies prior to the issuance of such policy, the Companies shall pay to the
Executive's spouse, if she survives him, the sum of Three Hundred Thousand
dollars ($300,000) and to each of the Executive's two children, if they survive
him, the sum of One Hundred Thousand dollars ($100,000). The health, vision and
dental insurance shall be with such underwriters and shall contain such
provisions as the Companies, in their sole discretion, may determine from time
to time. The Companies may delete coverages and otherwise amend and change the
type and quantity of insurance coverage it provides in its sole discretion, but
in no event shall coverage be provided which is less comprehensive than coverage
then being provided to other senior management employees of the Companies. In
the event the Executive receives payments from a disability plan maintained by
the Companies (or any of them), the Companies shall have the right to offset
such payments against the Annual Salary otherwise payable to the Executive
during the period for which payments are made by such disability plan.
(e) Stock Options. The Executive acknowledges receipt of
options to purchase fifty thousand (50,000) shares of the Company's common stock
in accordance with the terms and conditions of the stock option plan in effect
at the time of the grant the options. The Executive shall also be entitled to
receive a minimum of twenty-five thousand (25,000) options to purchase the
Company's common stock on the first anniversary of the execution of this
Agreement and a minimum of twenty-five thousand (25,000) options to purchase the
Company's common stock on the second anniversary and on each succeeding
anniversary of the execution of this Agreement, the terms and conditions of such
options to be governed by the stock option plan in effect at the time of the
grant of the options. Subject to the requirements of any state or federal
securities laws of the United States, the common stock to be acquired by
exercise of the options granted hereunder shall be freely tradeable. The
Executive shall be entitled to exercise the options with cash, or will be
entitled to a "cashless" exercise using other common stock of the Company, or
will be entitled to exercise the options using any other consideration
acceptable to the Company. The provisions of this section 4(e) shall control in
the event that they conflict with the provisions of any other agreements entered
into by the Executive and the Company which govern the vesting and exercise of
options granted to the Executive, including the Company's stock option plan(s).
(f) Stock Appreciation Rights. Subject to the receipt of any
approval required by the By-laws of the Company, the General Corporation Law of
Delaware and/or any federal or state securities laws, the Company shall grant to
the Executive, upon execution of this Agreement, stock appreciation rights
("SAR") based on thirty thousand (30,000) shares of the Company's common stock
and, on each anniversary of the execution of this Agreement, the Executive shall
receive additional SARs based on thirty thousand shares (30,000) of the
Company's common stock. These grants shall be governed by a separate Stock
Appreciation Rights Agreement which shall set forth all material terms and
conditions of the SARs. Upon exercise of the SARs, the Executive shall receive
from the Companies an amount equal to the excess of the fair market value of the
SAR shares exercised over the fair market value of the SAR shares as of the date
of the grant. Such amount shall be paid to the Executive, at the Executive's
option, in cash or with the Company's common stock.
(g) Annuity. Within one (1) year from the date of this
Agreement, the Companies shall purchase for the Executive an annuity (the
"Annuity") which will pay to the Executive the sum of Forty Thousand dollars
($40,000) per year during the joint lives of the Executive and his spouse. The
Companies shall gross-up the compensation paid to the Executive to cover the
payment of any and all taxes, of any kind or nature, that are incurred by the
Executive as a result of his receipt of the Annuity.
(h) Club Memberships. During the Term, the Companies shall
maintain, on behalf of the Executive, a membership in one (1) health club and a
membership in one (1) tennis club in the greater Albany, New York area. The
membership fee for each club shall not exceed One Thousand dollars ($1,000) per
year.
(i) Payment of Compensation. The compensation to be paid hereunder shall be
paid entirely by the Company or in part by the Company and any other subsidiary,
as they may mutually agree.
5. ALLOWANCES AND LOANS
(a) Automobile Allowance. The Companies shall provide a late
model luxury automobile to the Executive for his use during the term of this
Agreement, and shall pay all purchase-installment and/or lease payments to
acquire such automobile, as well as the cost to insure the automobile. If the
Companies fail to provide the automobile during any portion of the term of this
Agreement, the Companies shall pay to the Executive the sum of Six Hundred
dollars ($600) for each month an automobile is not provided, to reimburse the
Executive for the cost of an automobile and for the payment of insurance in
connection therewith. The Companies shall additionally reimburse the Executive
for all gasoline, operation, maintenance and repair costs associated with the
Executive's use of the automobile upon submission of itemized receipts
therefore. Payment and/or provision of the aforesaid allowance shall be subject
to any applicable Tax Withholdings and/or Employee Deductions. The Executive
shall be responsible for all income taxes imposed on the Executive by reason of
the automobile allowance.
(b) Relocation Allowance. The Companies shall reimburse the
Executive for all reasonable relocation expenses actually and properly incurred
by the Executive's move to Albany, New York. Such expenses shall include:
(i) Moving Expenses. All reasonably incurred expenses to move the
Executive's home furnishings and personal property (including any vehicle) to
Albany, New York.
(ii) Expenses Related to Purchase and Sale of Residence. All customary and
usual expenses related to the sale of the Executive's home in Florida, including
up to Forty Thousand dollars ($40,000) in lost equity, subject to the receipt by
the Companies of documentation necessary to verify the loss, if incurred.
(iii) Interim Living Expenses. For the shorter of a period of twelve (12)
months or until the Executive is able to sell his residence in Florida, all
reasonable expenses related to the rental of a home and furnishings which are
incurred by the Executive. In addition, the Companies shall pay for one round
trip airfare ticket every two weeks for the Employee or his spouse for
transportation between the Company's offices and the Executive's home in Florida
(or to the home of his parents or in-laws in Georgia) during such interim
period.
(iv) Income Tax Consequences. While payment and/or provision of the
relocation expenses shall be subject to any federal or state withholding as may
be applicable, such payments to the Executive shall be grossed up to cover the
payment of any and all taxes, of any kind or nature, that are incurred by the
Executive as a result of his receipt of the foregoing allowances.
6. BUSINESS EXPENSES
During the Term of this Agreement the Executive is authorized
to incur, and the Companies shall directly pay or reimburse to the Executive,
his reasonable and necessary business expenses, duly and actually incurred in
connection with the duties and services to be performed by the Executive
pursuant to this Agreement, including without limitation entertainment, meals,
travel, lodging and other similar out-of-pocket expenses, upon the Executive's
submission to the Companies of itemized expense statements setting forth the
date, purpose and amount of the expense incurred, together with corresponding
receipts showing payment by the Executive in cases where he seeks reimbursement,
all in conformity with business expense payment and/or reimbursement policies
established by the Companies from time to time, all of which shall comply with
the substantiation requirements of any applicable taxing authorities, and
regulations promulgated by such authorities thereto, pertaining to the
deductibility of such expenses. Direct payment and/or reimbursement shall be
made by the Companies no later than fifteen (15) days from the date that the
foregoing documentation is submitted by the Executive.
7. TAX WITHHOLDINGS AND EMPLOYEE DEDUCTIONS
The Companies shall be entitled to deduct from any payments to
the Executive pursuant to the terms of this Agreement (including any payments
arising from the early termination of this Agreement), amounts sufficient to
cover any applicable federal, state, and/or local income tax withholdings and/or
deductions as may be required in connection with such payment, including without
limitation old-age and survivor's and other social security payments, state
disability and other withholdings payment as may be required by the tax laws or
regulations of any applicable jurisdiction (collectively, the "Tax
Withholdings"), as well as all other elective employee deductions applicable to
such payment such as, for example, deductions relating to any Employee Benefit
Plan in which the Executive participates (collectively, the "Employee
Deductions").
8. PERSONAL TIME-OFF
The Executive shall be entitled in each calendar year during
the term of this Agreement to such number of personal time-off days for such
purposes, including vacations and time for personal affairs ("Personal
Time-Off") as are approved by the Board, but not less than twenty (20) business
days. Personal Time-Off shall be in addition to regular paid holidays provided
to all employees of the Company. The Executive's compensation shall be paid in
full with respect to approved Personal Time-Off days. Should the Executive fail
to use all Personal Time-Off days in any calendar year, the Executive shall have
the option of (i) receiving payment for such days on a pro rata basis, or (ii)
"carrying-over" unused Personal Time-Off days to succeeding years. Personal
time-off shall be taken during a period or periods mutually satisfactory to both
the Companies and the Executive.
9. INSURANCE
If requested by the Companies, the Executive shall submit to
such physical examinations and otherwise take such actions and execute and
deliver such documents as may be reasonably necessary to enable the Companies,
at their expense and for their benefit, to obtain disability and/or life
insurance on the life of the Executive. The Executive represents and warrants
that he has no reason to believe that he is not insurable for disability or life
coverage with a reputable insurance company at rates now prevailing for healthy
persons of the Executive's age and gender.
10. NONCOMPETITION, NONSOLICITATION AND NONINTERFERENCE
AND PROPRIETARY PROPERTY AND CONFIDENTIAL
INFORMATION PROVISIONS.
(a) Noncompetition.
(1) "Applicable Definitions" For purposes of this section 10, the following
capitalized terms shall have the definitions set forth below:
i. "Business Segments" - The term "Business Segments" is defined as each of
the Companies' products or product lines.
ii. "Competitive Business" - The term "Competitive
Business" is defined as any business that directly competes with the
Companies' Business Segments, whether such business is conducted by a
proprietorship, partnership, corporation or other entity or venture.
iii. "Territory" - The term "Territory" is defined as
the geographic area (both within the United States and internationally)
in which each Business Segment is carried on including, by way of
example and not limitation, the entire geographic area in which the
Companies conduct various phases of such Business Segment, including
purchasing, production, distribution, promotional and marketing
activities, and sales.
(2) Covenant Not To Compete. The Executive hereby covenants and agrees that
during the term of this Agreement, and for a period of one (1) year from the
date this Agreement is terminated or expires, the Executive shall not, with
respect to each Business Segment and within the boundaries of the Territory
applicable to such Business Segment, without the prior written consent of the
Companies (which consent may be withheld in the sole and absolute discretion of
Companies), directly or indirectly, either alone or in association or in
connection with or on behalf of any person, firm, partnership, corporation or
other entity or venture now existing or hereafter created: (i) be or become
interested or engaged in, directly or indirectly, with any Competitive Business
including, without limitation, being or becoming an organizer, investor, lender,
partner, joint venturer, stockholder, officer, director, employee, manager,
independent sales representative, associate, consultant, agent, supplier,
vendor, vendee, lessor, or lessee to any Competitive Business, or (ii) in any
manner associate with, or aid or abet or give information or financial
assistance to any Competitive Business, or (iii) use or permit the use of the
Executive's name or any part thereof to be used or employed in connection with
any Competitive Business (collectively and severally, the "Noncompetition
Covenants"). Notwithstanding the foregoing, the provisions of this section
10(a)2 shall not be deemed to prevent the purchase or ownership by the Executive
as a passive investment of the outstanding capital shares of any publicly held
corporation, so long as any other obligation or duty under the Noncompetition
Covenants are not breached.
(3) Separate Covenants. The Noncompetition Covenants shall be construed to
be divided into separate and distinct Noncompetition Covenants with respect to
(i) each Business Segment and (ii) each matter or type of conduct described
therein. Each of such divided Noncompetition Covenants shall be separate and
distinct from all such other Noncompetition Covenants with respect to the same
or any other Business Segment.
(4) Acknowledgements. The Executive acknowledges that: (i) the covenants
and the restrictions contained in the Noncompetition Covenants are necessary,
fundamental, and required for the protection of the business of the Companies;
(ii) the Noncompetition Covenants relate to matters which are of a special,
unique and extraordinary value; and (iii) a breach of any of the Noncompetition
Covenants will result in irreparable harm and damages which cannot be adequately
compensated by a monetary award.
(5) Judicial Limitation. Notwithstanding the foregoing, if at any time a
court of competent jurisdiction holds that any portion of any Noncompetition
Covenant is unenforceable by reason of its extending for too great a period of
time or over too great a geographical area or by reason of its being too
extensive in any other respect, such Noncompetition Covenant shall be
interpreted to extend only over the maximum period of time, maximum geographical
area, or maximum extent in all other respects, as the case may be, as to which
it may be enforceable, all as determined by such court in such action.
(b) Nonsolicitation and Noninterference.
(1) Covenants. The Executive hereby covenants and agrees that during the
term of this Agreement, and for a period of two (2) years from the date this
Agreement terminates or expires, the Executive shall not, either for the
Executive's own account or directly or indirectly in conjunction with or on
behalf of any person, partnership, corporation or other entity or venture:
i. Solicit or employ or attempt to solicit or employ
any person who is then or has, within twelve (12) months prior thereto,
been an officer, partner, manager, agent or employee of the Companies
or any affiliate of the Companies whether or not such a person would
commit a breach of that person's contract of employment with the
Companies (or any of them), if any, by reason of leaving the service of
the Companies (the "Nonsolicitation Covenant"); or
ii. On behalf of, directly or indirectly, any
Competitive Business (as such term is defined in section 10 (a)1.ii.,
or for the purpose of or with the reasonably foreseeable effect of
harming the business of the Companies, solicit the business of any
person, firm or company which is then, or has been at any time during
the preceding twelve (12) months prior to such solicitation, a
customer, client, contractor, supplier or vendor of the Companies (or
any of them) (the "Noninterference Covenant)".
(2) Acknowledgments. Each of the parties acknowledges that: (i) the
covenants and the restrictions contained in the Nonsolicitation and
Noninterference Covenants are necessary, fundamental, and required for the
protection of the Companies' businesses; (ii) such Covenants relate to matters
which are of a special, unique and extraordinary value; and (iii) a breach of
either of such Covenants will result in irreparable harm and damages which
cannot be adequately compensated by a monetary award.
(3) Judicial Limitation. Notwithstanding the foregoing, if at any time,
despite the express agreement of the Companies and the Executive, a court of
competent jurisdiction holds that any portion of any Nonsolicitation or
Noninterference Covenant is unenforceable by reason of its extending for too
great a period of time or by reason of its being too extensive in any other
respect, such Covenant shall be interpreted to extend only over the maximum
period of time or to the maximum extent in all other respects, as the case may
be, as to which it may be enforceable, all as determined by such court in such
action.
(c) Proprietary Property; Confidential Information.
(1) "Applicable Definitions" For purposes of this section 10(c), the
following capitalized terms shall have the definitions set forth below:
i. "Confidential Information" - The term
"Confidential Information" is collectively and severally defined as any
information, matter or thing of a secret, confidential or private
nature, whether or not so labeled, which is connected with the business
or methods of operation of the Companies (or any of them) or concerning
any of their suppliers, customers, licensors, licensees or others with
whom the Companies (or either of them) have a business relationship,
and which has current or potential value to the Companies (or any of
them) or the unauthorized disclosure of which could be detrimental to
the Companies (or any of them). Confidential Information shall be
broadly defined and shall include, by way of example and not
limitation,: (i) matters of a business nature available only to
management and owners of the Companies of which the Executive may
become aware (such as information concerning customers, vendors and
suppliers, including their names, addresses, credit or financial
status, buying or selling habits, practices, requirements, and any
arrangements or contracts that the Companies may have with such
parties, the Companies' marketing methods, plans and strategies, the
costs of materials, the prices for which the Companies obtain or have
obtained or at which the Companies sell or have sold their products or
services, the Companies' manufacturing and sales costs, the amount of
compensation paid to employees of the Companies and other terms of
their employment, financial information such as financial statements,
budgets and projections, and the terms of any contracts or agreements
the Companies have entered into) and (ii) matters of a technical nature
(such as product information, trade secrets, know-how, formulae,
innovations, inventions, devices, discoveries, techniques, formats,
processes, methods, specifications, designs, patterns, schematics,
data, compilation of information, test results, and research and
development projects). For purposes of the foregoing, the term "trade
secrets" shall mean the broadest and most inclusive interpretation of
trade secrets as defined by the Uniform Trade Secrets Act and cases
interpreting the scope of the Uniform Trade Secrets Act.
ii. "Proprietary Property" - The term "Proprietary
Property" is collectively and severally defined as any written or
tangible property owned or used by the Companies in connection with the
business of the Companies, whether or not such property also qualifies
as Confidential Information. Proprietary Property shall be broadly
defined and shall include, by way of example and not limitation,
products, samples, equipment, files, lists, books, notebooks, records,
documents, memoranda, reports, patterns, schematics, compilations,
designs, drawings, data, test results, contracts, agreements,
literature, correspondence, spread sheets, computer programs and
software, computer print outs, other written and graphic records, and
the like, whether originals, copies, duplicates or summaries thereof,
affecting or relating to the business of Company, financial statements,
budgets, projections, invoices.
(2) Ownership of Proprietary Property. The Executive acknowledges that all
Proprietary Property which the Executive may prepare, use, observe, come into
possession of and/or control shall, at all times, remain the sole and exclusive
property of the Companies. The Executive shall, upon demand by the Companies at
any time, or upon the cessation of the Executive's employment, irrespective of
the time, manner, cause or lack of cause of such cessation, immediately deliver
to the Companies or their designated agent, in good condition, ordinary wear and
tear and damage by any cause beyond the reasonable control of the Executive
excepted, all items of the Proprietary Property which are or have been in the
Executive's possession or under his control, as well as a statement describing
the disposition of all items of the Proprietary Property beyond the Executive's
possession or control in the event that the Executive has not previously
returned such items of the Proprietary Property to the Companies.
(3) Agreement Not to Use or Divulge Confidential Information. The Executive
agrees that he will not, in any fashion, form or manner, unless specifically
consented to in writing by the Companies, either directly or indirectly use,
divulge, transmit or otherwise disclose or cause to be used, divulged,
transmitted or otherwise disclosed to any person, firm or corporation, in any
manner whatsoever (other than in the Executive's performance of duties for the
Companies or except as required by law) any Confidential Information of any
kind, nature or description. The foregoing provisions shall not be construed to
prevent the Executive from making use of or disclosing information which is in
the public domain through no fault of the Executive, provided, however, specific
information shall not be deemed to be in the public domain merely because it is
encompassed by some general information that is published or in the public
domain or in the Executive's possession prior to the Executive's employment with
the Companies.
(4) Acknowledgment of Secrecy. The Executive acknowledges that the
Confidential Information is not generally known to the public or to other
persons who can obtain economic value from its disclosure or use and that the
Confidential Information derives independent economic value thereby, and the
Executive agrees that he shall take all efforts reasonably necessary to maintain
the secrecy and confidentiality of the Confidential Information and to otherwise
comply with the terms of this Agreement.
(5) Inventions, Discoveries. The Executive acknowledges that any
inventions, discoveries or trade secrets, whether patentable or not, made or
found by the Executive in the scope of his employment with the Companies
constitute property of the Companies and that any rights therein now held or
hereafter acquired by the Executive individually or in any capacity are hereby
transferred and assigned to the Companies, and agrees to execute and deliver any
confirmatory assignments, documents or instruments of any nature necessary to
carry out the intent of this section when requested by the Companies without
further compensation therefor, whether or not the Executive is at the time
employed by the Companies. Provided, however, notwithstanding the foregoing, the
Executive shall not be required to assign his rights in any invention which the
Executive developed entirely on his own time without using the Companies'
equipment, supplies, facilities or trade secret information except for those
inventions that either:
(i) Relate at the time of conception or reduction to
practice of the invention to the Companies' business, or actual or
demonstrably anticipated research or development of the Companies; or
(ii) Result from any work performed by the Executive
for the Companies.
The Executive understands that he bears the full burden of
proving to the Companies that an invention qualifies fully under this section
10(c)(5).
11. TERMINATION OF AGREEMENT BEFORE EXPIRATION OF TERM
(a) Death or Disability. Notwithstanding any other term of
this Agreement, the applicable Term shall terminate upon the death or Disability
of the Executive.
(b) Change In Control. Notwithstanding any other term of this
Agreement, the applicable Term shall, at the election of the Executive delivered
by written notice to the Company, terminate effective upon a Change In Control.
(c) Termination of Agreement for Cause. The Board of Directors
of IFS International, Inc., a Delaware corporation, may terminate this Agreement
and the Executive's employment hereunder at any time in the event such
termination constitutes Termination For Cause, upon giving written notice to the
Executive specifying in reasonable detail (i) the event which constitutes the
cause; (ii) the pertinent facts and circumstances underlying the cause; and
(iii) the effective date of the termination (not to exceed ninety {90} days from
the date of such notice, but which date may, at the election of IFS
International, Inc., be effective upon receipt of said written notice by the
Executive). Such notice shall also afford the Executive an opportunity to be
heard in person by the Board (with the assistance of the Executive's legal
counsel, if the Executive so desires). Such hearing shall be held reasonably
promptly after such notice but, in any event, before the effective date of the
prospective termination.
(d) Termination of Agreement by Executive for Good Reason. The
Executive may terminate this Agreement and the Executive's employment hereunder
at any time in the event such termination constitutes Termination By Executive
For Good Reason, upon giving written notice to the Companies specifying in
reasonable detail (i) the event which constitutes the good reason; (ii) the
pertinent facts and circumstances underlying the good reason; and (iii) the
effective date of termination (which, in the case of an event described in
section 1(g) which is reasonably susceptible of being cured, shall not be less
than thirty {30} days from the date of such notice).
<PAGE>
12. EFFECT OF TERMINATION ATTRIBUTABLE TO DEATH OR DISABILITY; TERMINATION
FOR CAUSE; TERMINATION BY EXECUTIVE WITHOUT GOOD REASON
In the event the Executive's employment hereunder is
terminated before the expiration of a Term, and such termination is attributable
to (i) an event defined as Death or Disability; (ii) an event defined as
Termination For Cause; and/or (iii) termination by the Executive which does not
constitute Termination By Executive For Good Reason, then all rights and
obligations of the Companies and the Executive under section 2 [Employment
Obligations], section 4 [Compensation], section 5 [Allowances], section 6
[Business Expenses] and section 8 [Personal Time-Off] shall terminate as of the
effective date of the termination; provided, however:
(a) The Companies shall pay: (i) the Executive's accrued but
unpaid Personal Time Off, (ii) six (6) months of the Executive's then current
Annual Salary, and (iii) the Executive's Annual Salary through the effective
date of the termination, on or before the close of business on such effective
date, provided, however, if the Executive is employed for less than the entire
number of business days in such pay period, the Annual Salary for such pay
period shall be prorated on the basis of the number of business days during
which the Executive was actually employed during such pay period, divided by the
actual number of business days in such pay period;
(b) The Companies shall pay the Executive's accrued but unpaid
Annual Bonus through the last date of the Executive's employment within one
hundred and twenty (120) days after the end of the fiscal period to which the
Annual Bonus relates. The amount of the Annual Bonus shall be determined by
calculating the Annual Bonus the Executive would ordinarily be entitled to for
the entire fiscal year, and then dividing such amount by a fraction wherein the
numerator equals the number of days the Executive was employed in such year and
the denominator equals the total number of calendar days in such year. The
Companies shall also pay an additional amount which shall be determined by
calculating the Annual Bonus the Executive would ordinarily be entitled to for
the entire fiscal year, and then dividing such amount in half;
(c) The Companies shall reimburse the Executive for the
automobile allowance incurred pursuant to section 5(a) prior to the effective
date of the termination and for a period of six (6) months following the
effective date of the termination;
(d) The Companies shall reimburse the Executive for any
business expenses incurred prior to the effective date of the termination,
within three (3) business days after the Executive's submission of the
Executive's expense report to the Companies;
(e) The Executive shall not be entitled to continue to
participate in any Employee Benefit Plans except to the extent provided in such
plans for terminated participants, or as may be required by applicable law.
Notwithstanding the foregoing, amounts which are vested in any Employee Benefit
Plans, including stock options and SARs, shall be payable in accordance with
such plan.
13. EFFECT OF TERMINATION WHERE TERMINATION ATTRIBUTABLE TO CHANGE IN
CONTROL; TERMINATION BY EXECUTIVE FOR GOOD REASON; TERMINATION WITHOUT CAUSE
In the event the Executive's employment hereunder is
terminated before the expiration of a Term, and such termination is attributable
to (i) an event defined as a Change in Control; (ii) an event defined as a
Termination by Executive for Good Reason; and/or (iii) termination by the Board
of Directors of IFS International, Inc., a Delaware corporation, which does not
constitute a Termination for Cause; then all rights and obligations of the
Companies and the Executive under section 2 [Employment Obligations], section 4
[Compensation], section 5 [Allowances], section 6 [Business Expenses], and
section 8 [Personal Time-Off] shall terminate as of the effective date of the
termination date; provided, however:
(a) The Companies shall pay to the Executive, in a lump sum
and without discount to present value, the Executive's then effective Annual
Salary as set forth in section 4(a), said payment to be calculated for the
balance of the Term of this Agreement;
(b) The Companies shall pay to the Executive, in a lump sum
and without discount to present value, the Executive's Annual Bonus as set forth
in section 4(b), calculated for the balance of the Term of this Agreement, which
shall be computed as 50% of the Executive's Annual Salary earned during the
twelve (12) month period immediately preceding the Executive's termination;
(c) All stock options which have been or are scheduled to be
granted during the Term of this Agreement pursuant to section 4(e) shall become
fully vested at the prevailing grant price and the Companies shall pay to the
Executive a sum which shall permit the Executive to exercise, in his sole and
absolute discretion, all or some of the options;
(d) The Executive shall be entitled to exercise all SARs which
have been or are scheduled to be granted during the Term of this Agreement
pursuant to section 4(f).
(e) At the election of the Executive, the Companies shall (i)
provide to the Executive and his spouse and dependents, for a period of twelve
(12) months, medical, dental, and vision insurance and, to the Executive,
disability insurance, which benefits shall be comparable to the benefits
received by the Executive at the time of termination of his employment; or (ii)
provide to the Executive additional compensation, payable on a monthly basis,
which would approximate the cost to the Executive to obtain such comparable
benefits;
(f) The Companies shall provide to the Executive a fully paid
up life insurance policy insuring the life of the Executive in the amount of
Five Hundred Thousand dollars ($500,000);
(g) The Companies shall forgive any unpaid loans or
indebtedness owed by the Executive to the Companies or any of them;
(h) The Companies shall immediately purchase the Annuity; and
(i) The Companies shall immediately purchase the Executive's
automobile and transfer title, free and clear of all liens and encumbrances, to
the Executive;
(j) The Companies shall reimburse the Executive for the
Executive's business expenses incurred through the effective date of the
termination, within three (3) business days of the Executive's submission of the
Executive's expense report to the Companies.
The Companies shall gross-up the compensation or remuneration
paid to the Executive pursuant to subsections (a) and (b) above to cover the
payment of any and all taxes, of any kind or nature, that are incurred by the
Executive as a result of his receipt of the foregoing compensation.
The Executive shall not be required to mitigate the amount of
any payment pursuant to this section 13 by seeking other employment or
otherwise, and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to the Executive in any subsequent employment.
The provisions of this section 13 shall not be deemed to prejudice the rights of
the Companies or the Executive to any remedy or damages to which such party may
be entitled by reason of a breach of this Agreement by the other party, whether
at law or equity.
14. REMUNERATION ON SALE OR TRANSFER
Irrespective of whether or not the Executive's employment is
terminated, if there is a (i) Change of Control; or (ii) transfer or sale of all
or substantially all of the assets of the Company(ies) which is not a Change of
Control; or (iii) transfer or sale of Beneficial Ownership of more than fifty
percent (50%) of the Total Combined Voting Power of the Company's then
outstanding Voting Securities which does not constitute a Change of Control,
then the Companies shall pay to the Executive an amount equal to 6% of the first
$10 million dollars in value received by the Companies (including cash,
securities, debt or any other form of property) in connection with such Change
of Control, transfer or sale, 8% of the next $10 million dollars in value
received by the Companies in connection with such Change of Control, transfer or
sale, and 10% of any value received by the Companies in excess of $20 million in
connection with such Change of Control, transfer or sale, provided, however, the
remuneration paid to the Executive pursuant to this section 14 shall, in any
event, not be less than Five Hundred Thousand dollars ($500,000). If the
Executive's employment is terminated due to a Change of Control or a transfer or
sale as contemplated by this section 14, the Companies shall: (A) buy-out from
the leasing agency, on behalf of the Executive, the automobile leased by the
Executive pursuant to section 5(a); (B) pay all reasonable relocation costs,
including the costs related to the sale of the Executive's residence in New
York; and (C) pay the reasonable expenses related to his relocation, including
the rental of a home and furnishings and the storage of his furnishings and
personal property, for the longer of (x) twelve (12) months or (y) the sale of
the Executive's residence in New York. The Companies shall gross-up the
remuneration paid to the Executive pursuant to this section 14 to cover the
payment of any and all taxes, of any kind or nature, that are incurred by the
Executive as a result of his receipt of the foregoing remuneration.
15. REPRESENTATIONS AND WARRANTIES OF PARTIES
(a) By All Parties. Each of the parties to this Agreement
hereby represents and warrants to each of the other parties to this Agreement,
each of which is deemed to be a separate representation and warranty, as
follows:
(i) Organization, Power and Authority. Such party has all requisite
corporate or other power and authority to enter into this Agreement.
(ii) Authorization and Validity of Agreement. This
Agreement has been duly executed and delivered by such party and, assuming
due authorization, execution and delivery by all of the other parties hereto, is
valid and binding upon such party in accordance with its terms, except as
limited by: (1) bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditor rights generally;
and (2) general principles of equity (regardless of whether such enforcement is
considered in a proceeding in equity or at law).
(iii) No Breach or Conflict. Neither the execution or
delivery of this Agreement, nor the performance by such party of the
transactions contemplated herein: (i) if such party is an entity, will breach or
conflict with any of the provisions of such party's governing organizational
documents; or (ii) to the best of such party's knowledge and belief, will such
actions violate or constitute an event of default under any agreement or other
instrument to which such party is a party.
(b) By Executive. The Executive hereby represents and warrants
to the Companies that the Executive is not Disabled at the time of the execution
and delivery of this Agreement by the Executive.
<PAGE>
16. SEAT ON BOARD OF DIRECTORS
The Executive is currently a member of the Board of Directors
of the Company. During the Term, the Company shall nominate and solicit proxies
or votes in favor of the election of the Executive to the Board of Directors of
the Company. The Executive shall serve as a member of the Board without
additional compensation unless the other members of the Board vote to pay him
the same stipend paid to other Directors who are also full time employees of the
Company.
17. MISCELLANEOUS
(a) Preparation of Agreement; Costs and Expenses. This
Agreement was prepared by the Companies solely on behalf of such party. Each
party acknowledges that: (i) he or it had the advice of, or sufficient
opportunity to obtain the advice of, legal counsel separate and independent of
legal counsel for any other party hereto; (ii) the terms of the transactions
contemplated by this Agreement are fair and reasonable to such party; and (iii)
such party has voluntarily entered into the transactions contemplated by this
Agreement without duress or coercion. Each party further acknowledges that such
party was not represented by the legal counsel of any other party hereto in
connection with the transactions contemplated by this Agreement, nor was he or
it under any belief or understanding that such legal counsel was representing
his or its interests. Except as expressly set forth in this Agreement, each
party shall pay all legal and other costs and expenses incurred or to be
incurred by such party in negotiating and preparing this Agreement; in
performing due diligence or retaining professional advisors; in performing any
transactions contemplated by this Agreement; or in complying with such party's
covenants, agreements and conditions contained herein. Each party agrees that no
conflict, omission or ambiguity in this Agreement, or the interpretation
thereof, shall be presumed, implied or otherwise construed against any other
party to this Agreement on the basis that such party was responsible for
drafting this Agreement.
(b) Cooperation. Each party agrees, without further
consideration, to cooperate and diligently perform any further acts, deeds and
things, and to execute and deliver any documents that may be reasonably
necessary or otherwise reasonably required to consummate, evidence, confirm
and/or carry out the intent and provisions of this Agreement, all without undue
delay or expense.
(c) Interpretation.
(i) Survival. All representations and warranties made by any party in
connection with any transaction contemplated by this Agreement shall survive the
execution and delivery of this Agreement, and the performance or consummation of
any transaction described in this Agreement.
(ii) Entire Agreement/No Collateral Representations. Each party expressly
acknowledges and agrees that this Agreement, and the agreements and documents
referenced herein: (1) are the final, complete and exclusive statement of the
agreement of the parties with respect to the subject matter hereof; (2)
supersede any prior or contemporaneous agreements, memorandums, proposals,
commitments, guaranties, assurances, communications, discussions, promises,
representations, understandings, conduct, acts, courses of dealing, warranties,
interpretations or terms of any kind, whether oral or written (collectively and
severally, the "prior agreements"), and in particular the Prior Agreement,, and
that any such prior agreements (and the Prior Agreement) are of no force or
effect except as expressly set forth herein; and (3) may not be varied,
supplemented or contradicted by evidence of prior agreements, or by evidence of
subsequent oral agreements. No prior drafts of this Agreement, and no words or
phrases from any prior drafts, shall be admissible into evidence in any action
or suit involving this Agreement.
(iii) Amendment; Waiver; Forbearance. Except as expressly provided herein,
neither this Agreement nor any of its terms, provisions, obligations or rights
may be amended, modified, supplemented, augmented, rescinded, discharged or
terminated (other than by performance), except by a written instrument or
instruments signed by all of the parties to this Agreement. No waiver of any
breach of any term, provision or agreement, or of the performance of any act or
obligation under this Agreement, or of any extension of time for performance of
any such act or obligation, or of any right granted under this Agreement, shall
be effective and binding unless such waiver shall be in a written instrument or
instruments signed by each party claimed to have given or consented to such
waiver. Except to the extent that the party or parties claimed to have given or
consented to a waiver may have otherwise agreed in writing, no such waiver shall
be deemed a waiver or relinquishment of any other term, provision, agreement,
act, obligation or right granted under this Agreement, or of any preceding or
subsequent breach thereof. No forbearance by a party in seeking a remedy for any
noncompliance or breach by another party hereto shall be deemed to be a waiver
by such forbearing party of its rights and remedies with respect to such
noncompliance or breach, unless such waiver shall be in a written instrument or
instruments signed by the forbearing party.
(iv) Remedies Cumulative. The remedies of each party under this Agreement
are cumulative and shall not exclude any other remedies to which such party may
be lawfully entitled.
(v) Severability. If any term or provision of this
Agreement or the application thereof to any person or circumstance shall,
to any extent, be determined to be invalid, illegal or unenforceable under
present or future laws, then, and in that event: (1) the performance of the
offending term or provision (but only to the extent its application is invalid,
illegal or unenforceable) shall be excused as if it had never been incorporated
into this Agreement, and, in lieu of such excused provision, there shall be
added a provision as similar in terms and amount to such excused provision as
may be possible and be legal, valid and enforceable; and (2) the remaining part
of this Agreement (including the application of the offending term or provision
to persons or circumstances other than those as to which it is held invalid,
illegal or unenforceable) shall not be affected thereby, and shall continue in
full force and effect to the fullest legal extent.
(vi) Parties in Interest. Nothing in this Agreement
shall confer any rights or remedies under or by reason of this Agreement
on any persons other than the parties hereto and their respective successors and
assigns, if any, or as may be permitted hereunder; nor shall anything in this
Agreement relieve or discharge the obligation or liability of any third person
to any party to this Agreement; nor shall any provision give any third person
any right of subrogation or action over or against any party to this Agreement.
(vii) No Reliance Upon Prior Representation. Each party acknowledges that:
(1) no other party has made any oral representation or promise which would
induce them prior to executing this Agreement to change their position to their
detriment, to partially perform, or to part with value in reliance upon such
representation or promise; and (2) such party has not so changed its position,
performed or parted with value prior to the time of the execution of this
Agreement, or such party has taken such action at its own risk.
(viii) Headings; References; Incorporation; Gender; Statutory References.
The headings used in this Agreement are for convenience and reference purposes
only, and shall not be used in construing or interpreting the scope or intent of
this Agreement or any provision hereof. References to this Agreement shall
include all amendments or renewals thereof. All cross-references in this
Agreement, unless specifically directed to another agreement or document, shall
be construed only to refer to provisions within this Agreement. Any Exhibit
referenced in this Agreement shall be construed to be incorporated in this
Agreement by such reference. As used in this Agreement, each gender shall be
deemed to include the other gender, including neutral genders appropriate for
entities, if applicable, and the singular shall be deemed to include the plural,
and vice versa, as the context requires. Any reference to statutes or laws will
include all amendments, modifications, or replacements of the specific sections
and provisions concerned.
<PAGE>
(d) Enforcement.
(i) Applicable Law. This Agreement and the rights and remedies of each
party arising out of or relating to this Agreement (including, without
limitation, equitable remedies) shall (with the exception of the applicable
securities laws) be solely governed by, interpreted under, and construed and
enforced in accordance with the laws (without regard to the conflicts of law
principles) of the State of New York, as if this Agreement were made, and as if
its obligations are to be performed, wholly within the State of New York.
(ii) Consent to Jurisdiction; Service of Process. Any "action or
proceeding" (as such term is defined below) arising out of or relating to this
Agreement shall be filed in and heard and litigated solely before the state
courts of New York. Each party generally and unconditionally accepts the
exclusive jurisdiction of such courts and venue therein; consents to the service
of process in any such action or proceeding by certified or registered mailing
of the summons and complaint in accordance with the notice provisions of this
Agreement; and waives any defense or right to object to venue in said courts
based upon the doctrine of "forum non conveniens." The term "action or
proceeding" is defined as any and all claims, suits, actions, hearings,
arbitrations or other similar proceedings, including appeals and petitions
therefrom, whether formal or informal, governmental or non-governmental, or
civil or criminal.
(iii) Waiver of Right to Jury Trial. Each party
hereby waives such party's respective right to a jury trial of any claim or
cause of action based upon or arising out of this Agreement. Each party
acknowledges that this waiver is a material inducement to each other party
hereto to enter into the transaction contemplated hereby; that each other party
has already relied upon this waiver in entering into this Agreement; and that
each other party will continue to rely on this waiver in their future dealings.
Each party warrants and represents that such party has reviewed this waiver with
such party's legal counsel, and that such party has knowingly and voluntarily
waived its jury trial rights following consultation with such legal counsel.
(iv) Consent to Specific Performance and Injunctive Relief and Waiver of
Bond or Security. Each party acknowledges that the other party(s) hereto may, as
a result of such party's breach of its covenants and obligations under this
Agreement, sustain immediate and long-term substantial and irreparable injury
and damage which cannot be reasonably or adequately compensated by damages at
law. Consequently, each party agrees that in the event of such party's breach or
threatened breach of its covenants and obligations hereunder, the other
non-breaching party(s) shall be entitled to obtain from a court of competent
equitable relief including, without limitation, enforcement of all of the
provisions of this Agreement by specific performance and/or temporary,
preliminary and/or permanent injunctions enforcing any of the rights of such
non-breaching party(s), requiring performance by the breaching party, or
enjoining any breach by the breaching party, all without proof of any actual
damages that have been or may be caused to such non-breaching party(s) by such
breach or threatened breach and without the posting of bond or other security in
connection therewith. The party against whom such action or proceeding is
brought waives the claim or defense therein that the party bringing the action
or proceeding has an adequate remedy at law and such party shall not allege or
otherwise assert the legal position that any such remedy at law exists. Each
party agrees and acknowledges: (i) that the terms of this subsection are fair,
reasonable and necessary to protect the legitimate interests of the other
party(s); (ii) that this waiver is a material inducement to the other party(s)
to enter into the transaction contemplated hereby; (iii) that the other party(s)
has already relied upon this waiver in entering into this Agreement; and (iv)
that each party will continue to rely on this waiver in their future dealings.
Each party warrants and represents that such party has reviewed this provision
with such party's legal counsel, and that such party has knowingly and
voluntarily waived its rights following consultation with legal counsel.
(v) Recovery of Fees and Costs. If any party
institutes or should the parties otherwise become a party to any action or
proceeding based upon or arising out of this Agreement including, without
limitation, to enforce or interpret this Agreement or any provision hereof, or
for damages by reason of any alleged breach of this Agreement or any provision
hereof, or for a declaration of rights in connection herewith, or for any other
relief, including equitable relief, in connection herewith, the "prevailing
party" (as such term is defined below) in any such action or proceeding, whether
or not such action or proceeding proceeds to final judgment or determination,
shall be entitled to receive from the non-prevailing party as a cost of suit,
and not as damages, all fees, costs and expenses of enforcing any right of the
prevailing party (collectively, "fees and costs"), including without limitation,
(1) reasonable attorneys' fees and costs and expenses, (2) witness fees
(including experts engaged by the parties, but excluding shareholders, officers,
employees or partners of the parties), (3) accountants' fees, (4) fees of other
professionals, and (5) any and all other similar fees incurred in the
prosecution or defense of the action or proceeding; including, without
limitation, fees incurred in the following: (A) postjudgment motions; (B)
contempt proceedings; (C) garnishment, levy, and debtor and third party
examinations; (D) discovery; and (E) bankruptcy litigation. All of the aforesaid
fees and costs shall be deemed to have accrued upon the commencement of such
action and shall be paid whether or not such action is prosecuted to judgment.
Any judgment or order entered in such action shall contain a specific provision
providing for the recovery of attorney the aforesaid fees, costs and expenses
incurred in enforcing such judgment and an award of prejudgment interest from
the date of the breach at the maximum rate of interest allowed by law. The term
"prevailing party" is defined as the party who is determined to prevail by the
court after its consideration of all damages and equities in the action or
proceeding, whether or not the action or proceeding proceeds to final judgment
(the court shall retain the discretion to determine that no party is the
prevailing party in which case no party shall be entitled to recover its costs
and expenses under this subsection).
(e) Arbitration.
(i) Jurisdiction. The parties hereby agree that all controversies, claims
and matters of difference arising out of or in connection with to the
transactions contemplated by this Agreement (collectively, the "Controversies"),
shall, to the maximum extent allowed by law, be resolved by binding arbitration
(an "Arbitration Proceeding") before the American Arbitration Association (the
"Arbitration Authority") according to the rules and practices of the Arbitration
Authority from time-to-time in force. Without limiting the generality of the
foregoing, the following shall be considered Controversies for this purpose: (A)
all questions relating to the breach of any obligation, warranty, promise, right
or condition hereunder; (B) the failure of any party to deny or reject a claim
or demand of any other party; and (C) any question as to whether the right to
arbitrate a certain dispute exists. This agreement to arbitrate shall be
self-executing without the necessity of filing any action in any court and shall
be specifically enforceable under the prevailing arbitration law.
(ii) Initiation. A party shall institute an
Arbitration Proceeding by sending written notice of an intent to arbitrate (the
"Arbitration Notice") to the other parties and to the Arbitration Authority
pursuant to the rules and regulations of the Arbitration Authority. The
Arbitration Notice shall set forth a description of the dispute, the amount in
controversy, and the remedy sought. An Arbitration Proceeding may proceed in the
absence of any party if the Arbitration Notice has been properly given to such
party.
(iii) Selection of Arbitrator. Within ten (10) business days after receipt
of an Arbitration Notice by the parties, they shall mutually agree upon a single
arbitrator (the "Arbitrator") selected from a panel of retired judges from the
Arbitration Authority. If the parties are unable to agree upon the Arbitrator,
then the parties shall, within fifteen (15) business days after receipt of an
Arbitration Notice by the parties, obtain a list of panelists from the
Arbitration Authority equal to the number of parties plus one. The Artibration
Entity shall arrange and conduct a conference in person and/or by telephone with
all of the parties at a mutually acceptable time no earlier than ten (10)
business days, and no later than twenty (20) business days, after its delivery
of the list of panelists. At such conference, the parties shall, in such order
as determined by the Arbitration Authority, strike one name from such list (with
no party being allowed to strike a name previously stricken), and the remaining
panelist shall be the Arbitrator. In the event two or more parties desire to
strike the name of the same arbitrator, then the first party to notify the
Arbitration Authority of their decision shall be deemed to have stricken such
name, in which case such other party or parties must strike another name.
(iv) Representation. Each party shall have the right to be represented by
legal counsel throughout the Arbitration.
(v) Discovery. The parties shall have the right to engage any and all
discovery pertaining to civil litigation as they would be entitled to pursuant
to the laws of civil procedure of the state of New York.
(vi) Application of Law; Scope of Powers; Written Decision. The Arbitrator
shall apply such principles of law and shall endeavor to decide the controversy
as though the Arbitrator was a judge in a New York court of law.
(vii) Written Decision. The Arbitrator shall prepare
a written decision, signed by the Arbitrator, that shall be sent to the
parties within thirty (30) calendar days following the conclusion of the
hearing. The written statement will be supported by written findings of fact and
conclusions of law which adequately set forth the basis of the Arbitrator's
decision and which cite the statutes and precedents applied and relied upon in
reaching said decision.
(viii) Awards. The parties agree to abide by any
award, judgment, decree or order rendered in any Arbitration Proceeding by
the Arbitrator. The award, judgment, decree or order of the Arbitrator, and the
findings of the Arbitrator, shall be final, conclusive and binding upon the
parties hereto. Any judgment, decree or order of relief granted by the
Arbitrator may be entered or obtained in any court of competent jurisdiction,
state or federal, in the county in which the residence or principal office of a
non-prevailing party is located, as a basis for judgment and for the issuance of
execution for its collection and, at the election of the party making such
filing, with the clerk of one or more other courts, state or federal, having
jurisdiction over the party against whom such an award is rendered, or such
party's property.
(f) Assignment and Delegation; Successors and Assigns.
(i) Prohibition Against Assignment or Delegation. Except as specifically
provided in this Agreement, neither party may sell, license, transfer or assign
(whether directly or indirectly, or by merger, consolidation, conversion, sale
of assets, sale or exchange of securities, or by operation of law, or otherwise)
any of such party's rights or interests or delegate such party's duties or
obligations under this Agreement, in whole or in part, including to any
subsidiary or any Affiliate, without the prior written consent of the other
party, which consent may be withheld in such other party's sole discretion,
provided, however:
(A) Subject to subsections (B) and (C)
below, the Companies may, with the prior written consent of the Executive,
which consent the Executive shall not unreasonably withhold, assign all of the
rights and delegate all of the obligations of the Companies under this Agreement
to any other Person in connection with the transfer or sale of the entire
business of the Company(ies), or the merger or consolidation of the Companies
with or into any other Person, so long as such transferee, purchaser or
surviving Person shall expressly assumes such obligations of the Companies;
(B) Notwithstanding subsection (A) above to
the contrary, no assignment or transfer under subsection (A) may be
effectuated unless the proposed transferee or assignee first executes such
agreements (including a restated employment agreement) in such form as Executive
may deem reasonably satisfactory to (1) evidence the assumption by the proposed
transferee or assignee of the obligations of the Companies; and (2) to ensure
that the Executive continues to receive such rights, benefits and protections
(both legal and economic) as were contemplated by the Executive when entering
into this Agreement; and
<PAGE>
(C) Notwithstanding subsection (A) above to the contrary: (1) any
assumption by a successor or assign under subsection (A) above shall in no way
release the Companies from any of their obligations or liabilities while a party
to this Agreement; and (2) any merger, consolidation, reorganization, sale or
conveyance under subsection (A) above shall not be deemed to abrogate the rights
of the Executive elsewhere contained in this Agreement, including without
limitation those resulting from a Change In Control.
Any purported assignment or transfer in violation of the terms of this
subsection 16(e) shall be null and void ab initio and of no force and effect,
and shall vest no rights or interests in the purported assignee or transferee.
(ii) Successors and Assigns. Subject to subsection 16(e)(i) above, each and
every representation, warranty, covenant, condition and provision of this
Agreement as it relates to each party hereto shall be binding upon and shall
inure to the benefit of such party and his, her or its respective successors and
permitted assigns, spouses, heirs, executors, administrators and personal and
legal representatives, including without limitation any successor (whether
direct or indirect, or by merger, consolidation, conversion, purchase of assets,
purchase of securities or otherwise).
(g) Counterparts; Electronically Transmitted Documents. This
Agreement may be executed in counterparts, each of which shall be deemed an
original, and all of which together shall constitute one and the same
instrument, binding on all parties hereto. Any signature page of this Agreement
may be detached from any counterpart of this Agreement and reattached to any
other counterpart of this Agreement identical in form hereto by having attached
to it one or more additional signature pages. If a copy or counterpart of this
Agreement is originally executed and such copy or counterpart is thereafter
transmitted electronically by facsimile or similar device, such facsimile
document shall for all purposes be treated as if manually signed by the party
whose facsimile signature appears.
(h) Notices. Unless otherwise specifically provided in this
Agreement, all notices, demands, requests, consents, approvals or other
communications (collectively and severally called "notices") required or
permitted to be given hereunder, or which are given with respect to this
Agreement, shall be in writing, and shall be given by: (i) personal delivery
(which form of notice shall be deemed to have been given upon delivery), (ii) by
telegraph or by private airborne/overnight delivery service (which forms of
notice shall be deemed to have been given upon confirmed delivery by the
delivery agency), (iii) by electronic or facsimile or telephonic transmission,
provided the receiving party has a compatible device or confirms receipt thereof
(which forms of notice shall be deemed delivered upon confirmed transmission or
confirmation of receipt), or (iv) by mailing in the United States mail by
registered or certified mail, return receipt requested, postage prepaid (which
forms of notice shall be deemed to have been given upon the fifth {5th} business
day following the date mailed. Notices shall be addressed at the addresses first
set forth above, or to such other address as the party shall have specified in a
writing delivered to the other parties in accordance with this paragraph. Any
notice given to the estate of a party shall be sufficient if addressed to the
party as provided in this section.
<PAGE>
WHEREFORE, the parties hereto have executed this Agreement in the City
of Albany, State of New York, as of the date first set forth above.
COMPANIES: IFS INTERNATIONAL, INC.
a Delaware corporation
By:
DuWayne Peterson,
Chairman, Compensation Committee
By:
John Singleton,
Vice-Chairman, Board of Directors
Compensation Committee Member
IFS INTERNATIONAL, INC.
a New York corporation
By:
DuWayne Peterson,
Chairman, Compensation Committee
By:
John Singleton,
Vice-Chairman, Board of Directors
Compensation Committee Member
EXECUTIVE: DAVID L. HODGE
an individual
EXTENSION AGREEMENT
This Extension Agreement (the "Agreement") is made and entered into as
of the 12th day of May, 1998, by and between IFS International, Inc., a Delaware
corporation (the "Company"), and Per Olof Ezelius, an individual residing at
21308 Blakely Shores Drive, Cornelius, North Carolina 28031 (the "Employee"),
based upon the following:
RECITALS
A. On or about January 30, 1998, the Company acquired Network Controls
International, Inc., a North Carolina corporation with its principal place of
business at Nine Woodlawn Green, Charlotte, North Carolina 28217 ("NCI").
B. Pursuant to an Employment Agreement executed by and between NCI and
the Employee on January 30, 1998 (the "Employment Agreement"), the Employee is
employed by NCI as its President and Chief Executive Officer for an initial term
of three (3) years and three (3) months, commencing January 30, 1998, and ending
April 30, 2001, unless sooner terminated under the terms and conditions of the
Employment Agreement.
C. The Employee also executed a Covenant Not to Compete with NCI on or
about January 30, 1998 for a term of one (1) year, commencing upon expiration of
the Employment Agreement (the "Covenant Not to Compete").
D. The Company now desires to extend both the scope and term of the
Covenant Not to Compete in recognition of the exceptional performance of the
Employee's operating company (NCI) during the first three (3) months of
post-merger operation, as well as the Employee's long-term value in the
financial services marketplace, in exchange for consideration as set forth
below.
AGREEMENT
Now therefore in consideration of the recitals set forth above and the
mutual promises included in this Agreement, the parties agree as follows:
1. Incorporation of Recitals. The recitals set forth above are
incorporated herein by reference and made a material part hereof. Each party to
this Agreement agrees that this Agreement has been entered into for and in
consideration of the inducements contained in the provisions and recitals, as
well as those contained in the balance of this Agreement.
2. Covenant Not to Compete. The Employee hereby agrees to extend the
term of the Covenant Not to Compete from a period of one (1) year to two (2)
years, and further agrees that this Covenant Not to Compete shall include both
the Company and NCI activities, whereas before it was limited to NCI activities
only.
3. Grant of Shares. On the terms and subject to the conditions set
forth in this Agreement, the Company hereby grants to the Employee twenty-five
thousand (25,000) shares (the "Shares") of its common stock (the "Common
Stock"). The Employee acknowledges and agrees that the Shares have not been
registered under the Securities Act of 1933, as amended.
4. Grant of Options. On the terms and subject to the conditions set
forth in this Agreement, the Company hereby grants to the Employee twenty-five
thousand (25,000) options to purchase its Common Stock, each option entitling
the holder thereof to purchase one (1) share of Common Stock at an exercise
price equal to the fair market value of such Common Stock as of May 12, 1998
(the "Options"), pursuant to the 1998 IFS International, Inc. Stock Plan (the
"Stock Plan").
The Employee hereby acknowledges and agrees that the
qualification of the Options as "Incentive Stock Options" under Section 422 of
the Internal Revenue Code of 1986, as amended, is contingent upon the approval
of the Stock Plan by the stockholders of the Company. The Employee hereby
further acknowledges and agrees that in the event the Company does not receive
stockholder approval of the Stock Plan, the Options shall be non-qualified
options.
5. Cash Bonus. The Company hereby agrees to award the Employee with a cash
bonus equal to one hundred thousand dollars ($100,000), to be paid no later than
June 30, 1998.
6. Representations and Warranties of Employee. The Employee hereby
represents, warrants, covenants and agrees to and with the Company as follows:
(i) the Employee has the right, power and capacity to execute, deliver and
perform this Agreement and to consummate the transaction contemplated in it;
(ii) all performance by the parties to date has been in accordance with the
terms and conditions of the Plan and Merger Agreement between the Company, NCI
Holdings, Inc., NCI Acquisition Corp., and the Employee dated January 30, 1998
(the "Merger Agreement"), and there are no breaches outstanding of any nature
whatsoever; and (iii) this Agreement has been duly and validly executed and
delivered by the Employee and constitutes the Employee's binding obligation,
enforceable in accordance with its terms.
7. Representations and Warranties of the Company. The Company hereby
represents, warrants, covenants and agrees to and with the Employee as follows:
(i) the Company is duly organized, validly existing and in good standing under
the laws of its state, territory or province of incorporation or organization,
and has all requisite corporate or other power and authority to enter into this
Agreement; (ii) all performance by the parties to date has been in accordance
with the terms and conditions of the Merger Agreement, and there are no breaches
outstanding of any nature whatsoever; and (iii) this Agreement has been duly and
validly executed and delivered by the Company and constitutes the Company's
binding obligation, enforceable in accordance with its terms.
8. Miscellaneous.
8.1 Binding Effect. This Agreement shall inure to the benefit of and shall
be binding upon the parties hereto and their respective successors and assigns.
8.2 Governing Law. This Agreement shall be deemed to be made
in, and in any and all respects shall be interpreted, construed and governed by
and in accordance with, the laws of the State of New York.
8.3 Severability. If any term or provision of this Agreement
shall be determined to be invalid, illegal or unenforceable, then the remaining
part of this Agreement shall be separated from the invalid, illegal or
unenforceable term and shall not be affected thereby and shall continue in full
force and effect and shall be construed as if the invalid, illegal or
unenforceable terms had never been incorporated into it.
8.4 Headings. The paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
8.5 Further Assurances. Each party shall cooperate with the
other, and execute and deliver, or cause to be executed and delivered, all such
other instruments and take all such other actions as such party may be
reasonably requested to take from time to time in order to effectuate the
provisions and purposes of this Agreement.
8.6 Notices. Any notice which is given pursuant to this
Agreement shall be given by personal delivery or by express mail, Federal
Express, DHL or similar airborne/overnight delivery service, or by mailing such
notice by first class or certified mail, return receipt requested, addressed to
such party at the address set forth below, or to such other address as either
party from time to time may designate by written notice. Notices delivered by
overnight delivery service shall be deemed delivered the next business day
following consignment for such delivery service. Mailed notices shall be deemed
delivered and received in accordance with this provision three (3) days after
deposit in the United States mail.
If to the Company, notices shall be addressed to it at the following address:
David L. Hodge, President
IFS International, Inc.
Rensselaer Technology Park
300 Jordan Road
Troy, New York 12180
With a copy to:
Andrew F. Pollet
Pollet & Woodbury
10900 Wilshire Boulevard, Suite 500
Los Angeles, California 90024
and
If to the Employee, notices shall be addressed to him at the following address:
Per Olof Ezelius
21308 Blakely Shores Drive
Cornelius, North Carolina 28031
or at any such place or places or to such other person or persons as shall be
designated in writing by the parties hereto.
8.7 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original but all of
which together shall constitute one and the same instrument.
8.8 Entire Agreement. This Agreement embodies the entire
agreement and understanding between the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter. There are no warranties or representations made
by either party outside of this Agreement. This Agreement may be modified only
by a written instrument signed by each of the parties to this Agreement.
8.9 Arbitration. In the event that a controversy arises
between the parties hereto with respect to the subject matter hereof and/or the
transactions contemplated herein, the Company and the Employee hereby agree that
such controversy shall be settled by final, binding arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association,
and judgment rendered by the arbitrator(s) may be entered in any court located
in the County of Albany, State of New York, having jurisdiction thereof. In any
arbitration relating to this Agreement, the arbitrator shall apply New York law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
COMPANY:
IFS International, Inc.,
A Delaware corporation
By:
David L. Hodge, President
EMPLOYEE:
Per Olof Ezelius
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