Exhibit 7.03
EMPLOYMENT AND NONCOMPETITION AGREEMENT
AGREEMENT made as of this 16th day of November, 1995, by and among
Xxxxxxx Xxxxxxxx ("EMPLOYEE") and The Software Developer's Company, Inc., a
Delaware corporation with a principal place of business at 00 Xxxxxxxxxx Xxxx
Xxxx, Xxxxxxx, XX 00000 (the "PARENT", the "COMPANY" or "SDC") and Internet
Security Corporation, a subsidiary of SDC ("ISC").
WHEREAS, the Company believes it to be to its advantage to ensure that
Employee renders services to the Company as hereinafter provided; and
WHEREAS, Employee and the Company desire to enter into an Agreement to
provide for Employee's continuing employment with the Company and any successors
in interest;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in consideration of the mutual
covenants and obligations herein contained, the parties herein agree as follows:
1. POSITION AND RESPONSIBILITIES. During the term of this Agreement,
Employee agrees to serve as Vice President of SDC and as President of ISC (for
purposes of this Agreement, the "Company" includes SDC and ISC) as defined in
the Agreement and Plan of Merger (the "PLAN") by and among The Software
Developer's Company, Inc., ISC Acquisition Corp., ("MERGER SUB") and ISC.
Employee shall at all times report to, and his activities shall at all times be
subject to the direction and control of, the Chief Executive Officer ("CEO") and
Board of Directors (the "BOARD") of Parent. Employee shall exercise such powers
and comply with and perform, faithfully and to the best of his ability, such
directions and duties in relation to the business and affairs of the Company and
ISC as may from time to time be vested in or requested of him by the CEO or the
Board. Employee agrees to devote substantially all of his business time,
attention and services to the diligent, faithful and competent discharge of his
duties for the successful operation of the Company's and ISC's business.
During the term hereof, except as permitted by Section 7(b)
Employee will not have any managerial or operational responsibility in any
enterprise, firm, corporation, trust or other business entity other than the
Company and ISC. Nothing herein shall prevent the ownership by Employee of an
equity interest in any business entity provided that such ownership does not
contravene the Company's conflict of interest policies as in effect from time to
time, and Employee shall be entitled to serve on the board of directors of a
corporation that is not competitive with the business of the Company to the
extent permitted under the Company's policies in effect from time to time and to
the extent authorized by the Board of Directors of the Company. The performance
of Employee's duties hereunder shall not require Employee to relocate to another
company or affiliated facility more than 50 miles from the Hingham,
Massachusetts facility without the Employee's consent.
As soon as practicable following the execution of this
Agreement, Employee shall become an ex officio non-voting participant of the
Board of Directors of the Company and Employee shall be entitled to attend all
meetings of the Board of Directors. Prior to next year's annual meeting of
stockholders and as long as Employee is employed by the Company during the term
of this Agreement, Employee shall
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be nominated to the Board of Directors as a regular voting member of the Board
of Directors. If elected by the stockholders, Employee shall accept such
position and perform his duties as a Director thereunder.
2. COMPENSATION: SALARY, BONUSES, EQUITY PARTICIPATION AND OTHER
BENEFITS. During the term of this Agreement, the Company shall pay Employee the
following compensation, including the following salary, bonuses and other fringe
benefits:
(A) SALARY. In consideration of the services to be rendered by
Employee to the Company, the Company will pay to Employee an annual salary of
$120,000 (Employee's "base rate") during the term of this Agreement. Such salary
shall be payable in conformity with the Company's customary payroll practices as
established or modified from time to time and subject to all applicable taxes.
Commencing November 1, 1996 and the month of November in each successive year
thereafter while this Agreement may be in effect, the Chief Executive Officer
and Employee shall in good faith review the performance by, and the compensation
to, the Employee for the prior year based on merit similar to the review of
other senior executive officers and the proposed performance by, and
compensation to, Employee for the then forthcoming year. Any future agreements
regarding salary, bonus, equity participation, fringe benefits, expenses and
other material benefits and terms of this Agreement shall be subject to approval
by the Board of Directors and agreed to by Employee.
(B) REIMBURSEMENT OF EXPENSES. Employee will also be entitled
to be reimbursed for business-related travel expenses, including airplane
travel, automobile, business mileage and parking expenses, pursuant to the
Company's expense reimbursement policies as in effect from time to time.
(C) PERFORMANCE-BASED BONUS. During the term of this
Agreement, in addition to the amounts payable under Section 2(A) above, Employee
shall be eligible to participate in the ISC Bonus Plan set forth on Exhibit A.
The Employee shall not participate in the Company's Fiscal 1996 Bonus Plan, but
may participate, subject to review and approval by SDC's Board of Directors, in
SDC's cash bonus programs after the 1996 fiscal year.
(D) RELOCATION EXPENSES. The Company shall reimburse Employee
for the reasonable relocation expenses incurred directly by Employee in
connection with his employment by the Company, as follows:
(i) Reasonable out-of-pocket moving expenses
associated with Employee's relocation of his residence from Billerica to the
Hingham area including costs of moving household furnishings, personal effects
and insurance;
(ii) All reasonable costs associated with and
necessary to the sale of Employee's Billerica residence and the purchase by the
Employee of a residence in the Hingham area including costs associated with
commissions payable to real estate brokers in connection with the sale of the
Sudbury residence but not including mortgage points for the purchase of a new
residence.
Employee hereby agrees that all such expenses to be reimbursed to
Employee under this subsection (D) by the Company shall be reasonable and that
Employee use his best efforts to minimize the costs by obtaining in each
instance terms which are as favorable as those which Employee would negotiate if
he were to pay such expenses directly himself. Further, Employee agrees to
provide suitable and accurate
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documentation evidencing such costs incurred, and the Company shall provide
reimbursement within a reasonable time after the receipt of such documentation.
(E) OTHER BENEFITS. Employee shall be entitled to participate
in employee health, hospitalization, disability, group term life, vacation, and
other employee benefit programs on the same basis as that of other officers of
SDC. The Company will use its best efforts to arrange for additional term life
insurance through the Company's life insurance carrier, with premiums to be paid
at Employee's expense. Employee shall be entitled to paid vacation, personal and
sick leave in accordance with SDC's policies as in effect from time to time.
Employee shall be entitled to a carryover of accrued but unused vacation from
one year to the next pursuant to SDC's policies as in effect from time to time.
3. TERM CREDIT. For the purposes of SDC's benefits plans, Employee
shall (to the extent permitted by any such respective employee benefit plan and
applicable law) be deemed to have been continuously employed by SDC since July
1, 1994.
4. EQUITY PARTICIPATION. Employee shall be granted at the Effective
Time (as defined below) stock options to purchase 75,000 shares of Common Stock
of SDC. The exercise price for such option shall be the fair market value of the
such Common Stock as of the date of such grant. Such options shall be incentive
stock options to the maximum extent permitted under applicable law. Such options
shall become exercisable as to 30% upon the first anniversary of the date of
grant, and the balance shall vest at the rate 20% on each of the second, third
and fourth anniversaries of grant date, and the remaining 10% vesting on the
fifth anniversary of the date of grant, subject to any acceleration of vesting
as may be applicable pursuant to Section 5 below. Employee shall have 90 days
from termination of employment to exercise any vested options; provided,
however, that in the event of termination of employment because of death or
disability of Employee, Employee or his estate or legal representative shall
have up to 12 months (but in no event longer than the full term of Employee's
options as set forth in Employee's option agreement) from the date of
termination of employment to exercise such option shares. Any options which are
granted shall be subject to an incentive stock option agreement in the form
normally used by SDC with respect to its employees and in all respects shall be
governed by the terms of SDC's stock option plan.
5. TERM.
5.1 GENERAL. The term of this Agreement shall commence and this
Agreement shall be effective upon the Effective Time (as that term is defined in
the Plan (the "EFFECTIVE TIME")) and shall terminate on the earlier to occur of
(i) the three year anniversary of the Effective Time, (ii) Employee's death,
(iii) a determination that Employee has become disabled, as defined in Section
5.3, (iv) termination "for cause" under the provisions of Section 5.6, (v)
termination without cause as provided in Section 5.7, (vi) voluntary termination
by Employee as provided in Section 5.5 or (vii) termination for inadequate
performance as provided in Section 5.8. The term "EMPLOYMENT PERIOD" shall mean
the initial period of Employee's employment with the Company hereunder. This
Agreement will automatically renew for an additional twelve (12) months after
termination under subsection (i), unless the Company gives Employee six (6)
months prior written notice of the Company's decision not to renew the Agreement
for an additional twelve (12) months.
5.2 TERMINATION AT END OF TERM. Upon termination of the Agreement at
the end of its term, Employee shall be entitled to (i) accrued and unpaid salary
and vacation through the termination date, (ii) COBRA benefits for up to 18
months, provided Employee makes the appropriate conversion and payments,
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(iii) the pro rata portion of any bonus that Employee had otherwise earned under
the terms of the ISC Bonus Plan as of the termination date, and (iv) no further
severance or other compensation benefits.
5.3 TERMINATION UPON DISABILITY. Employee shall be regarded as
"disabled" for the purpose of this Agreement if he has been unable to render the
services required of him hereunder, in a manner consistent with past practice,
for a period of two (2) consecutive months, or for any period in the aggregate
of four (4) months in any twelve-month period, because of a continuing health
impairment, which impairment will likely result in Employee's continued
inability to render the services required of him hereunder in a manner
consistent with past practices; provided, however, that thirty (30) days' prior
notice of termination for disability shall be given to Employee. Upon
termination for disability, Employee shall be entitled to (i) accrued and unpaid
salary and vacation through the termination date, (ii) COBRA benefits for up to
18 months, provided Employee make the appropriate conversion and payments, (iii)
any payments available to Employee under any disability insurance programs
maintained by the Company providing for payment of disability insurance to
Employee, (iv) the pro rata portion of any bonus that Employee had earned under
the terms of the ISC Bonus Plan as of the termination date, (v) an amount equal
to the difference between (a) the payments made under clause (iii) above, plus
any governmental benefits (such as Social Security) and (b) Employee's current
annual base salary, and (vi) no further severance or other compensation
benefits. Payments under clause (v) shall continue for so long as Employee is
disabled but in no event for greater than twelve (12) months after termination
upon disability.
In the event that there should be any dispute between Employee and the
Company as to whether Employee is "disabled" within the meaning of this
Agreement or as to whether Employee has recovered from any such disability, such
matter shall be conclusively determined by the written report of a physician
acceptable to the Company and Employee, who shall set forth in his report the
nature and seriousness of the impairment suffered by Employee and the likely
effect of such impairment on Employee's future ability to render the services
requested hereunder. Employee agrees to submit to all necessary examinations by
any such physician to the extent reasonably required by the Company for the
purpose of ascertaining the extent of Employee's disability or the likelihood of
recovery. The parties agree that any determination with respect to Employee's
disability may be conclusively resolved in the sole judgment of the Company if
Employee should fail to comply with any reasonable request by the Company to
submit to an examination.
5.4 TERMINATION UPON DEATH. If Employee dies during the Employment
Period, the Agreement shall terminate upon such death and Employee or his estate
shall be entitled to (i) accrued and unpaid salary and vacation through the
termination date, (ii) any insurance proceeds available to Employee's estate
under any life insurance programs maintained by the Company providing for
payment of such benefits to Employee's estate, (iii) the pro rata portion of any
bonus that Employee had earned under the terms of the ISC Bonus Plan as of the
termination date, and (iv) no further severance or other compensation or
benefits.
5.5 VOLUNTARY TERMINATION. Employee may terminate this Agreement at any
time upon thirty (30) days prior written notice to the Company and ISC. In the
event of any such termination, Employee shall be entitled to (i) accrued and
unpaid salary and vacation through the termination date, (ii) COBRA benefits for
up to 18 months, provided Employee makes the appropriate conversion and
payments, and (iii) no further severance or other compensation benefits.
5.6 TERMINATION FOR CAUSE. The Company may terminate the Employment
Period and discharge Employee for cause immediately upon written notice to
Employee of such termination.
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Regardless of any broader definition of "cause" which might otherwise apply
under applicable law, the term "for cause" as used herein shall be defined to
include only one or more of the following grounds involving the Company, ISC or
any subsidiary: (a) Employee's willful refusal to perform reasonable assignments
given to Employee commensurate with such Employee's status, functions and
responsibilities as set forth above, provided, that (i) such refusal has caused
the Company material harm and is repetitive and not due to illness or injury,
and (ii) Employee shall have been given reasonable notice and explanation of
each refusal, and reasonable opportunity for a period of thirty (30) days
following notice, to cure such refusal, and no cure has been effected within
such time; (b) gross negligence of the Employee in connection with the
performance of such duties; (c) the conviction of the Employee of a felony,
either in connection with the performance of his obligations to the Company or
which shall adversely affect the Employee's ability to perform such obligations;
(d) determination by a court of final jurisdiction that Employee has committed a
breach of fiduciary duty to the Company that has caused the Company material
harm; (e) the material abuse of any drug or medication which affects performance
for a period of 60 days following notice of such abuse and an opportunity to
cure; or (f) a breach of any of the provisions of Sections 6 and 7 hereof
involving the Employee's covenants on non-competition, confidentiality and
assignment of inventions. In making any determination under this Subsection, the
CEO shall act fairly and in utmost good faith. If the Employee disputes this
determination, the Employee shall have a non-exclusive opportunity to appear and
be heard at a meeting of the Board of Directors or any committee thereof to
review the determination.
In the event of any termination for cause, Employee shall be entitled
to: (i) accrued and unpaid salary and vacation through the termination date;
(ii) COBRA benefits for up to 18 months provided Employee makes the appropriate
conversion and payments, and (iii) no further severance or other compensation or
benefits. For the purposes of this Section 5.6, the Company includes itself and
any subsidiary.
5.7 AT THE ELECTION OF THE COMPANY FOR REASONS OTHER THAN FOR CAUSE.
The Company may terminate Employee's employment hereunder at any time during the
term of this Agreement without cause upon thirty (30) days' prior written notice
to Employee. In the event the Company exercises its right to terminate Employee
under this Section 5.7, Employee shall be entitled to (i) twelve (12) months
base salary at the then current rate, (ii) medical and other health insurance
benefits at the then current levels for a period of twelve months after the date
of such termination, (iii) COBRA benefits for up to an additional six months
after the expiration of the twelve-month period in clause (ii) above, provided
Employee makes the appropriate conversion and payments, (iv) the bonus that
Employee would have otherwise earned or accrued under the terms of the ISC Bonus
Plan for the full fiscal year in which Employee is terminated, (v) the
acceleration of vesting of all stock options previously granted to Employee
under the ISC Bonus Plan granted prior to the termination date, and (vi) no
other severance or other compensation or benefits. Any such payments shall be
payable in equal installments over the term of the severance period.
It shall be deemed to be a termination "without cause" if Employee's
responsibilities and executive authority are reduced or diluted in any material
respect without Employee's consent (which reduction or dilution is not corrected
by the Company within thirty (30) days following written notification by
Employee to the Company that Employee intends to terminate his employment for
such reason), or Employee is relocated to another Company facility or affiliated
facility more than fifty (50) miles from Hingham, Massachusetts without
Employee's consent.
5.8 TERMINATION FOR INADEQUATE PERFORMANCE. The Company may terminate
Employee's employment hereunder for inadequate performance. Performance will be
evaluated at the end of each fiscal
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quarter starting with the quarter ending September 30, 1996. Performance will be
deemed inadequate if Pre-Tax Income of ISC, as defined in Exhibit A, for the
quarter is below seventy percent (70%) of the actual quarterly Pre-Tax Income
forecast number for ISC's business for such quarter through the quarter ending
March 31, 1998. In the event the Company exercises its right to terminate
Employee under this Section 5.8, Employee shall be entitled to (i) six (6)
months base salary at the then current rate, (ii) medical and other health
insurance benefits at the then current levels for a period of six (6) months
after the date of such termination, (iii) COBRA benefits for up to an additional
twelve (12) months after the expiration of the six-month period in clause (ii),
provided Employee makes the appropriate conversion and payments, and (iv) no
other severance or other compensation or benefits. Any such payments shall be
payable in equal installments over the term of the severance period.
5.9 WITHHOLDING. All salary, bonus and other compensation of Employee,
and all severance and other compensation and benefits upon termination, shall be
subject to applicable federal, state and other withholding taxes.
6. CONFIDENTIALITY AND ASSIGNMENT OF INVENTIONS AGREEMENT. In
connection with his commencement of employment by the Company pursuant to the
terms of this Agreement, Employee shall execute, simultaneous with the execution
of this Agreement by the Company, a form of Confidentiality and Assignment of
Inventions Agreement used by the Company for its employees.
7. NON-COMPETITION.
(a) The parties understand and agree that this Agreement is
entered in connection with the Merger as a material inducement to the Parent and
Merger Sub to enter into the acquisition of ISC. The parties further understand
and agree that Employee was the sole stockholder and Chief Executive Officer of
ISC. As a result of the foregoing, the parties expressly understand and agree
that the non-competition provisions contained in this Agreement are reasonable,
permissible and enforceable pursuant to the provisions of applicable law.
(b) Commencing at the Effective Time and continuing until the
later of (i) four years from the date hereof or (ii) twelve months following
termination of Employee's employment hereunder, for any reason, Employee will
not, as an employee, agent, consultant, advisor, independent contractor,
partner, officer, director, stockholder, lender or guarantor of any entity, or
in any other capacity, directly or indirectly:
i) participate or engage in a business where the
Employee is involved in activities relating to the distribution, marketing, sale
or servicing of any authentication, encryption or "firewall" product or services
for the InterNet or other on-line services or computer networks (the "BUSINESS")
in any states where ISC is presently offering such products or services or those
states in which ISC or the Company is offering products or services relating to
the Business at the time of any termination of employment; (ii) induce or
attempt to induce any person who at the time of such inducement is an employee
or consultant of the Company or ISC to perform work or services for any other
person or entity other than the Company or ISC; (iii) permit the name of
Employee to be used in connection with a competitive Business; or (iv) solicit
or entice any customer or prospective customer of ISC or the Company at the time
of termination of employment in order to offer products or services of a
competitive Business.
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(c) The parties understand and agree that the non-competition
agreement set forth in this Section 7 shall be construed as a series of separate
covenants not to compete: one covenant for each state within the Territory, one
for each separate line of business of the Company and ISC, and one for each
month of the non-competition period. If any restriction set forth in this
Section 7 is held by a court or arbitration panel to be unenforceable with
respect to one or more geographic areas, lines of business and/or months of
duration, then ISC, the Company Employee agree, and hereby submit, to the
reduction and limitation of such restriction to the minimal effect necessary so
that the provisions of this Section 7 shall be enforceable to the maximum extent
possible.
8. NO CONFLICTS. Employee represents that he is not bound by any
agreement or any other existing or previous business relationship which
conflicts with, or may conflict with, the performance of his obligations
hereunder or prevent the performance of his duties and obligations hereunder.
9. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of the Commonwealth of Massachusetts and this
Agreement shall be deemed to be performable in Massachusetts.
10. SEVERABILITY. Without in any way limiting the provisions of Section
7(c), in case any one or more of the provisions contained in this Agreement or
the other agreements executed in connection with the transactions contemplated
hereby for any reason shall be held to be invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Agreement or such other agreements, but this
Agreement or such other agreements, as the case may be, shall be construed and
reformed to the maximum extent permitted by law.
11. WAIVERS AND MODIFICATIONS. This Agreement may be modified, and the
rights, remedies and obligations contained in any provision hereof may be waived
only in accordance with this Section 11. No waiver by either party or any breach
by the other or any provision hereof shall be deemed to be a waiver of any later
or other breach thereof or as a waiver of any other provision of this Agreement.
This Agreement may not be waived, changed, discharged or terminated orally or by
any course of dealing between the parties, but only by an instrument in writing
signed by the party against whom any waiver, change, discharge or termination is
sought. No modification or waiver by the Company shall be effective without the
consent of at least a majority of the members of the Board of Directors then in
office at the time of such modification or waiver.
12. ASSIGNMENT. Employee acknowledges that the services to be rendered
by him hereunder are unique and personal in nature. Accordingly, Employee may
not assign any of his rights or delegate any of his duties or obligations under
this Agreement. The rights and obligations of the Company and ISC under this
Agreement shall inure to the benefit of, and shall be binding upon, their
successors and assigns.
13. ACKNOWLEDGMENTS. Employee recognizes and agrees that the
enforcement of the noncompetition provisions of this Agreement is necessary to
ensure the preservation, protection and continuity of the business, trade
secrets and goodwill of the Company.
14. ENTIRE AGREEMENT. This Agreement and the exhibits constitute the
entire understanding of the parties relating to the subject matter hereof and
supersedes and cancels all agreements, written or oral, made prior to the date
hereof between Employee and the Company relating to employment, salary, bonus,
or other compensation of any description, equity participation, benefits,
severance or other remuneration.
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15. NOTICES. All notices hereunder shall be in writing and shall be
delivered in person or mailed by overnight courier service, electronic facsimile
transmission, or first class mail (postage prepaid).
16. 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.
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the date first above written as an instrument under seal.
THE SOFTWARE DEVELOPER'S COMPANY, INC. XXXXXXX XXXXXXXX
By: /s/ Xxxxx X. Xxxxxx /s/ Xxxxxxx Xxxxxxxx
Signature, Xxxxxxx Xxxxxxxx
Title: President, Chief Executive Officer
INTERNET SECURITY CORPORATION
By: /s/ Xxxxx X. Xxxxxx
Title: Treasurer
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Exhibit A
ISC Bonus Plan:
The ISC Bonus Plan offers the Employee two different Options from which the
Employee may choose one or the other for a given fiscal year, except as noted
below for Option 2 for the 1996 fiscal year. Option 1 is available for the 1996,
1997 and 1998 fiscal years. Option 2 will not be available for the 1996 fiscal
year but will be available for the 1997 and 1998 fiscal years.
The award date for the determination of the Bonus Plan will be established as
soon as possible after the date the audit is complete, and the award of a cash
bonus or stock options will be made as early as possible prior to the date the
financial statements are made available to the public for each given year. On
the award date, Employee must choose either Option 1 or Option 2.
Both Options 1 and 2 are based on the financial performance of ISC, based on the
achievement of actual Revenues and Pre-Tax Income of ISC. Without limitation,
the ISC business will include all Internet and network-related security products
and services. Revenue and Pre-Tax Income derived from the sale of products and
services of the ISC business made through SDC or its other subsidiaries (such
as, for example, sales of ISC security products made through SDC's catalogs)
will be included in calculating the financial performance of ISC. Financial
performance is measured by comparing ISC's actual Revenue and Pre-Tax Income to
ISC's Base Plan forecasts. The actual Revenue and Pre-Tax Income of ISC will be
calculated in accordance with GAAP. A proper allocation of the cost of SDC's
facilities, overhead and other sales, marketing and other general and
administrative expenses incurred by SDC with respect to ISC's business will be
included as a deduction in arriving at ISC's actual Pre-Tax Income (for example,
such as SDC's contribution to ISC of resources and funds for telephone, legal,
finance, advertising, depreciation, consulting services, seminars and trade
shows, supplies). ISC will receive a pro-rata G&A allocation based on the number
of employees working under ISC accounts divided by the total number of domestic
employees working at SDC (including ISC employees), not to exceed 10% of
revenue. This Bonus Plan only covers the 1996, 1997 and 1998 fiscal years.
The Base Plan forecast numbers for ISC's business are as follows:
ISC ISC
Base Plan Base Plan
Revenue Pre-Tax Income
Fiscal Year 1996 (October 1, 1995 to March 31, 1996) $3,007,000 $438,000
Fiscal Year 1997 (March 31, 1997) $8,230,000 $872,000
Fiscal Year 1998 (March 31, 1998) $14,243,000 $2,299,000
OPTION 1 - STOCK OPTIONS
Option 1 awards incentive stock options for SDC's Common Stock for up
to 100,000 shares in each fiscal year for the three-year term covered by the
Agreement. The first year's award of stock options will be pro-rated over the
remaining months of SDC's 1996 fiscal year which ends March 31, 1996. For
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example, if the closing date for SDC's acquisition of ISC is September 30, 1995,
six months (or 50,000 stock options, 50% of the 100,000 award potential for the
remaining six months of the 1996 fiscal year) would be available to the Employee
if ISC achieves the Base Plan Revenue and Base Plan Pre-Tax Income. The
remaining two fiscal years (1997 and 1998) would offer the potential of
incentive stock options for SDC's Common Stock for up to 100,000 shares for each
fiscal year (1997 and 1998). The exercise price of the stock options to be
awarded under this plan will be the market value on the date of the award. The
stock options which may be awarded in any fiscal year under this Plan will vest
in equal, annual installments over a four-year period following the date of
award at 25% at the end of each year following the first anniversary of the
award.
The potential award of stock options to Employee under Option 1 is
based on the financial performance of the achievement of Revenue and Pre-Tax
Income thresholds for ISC's business. Employee must achieve both his Base Plan
Revenue and Base Plan Pre-Tax Income forecast of ISC's business to become
eligible for the bonus award each year. If ISC's actual Pre-Tax Income equals or
exceeds 125% of ISC's Base Plan Pre-Tax Income set forth above all the options
for 100,000 shares of SDC's Common Stock available for each fiscal year (pro
rated, however, for the 1996 fiscal year) shall be awarded to Employee. If ISC's
actual Pre-Tax Income is greater than 100% of ISC's Base Plan Pre-Tax Income but
less than 125% of ISC's Base Plan Pre-Tax Income, the number of SDC stock
options awarded shall be calculated on a straight line interpolation basis
(rounded up or down to the nearest whole share).
The following is an example of how Option 1 works: If in the 1997
fiscal year ISC's actual Revenues equals or exceeds the Base Plan Revenue of
$8,230,000 and ISC records $1,002,800 actual Pre-Tax Income (which is 115% of
the 1997 fiscal year Base Plan Pre-Tax Income threshold of $872,000), Employee
would be awarded 60% (or 15/25's) of the stock option pool for 100,000 shares of
SDC's Common Stock otherwise available to be awarded. Thus, Employee would
receive 60,000 stock options for fiscal 1997. If ISC records in fiscal year
ending March 31, 1997, Revenues equal to or in excess of the Base Plan Revenue
of $8,230,000 and has achieved an actual Pre-Tax Income of $1,100,000 (which
exceeds 125% of ISC's Base Plan Pre-Tax Income for the 1997 fiscal year),
Employee would be awarded 100% of the stock option pool for 100,000 shares of
SDC's Common Stock. Thus, Employee would receive stock options for 100,000
shares of SDC's Common Stock for SDC's 1997 fiscal year.
If employment is terminated without cause during the term of the
Agreement, all previously awarded stock options under this ISC Bonus Plan for
performance in completed fiscal years will accelerate and vest immediately. If
employment is terminated without cause by SDC pursuant to Section 5.7 of the
Agreement, the annual award will be the bonus that Employee would have otherwise
earned or accrued under the terms of the ISC Bonus Plan for the fiscal year in
which Employee is terminated.
OPTION 2 - CASH
Option 2 allows the Employee to earn only a cash bonus based on
achieving certain minimum levels of financial performance as measured both by
ISC's Base Plan Pre-Tax Income and by ISC's Base Plan Revenue set forth above.
The cash award is based on a progressive bonus system. There are three Bonus
brackets based on the actual Pre-Tax Income of ISC as compared to Base Plan
Pre-Tax Income of ISC for each fiscal year. The amount of actual Pre-Tax Income
of ISC in each bracket is multiplied by a Bonus Factor and then multiplied by
the ratio, rounded to two decimal points, of actual Revenue to Base Plan Revenue
of ISC. Each year ISC must achieve a minimum of 80% of Base Plan Pre-Tax Income
and 70% of Base
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Plan Revenue (ratio of actual Revenue to Base Plan Revenue equaling 0.70) for
Employee to become eligible for Option 2. The maximum for the ratio of actual
Revenue to Base Plan Revenue will always be 1.00 (i.e. ISC's actual Revenues
meeting or exceeding Base Plan Revenues). The maximum actual Pre-Tax Income used
in the calculations will be 150% of Base Plan Pre-Tax Income forecasts.
Therefore, excess actual Pre-Tax Income of ISC over 150% of Base Plan Pre-Tax
Income will not contribute to the Bonus payout. The formula is as follows:
Ratio of Actual Revenue to
Base Plan Revenue
Actual Pre-Tax Income X Bonus Factor X = Bonus Payout
--------------------- ------------ ------------
(need minimum 0.70;
-------------------
maximum 1.00)
Up to 100% of Plan Dollars 0.10
(need minimum of 80%)
Greater than 100% to 125% of 0.20
Plan Dollars
Greater than 125% to 150% of 0.30
Plan Dollars
The following is an example using the 1997 fiscal year, assuming ISC's
actual Pre-Tax Income of $959,200 on actual Revenue of $8,641,500 for ISC's
business. Thus, actual Pre-Tax Income for ISC's business is equal to 110% of
forecasted Base Plan Pre-Tax Income of $872,000 (the third bonus bracket does
not apply) and actual Revenue for ISC's business is equal to 105% of forecasted
Base Plan Revenue of $8,230,000 (the maximum ratio of 1.00 would be used). The
Bonus calculation would be as follows:
Ratio of Actual Revenue
Actual Pre-Tax Income Bonus Factor to Base Plan Revenue
X X X Bonus Payout
(need minimum 0.70;
maximum 1.00)
$872,000 0.10 1.00 $87,200
(Pre-Tax Income - up to 100% of Plan --
-----
need minimum of 80%)
-12-
$87,200 0.20 1.00 $17,440
(Pre-Tax Income - greater than 100% to
125% of Base Plan)
-0- 0.30 1.00
(Pre-Tax Income - greater than 125% to -0-
---
150% of Base Plan)
TOTAL CASH BONUS PAYMENT TO BE AWARDED
FOR 1997 FISCAL YEAR EQUALS: $104,640
The following is an example using the 1997 fiscal year, assuming ISC's
actual Pre-Tax Income of $1,395,200 on actual Revenue of $6,830,900 for ISC's
business. Thus, actual Pre-Tax Income for ISC's business is equal to 160% of
forecasted Base Plan Pre-Tax Income of $872,000 and actual Revenues for ISC's
business is equal to 83% of forecasted Base Plan Revenue of $8,230,000. The
Bonus calculation is as follows:
Actual Pre-Tax Income X Bonus Factor X Ratio of Actual Revenue X Bonus Payout
--------------------- ------------ ------------
to Base Plan Revenue
(need minimum 0.70;
maximum 1.00)
$872,000 0.10 0.83 $72,376
(Pre-Tax Income - up to 100% of Plan --
-----
need minimum of 80%)
$218,000 0.20 0.83 $36,188
(Pre-Tax Income - greater than 100% to
125% of Base Plan)
$218,000 0.30 0.83 $54,282
-------
(Pre-Tax Income - greater than 125% to
150% of Base Plan)
TOTAL CASH BONUS PAYMENT TO BE AWARDED $162,846
FOR 1997 FISCAL YEAR EQUALS:
