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Exhibit 10.5
April 14, 1998
Xx. Xxxxx X. Xxxxxxxxx
0 Xxxxxxx Xxxxx
Xxxxxx, XX 00000
Dear Xxx:
This letter will set forth the understanding pursuant to which you will
serve as chairman and a director of Softworks, Inc., a Delaware corporation
("Softworks" or the "Company"). Subject to your acceptance you were elected
chairman and director on April 13, 1998.
You will serve as chairman of the Company and as such be an employee of
the Company. We will use our best efforts to cause you to be elected as a
director of the Company. As chairman, you will chair meetings of the board of
Softworks, assist and provide guidance in the long-range strategy of Softworks
and help promote Softworks. You will perform such further duties as commonly
performed by chairman in similar companies in similar capacities.
We recognize that you are the chief executive officer of another
company and, in addition, have other commitments. Accordingly, we recognize that
you will provide such time and attention to serving as chairman as is reasonably
necessary in your good faith judgment and with due recognition of your other
time commitments. We will enter into with you indemnity agreements that protect
you to the fullest extent permitted by applicable law. The forms of these
agreements are annexed as Exhibit A. In addition, we will obtain directors' and
officers' insurance protecting you from any claims with regard to actions or
inactions as chairman and a director. This will be in reasonable amount
considering the Company's status and business, and be not less than that
maintained for other officers and directors and we will continue such coverage,
even after you cease to serve in such capacities, so long as you have any
potential liability for actions or inactions with regard to Softworks.
We will grant to you when we make an initial public offering or
otherwise go public, options on one million two hundred thousand shares of
voting common stock of Softworks. The grants will be made under a stock option
and restricted stock plan adopted by the Company with standard provisions
protecting your grants, including with regard to future recapitalizations, and
we will file and maintain an S-8 with regard to the plan and grants and file
S-3's, as reasonably requested by you, with regard to both the stock and option
grants, subject to IPO lock-up agreements, if applicable. The option grant shall
be made at the time of the pricing meeting for the initial public offering or,
if the Company becomes public without an initial public offering, at the time of
becoming public, and shall be at the price fixed at the pricing meeting or fair
market value when we become public, as the case may be. The above grants assume
a capital structure as we discussed and is subject to your approval. In
addition, with regard to the grants, you and your permitted transferees shall
have at least the same registration rights (contractual or actual) of any
executive of the Company.
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Xx. Xxxxx X. Xxxxxxxxx
April 14, 1998
Page 2 of 4
The options shall have a six year term and be fully transferrable by
you to a member of your family or a trust, family limited partnership or similar
estate planning vehicle primarily for members of your family. Six hundred
thousand shares of the option (the "Time Vesting Options") shall vest on the
following schedule, provided that at such time you are still employed by the
Company or an affiliate or serving as a director or consultant to it or an
affiliate:
300,000 shares on the earlier of: 1) the closing date of the IPO; or 2)
December 31, 1998
300,000 shares on December 31, 1998
The other six hundred thousand shares (the "Performance Vesting
Options") shall vest on the earlier of five years after their grant or, if the
EBITDA for the fiscal year ending December 31, 2001 is at least $14,000,000, on
December 31, 2001, but shall vest earlier (but not prior to six months after
grant except upon an acceleration as provided below) at the end of the
applicable fiscal year if the following performance targets are met by Softworks
based on EBITDA on the fiscal years ending as set forth below; provided that if
you terminate your employment and other relationships with the Company and its
affiliates prior to December 31, 2000, other than for Good Reason or death, or
the Company terminates you for Cause prior to that date, to the extent the
options have not already vested, they shall cease to be exercisable. The vesting
targets are as follows:
Date Target Shares Vesting
December 31, 1998 EBITDA $ 6,000,000 200,000
December 31, 1999 EBITDA 11,500,000 200,000
December 31, 2000 EBITDA 14,000,000 200,000
In addition, if the combined EBITDA for any period of years on an
aggregate basis satisfies the cumulative EBITDA for those years, the tranches
for all such periods, to the extent not previously vested, shall vest.
All options, not then vested, from both grants shall fully vest upon
your Termination without Cause or Termination for Good Reason prior to January
1, 2002, or a Change in Control. Cause shall be limited to (i) your willful
misconduct or fraud with regard to the Company that has a material adverse
economic impact on the Company, or (ii) your continued wilful failure to
substantially perform your duties under Paragraphs 2 and 3 hereof (other than
such failure resulting from a material breach of the obligations of Softworks or
Computer Concepts Corp. hereunder) for a period of sixty (60) days after receipt
by you of written demand for substantial performance has been delivered by the
Board of Directors of Softworks to you, which written demand specifically
identifies in reasonable detail the manner in which Softworks believes that you
have not substantially performed your duties hereunder. Notwithstanding the
foregoing, a termination for Cause shall not be effective unless and until you
have received reasonable notice setting forth the reasons for Softworks'
intention to terminate you for Cause, you have had an opportunity, together with
counsel, to be heard before the full Board of Directors of Softworks and to
submit any materials or information to the Board of Directors that you view
appropriate,
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Xx. Xxxxx X. Xxxxxxxxx
April 14, 1998
Page 3 of 4
and the Board of Directors has issued a finding that, in the good faith opinion
of a majority of the Board of Directors, your conduct has established a
sufficient basis for a termination for Cause. The foregoing is a procedural
requirement only and the determination of the Board may be challenged by you in
an appropriate forum. Any alleged termination for Cause by the Board which is
not correctly a termination for Cause shall be deemed a termination without
Cause. Good Reason shall mean a diminution in your title, authority or duties,
any material breach by the Company of this agreement, any failure to elect you
as a director or any removal of you as a director (other than for cause). Upon
your death, the next tranche of the Time Vesting Options shall vest and the
Performance Vesting Options shall continue to vest as set forth above if the
applicable performance criteria are satisfied, but shall not vest purely on a
time basis. Change in Control is defined on Exhibit C.
In addition, subject to the continuation of your services through the
completion date of the "Initial Public Offering" for Softworks, Inc., we will
make to you a full recourse loan for $500,000 for relocation or other purposes
upon Softworks, Inc. becoming a publicly traded entity. Such loan shall bear
interest, payable annually, at the applicable federal rate as defined in
Internal Revenue Code Section 1274(d) at the time of the loan. The loan shall be
unsecured. The principal and any unpaid accrued interest shall be due on
December 1, 2000, but you shall pay it down earlier to the extent of 100 percent
of any after tax profits you make upon sale of any shares of Softworks stock you
received from Softworks, Inc. or sale of any options of stock in Softworks you
receive. You will execute a promissory note in standard form for the loan.
We will pay you (subject to applicable withholding) a monthly salary of
$2000 as employee Chairman. You will, of course, serve as a director as an
independent contractor and not an employee. To the extent, if any, you become
subject to the excise tax under Internal Revenue Code Section 280G, as a result
of a "change in ownership," as defined in Internal Revenue Code Section
28OG(b)(2) in connection with the Company, we will pay you an amount such that
after payment of the excise tax and all taxes of any kind on the excise tax and
the amounts paid under this provision, you will have no after tax cost for the
excise tax on these amounts.
We will also provide upon your request a research assistant approved by
you and employed or retained by Softworks (at a cost of no more than $2,000 per
month) to assist you on a part-time basis as reasonably necessary in
coordinating your activities as chairman and providing you necessary information
in connection therewith.
You may retain your office as Chairman in such location as you select
and we will pay the costs of such office (this includes if you elect to maintain
it in your home).
We will also provide you, at your request, with a secretary at such
location, an automobile of a model as mutually agreed (with insurance,
maintenance and, if appropriate, garaging, subject to your being taxable on any
allocated personal use), club of your choice for business entertainment purposes
(which to the extent the Company is not required to treat as income to you, it
shall not) and reimburse your travel and entertainment expenses in connection
with furthering Softworks' business activities as you reasonably deem necessary,
but subject to presentation of receipts and other documentation.
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Xx. Xxxxx X. Xxxxxxxxx
April 14, 1998
Page 4 of 4
Your service as chairman and director is, of course, at will on both
sides and may be terminated by either party at any time, provided, however, that
if we terminate the arrangement Without Cause or you do so for Good Reason, as
defined above, we will continue to pay the costs of office and staff for six (6)
additional months.
You agree to treat as confidential and not use or disclose, except as
you believe in good faith to be in the best interest of the Company, any
confidential information of the Company while it is not generally known in the
industry. Of course, you may make disclosures if necessary to comply with legal
process. Furthermore, while you are Chairman or director of the Company and for
one (1) year thereafter, you will not directly provide services to the part of
another entity which directly competes in a material mariner with a material
portion of the business of the Company; the foregoing shall, of course, not
limit your activities or relationship with any other portion of such a business
or from being involved at a more senior level where the material competing
activities are not significantly material to the overall business of the entity.
Please acknowledge your agreement to the foregoing by signing below.
Sincerely,
/s/ Xxxx X. Xxxxxx
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Xxxx X. Xxxxxx,
President
Agreed:
/s/ Xxxxx X. Xxxxxxxxx
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Xxxxx X. Xxxxxxxxx
