[GRAPHIC VIDEONICS 0000 Xxxx Xxx.
OMITTED] The Video Editing Company Campbell, CA 95008
000-000-0000 o FAX: 000-000-0000
February 3, 1996
Xxxxx Xxxxxx
00000-000xx Xxx XX
Xxxxxxxxxxx, XX 00000
Dear Xxxxx,
This letter will formalize the offer we have reached. As we had discussed, I
have taken much of the text from our respective e-mails and faxes, so the
following may be choppy, but I think captures the intent and tone of our
discussions and agreements. Let me know if you believe anything is not in
accordance with our agreements. I look forward to a mutually enjoyable and
beneficial relationship.
1. Your title will be Vice President of Research and Development and you will be
an Officer of the Corporation.
2. I think it is worthwhile to include your "Summary of Philosophy" in this
document. You wrote: "I have tried to keep the concerns of the Company in mind.
It will take a team effort to ensure Company growth and I wouldn't want to harm
that team effort by my compensation or incentives. I believe that I will become
a key element in the Company's success and the Company will treat me
accordingly.
My proposed first steps on the job would be to become involved in the testing
and release to manufacturing of the current products. In addition I want to use
all of the current products in making video's at my residence. Together these
actions will allow me to get to know the people involved and the capabilities
and limitations of the current product mix."
3. Base Salary.
Your base salary will be $98K with a guaranteed bonus of $42K the first year.
Guaranteed bonuses will be $38K in year 2 and $34K in year 3.
4. Incentive Bonus
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Your thoughts on this are copied below:
"There will be no bonus in yr. 1 (due to move and stock), yr. 2 and on, I will
be eligible for an incentive bonus plan (can be applied to guaranteed Bonus)
that should have a reasonable chance of exceeding the guaranteed bonus by 50%.
Care should be taken to insure my incentives cannot lead to a conflict with
other members of executive team. Some thoughts on incentive bonus possibilities
(possible mixture that is easy to calculate):
Cash Bonus for each product released on Time (Able to ship to customers)
x% of revenue on new products for 1st year of shipments
Profit Sharing in Company
% Engineering productivity increase ($K of revenue per engineer for instance)
My job will be to insure efficiently developed, high-quality, products produced
in a predictable manner, that are perceived as valuable by our customer base.
The incentive program should be based on these attributes. The most immediate
need is predictable schedules through R&D. It is important that these products
be manufacturable however, so I should be measured until the products can be
produced and shipped. The products need to sell and the Company needs to make a
profit so the incentive should also take these factors into account (rather than
solely R&D performance in producing the product). I agree to work out the
specific incentive program after I join. Something to the effect of, as long as
the company is in good financial health and my performance is excellent there is
a reasonable chance for my total compensation to be in the $160,000 range."
Videonics agrees with these concepts.
5. Stock Options
An employee stock option to purchase 50,000 shares of stock will be granted upon
employment at the lowest possible price. To date in January, since we offered
you employment, the lowest price has been $9.75. If the closing stock price is
lower than that between now and February 19, 1996, your option will be granted
at the lower price. Vesting is in steps every six months, at 1/6 the total, for
three years.
You have said:
"I would like to have the opportunity to receive a further option in one year
(or at least before the 3 year Evergreen proposal). I don't expect a guarantee
just a reasonable consideration. It is my belief that this further option could
have
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significant near term upside potential and if structured appropriately, could be
valuable to the Company by defining a stretch incentive to be accomplished for
this option."
We agree to consideration of additional options, but without any guarantees. We
may mutually find that there is an interrelationship with incentive
compensation. We agree that if you are terminated within one year after a merger
or buyout your shares will be fully vested.
6. Company life insurance is one and one half times salary. Currently the
maximum amount available is $150,000. If and when the maximum is increased your
salary plus guaranteed bonus will be eligible.
7. Move.
Your thoughts on this are copied below:
"I believe that it could take 4 months to complete the move and during most of
that time I will be maintaining two residences and be away from my family.
During the transition period I will need to travel back and forth (and have my
family travel as appropriate). I propose a suitable 2 bedroom, furnished
apartment for this time period (I am not sure what this would cost). I suspect
this would be one round trip a week with at least 3 trips where we would both
travel (or 19 round trips total). I would bring one of my cars to the Bay Area
at the third trip so would require 2 weeks of a rental car in the Bay Area and
maybe 10 days of rental cars in the Seattle area. I think we should consider the
travel expenses as a business trip until I move into the apartment. At that
point I wouldn't expect meals and laundry etc. to be reimbursed since it would
become equivalent to my current situation."
Your travel costs will be covered as business expenses. We agree to a four month
transition with housing supplied at no cost to you for that time period and
trips approximately as you propose. Your family's travel costs unfortunately
cannot be considered that way and part of the moving expenses will be taxable to
you. We believe federal and state law are the same on moving expenses.
Basically, household moving expenses and direct travel costs are deductible, but
not most other costs. (Federal law changed on this starting in 1994.) We will
reimburse you at cost for deductible expenses and at 1.6 times cost for
reasonable, non-deductible expenses. This covers 37.5% allowance for federal and
state taxes. This should allow your move costs to come out basically a wash.
We do not considered expenses related to selling or buying a home as
reimbursable expenses. We will offer you $10,000 as a moving bonus to help a
little bit with housing costs, payable when you relocate. This bonus must be
repaid if you resign in less than one year.
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8. Misc.
You suggested:
"I want to become familiar with all of the current Videonics equipment. This
would require a S-VHS VCR, Hi-8 VCR, and a Macintosh computer. I propose this be
purchased by R&D for tax reasons and that my salary would be reduced by 1/2 the
total cost and I would then own this equipment (I believe it is in both our
interests for me to do this). I estimate this would cost about $5K."
Your equipment proposal is acceptable to us.
9. Severance Option
I think our dialog on this is clear, so I have left it intact. Your quote:
"Although I do not anticipate any problems I think we should at least discuss
the only real risk that I see. That is my relationship with Xxxx. Xxxx is key to
the Company. It is critical that Xxxx is coming up with new product and
technology ideas. It is also critical that these ideas get implemented. If for
some reason Xxxx and I can't work this out (again I do not think this will
happen, just pointing out that it could) I understand that I would have to go. I
would be willing to give the Company that option up front if we agreed to terms.
It would take me a year to recover fully so I propose 1 years salary (with
guaranteed bonus) and an accelerated vesting of 6 months on my option. This
would be the Company's option and not mine."
My reply. "We agree that you and Xxxx must work well together, but it is in all
of our interests to make this happen, and we are all responsible if it does not.
We do not think it is right to have accelerated vesting on termination and
haven't done this before. We can offer three months severance if the company
terminates you. We will also agree to one year severance pay if you are
terminated within one year after a merger or buyout."
Your answer: "Xxxx and I will get along very well. In fact I think we will be an
unstoppable combination. I believe it is in both of our interests to have
discussed the severance issues in advance. Your proposal is acceptable to me."
10. Per our discussions, you will start work on the afternoon of Feb. 19. We
will give you an advance that will approximate your first months salary at that
time, and deduct it from your first three bi-weekly paychecks.
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I think that covers all the points we have worked out. Please let me know if
there are any issues to clarify or discuss. I will be in the office this
afternoon and at home 000-000-0000 the rest of the weekend. If not, please sign
indicating your agreement below. Please call before faxing back so I can
maintain confidentiality.
Welcome to Videonics!
Best regards,
/s/ Xxxxx X. XxXxxxx
---------------------------------
Xxxxx X XxXxxxx, CFO
I accept the offer as outlined.
/s/ Xxxxx Xxxxxx
-----------------------------------
Xxxxx Xxxxxx Date
