EMPLOYMENT AGREEMENTS
We have entered into an agreement with Mr. James A. Cannavino pursuant to
which he has agreed to serve as Chairman of our Board of Directors. As
compensation for his services, Mr. Cannavino was granted options to purchase
1,200,000 shares of common stock, 600,000 of which are Type I options and
600,000 of which are Type II options. "Type I" options vested one-half on the
earlier of (i) the closing date of our initial public offering (August 7, 1998),
or (ii) December 31, 1998 and one-half on December 31, 1998. "Type II" options
vest on December 31, 2002, subject to earlier vesting based upon the company
reaching certain defined levels of net income. The agreement with Mr. Cannavino
further provides for the issuance of a $500,000 full recourse loan to him for
relocation or other purposes upon the effective date of our initial public
offering. The money was lent to Mr. Cannavino and the loan is due on December 1,
2000. Mr. Cannavino also receives a monthly salary of $2,000 and is reimbursed
for certain expenses.
We have entered into employment agreements with each of Judy G. Carter,
C.R. Kinsey, III and Robert C. McLaughlin, which started on the effective date
of our initial public offering. The employment agreements with Ms. Carter and
Mr. Kinsey terminate December 31, 2002 and the employment agreement for Mr.
McLaughlin is for a three year term. The agreements automatically renew for
additional one year periods unless we or the employee notifies the other party
at least ninety days prior to the end of any renewal term that we or they desire
to terminate such agreement. Pursuant to the agreements, Ms. Carter, Mr. Kinsey,
Mr. McLaughlin, receive annual compensation of $200,000, $200,000, and $120,000,
respectively and an incentive bonus based on meeting or exceeding annual or
quarterly net income targets to be established by the board of directors. The
incentive payments to Ms. Carter and Mr. Kinsey were up to $150,000 for 1998 and
4
<PAGE> 7
are up to $200,000 for each of the years 1999 through 2002. Each employment
agreement also provides for certain payments following death or disability and
further provides, in the event of a change in control of SOFTWORKS, as defined
therein, the right, at the employee's election, to terminate the agreement and
receive a lump sum payment of approximately three times his or her annual
salary.
401(K) SAVINGS PLAN
We sponsor a retirement plan (the "401(k) Savings Plan") intended to be
qualified under section 401(k) of the Internal Revenue Code of 1986, as amended.
All employees over age 21 who have completed at least 1,000 hours in their first
year of employment by us are eligible to participate in the 401(k) Savings Plan.
Employees may contribute to the 401(k) Savings Plan on a tax deferred basis up
to 20% of their total annual salary, but in no event more than the maximum
permitted by the Code ($10,000 in calendar 1998). After an employee has been
with us for two years, we match 25% of all employee contributions up to $2,500
per year per employee, and all company contributions are fully vested. As of
December 31, 1998, 161 employees participated in the 401(k) Savings Plan. For
the fiscal year ended December 31, 1998, our contribution on behalf of 76
eligible participants was an aggregate approximately $78,000 to the 401(k)
Savings Plan, of which an aggregate $4,700 was a contribution for Judy G. Carter
and C.R. Kinsey.
1998 LONG TERM INCENTIVE PLAN
In May 1998, we adopted the SOFTWORKS, Inc. 1998 Long Term Incentive Plan
(the "1998 Incentive Plan") in order to motivate our qualified employees, to
help us attract employees and to align the interests of those employees with our
stockholders' interests.
The 1998 Incentive Plan provides for the grant of "incentive stock options"
within the meaning of the Section 422 of the Internal Revenue Code of 1986, as
amended, "non-qualified stock options," restricted stock, performance grants and
other types of awards to our and our affiliates' officers, key employees,
consultants and independent contractors.
The 1998 Incentive Plan, which is administered by the Long Term Incentive
Plan Administrative Committee of our board of directors, authorizes the issuance
of a maximum of 3,727,000 shares of common stock, which may be either newly
issued shares, treasury shares, reacquired shares, shares purchased in the open
market or any combination thereof. If any award under the 1998 Incentive Plan
terminates, expires unexercised, or is cancelled, the shares of common stock
that would otherwise have been issuable pursuant thereto will be available for
issuance pursuant to the grant of new awards. We have outstanding options to
purchase 3,727,000 shares of common stock under the 1998 Incentive Plan. Of the
3,727,000 options, James A. Cannavino has been granted 600,000 Type I options
and 600,000 Type II options, Judy Carter has been granted 150,000 Type I options
and 200,000 Type II options, C.R. Kinsey has been granted 200,000 Type I options
and 250,000 Type II options and Robert McLaughlin has been granted 20,000 Type I
options and 80,000 Type II options. Mr. Cannavino has exercised 200,000 Type I
options.
1999 STOCK OPTION PLAN
In January 1999, we adopted the 1999 Stock Option Plan (the "1999 Plan") in
order to motivate our employees, and to help us attract employees and to align
the interests of those employees with our stockholders' interests.
The 1999 Plan provides for the grant of non-qualified stock options to our
officers, key employees, consultants and independent contractors.
The 1999 Plan, as amended, which will be administered by our board of
directors or a committee of our board, authorizes the issuance of a maximum of
1,500,000 shares of common stock, which may be either newly issued shares,
treasury shares, reacquired shares, shares purchased in the open market or any
combination thereof. If any award under the 1999 Plan terminates, expires,
unexercised, or is cancelled, the shares of the common stock that would
otherwise have been issuable pursuant thereto will be available for
5
<PAGE> 8
issuance pursuant to the grant of new awards. We have outstanding options to
purchase 1,310,000 shares of common stock under the 1999 Plan. Of the 1,310,000
options, Judy G. Carter has been granted 175,000 options, C.R. Kinsey has been
granted 40,000 options and Robert McLaughlin has been granted 15,000 options.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During our last fiscal year, our Compensation Committee consisted of James
A. Cannavino, Charles Feld and Robert Devine. Neither Mr. Feld nor Mr. Devine is
our employee.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth details regarding the options granted during
our last fiscal year to Judy G. Carter and C.R. Kinsey, III, the persons listed
in the Summary Compensation Table.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE AT ASSUMED
---------------------------------------------- ANNUAL RATES OF STOCK PRICE APPRECIATION
PERCENT OF EXERCISE FOR OPTION TERM(2)
TOTAL OPTIONS PRICE OR ------------------------------------------
OPTIONS GRANTED TO BASE PRICE EXPIRATION
NAME GRANTED(#) EMPLOYEES(1) PER SHARE DATE 5% 10%
- ---- --------------- ------------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Judy G. Carter(3)..... 150,000 Type I 6-30-01 $126,758 $ 296,720
200,000 Type II 12-31-02 288,146 671,595
------- --------- -----------
350,000 9.7% $7.00 $414,904 $ 968,315
C.R. Kinsey, III(3)... 200,000 Type I 6-30-01 $169,011 $ 395,626
250,000 Type II 12-31-02 360,183 839,494
------- --------- -----------
450,000 12.4% $7.00 $529,194 $1,235,120
</TABLE>
- ---------------
(1) We granted options for 3,613,850 shares to employees during our fiscal year
ended December 31, 1998.
(2) Potential realizable value assumes that our stock price increases from the
date the options were granted until the end of the option term at the annual
rate specified. Annual compounding results in total appreciation of 15.2%
(at 5% per year) for the Type I options with a term of 2.9 years and total
appreciation (at 5% per year) of 24.0% for the Type II options with a term
of 4.4 years; and 31.8% total appreciation (at 10% per year) for Type I
options with a term of 2.9 years and total appreciation (at 10% per year) of
52.1% for the Type II Options with a term of 4.4 years. If the price of our
common stock increased at such rates from the price at the end of our 1998
fiscal year ($7.06 per share) over the next three years, our stock price
with 5% appreciation would be $8.23 per share and with 10% appreciation
would be $9.46 per share. These assumed rates of appreciation are specified
in the Commission's rules and are not our estimate or projection of our
future stock price growth.
(3) We granted options for 125,000 shares to Judy G. Carter and 40,000 shares to
C.R. Kinsey III in February 1999 and 50,000 shares to Judy G. Carter in May
1999, which amounts are not included in this table.
6
<PAGE> 9
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
The following table sets forth information concerning options exercised
during the year ended December 31, 1998, by the named executive officers and the
value of unexercised options held by them as of December 31, 1998:
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FISCAL YEAR END FISCAL YEAR END(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Judy G. Carter............................ 150,000 200,000 $1,059,375 $1,412,500
C.R. Kinsey III........................... 200,000 250,000 1,412,500 1,765,625
</TABLE>
- ---------------
(1) Based upon the closing price of our common stock of $7.0625 on December 31,
1998.
|
