December 17, 2001
By this letter, we propose amending the Employment Agreement, dated September 21, 2001, between you and QRS Corporation (the "Agreement") as follows:
The third paragraph in the section of the Agreement under the heading "Long Term Incentives" shall be deleted and restated in its entirety to read as follows:
"100,000 of these options will vest based on specific performance. Specifically, options to purchase another 25,000 shares of common stock of QRS will become fully vested when the Company establishes and maintains a stock price of more than $20 for 15 days. In addition, options to purchase an additional 75,000 shares of common stock (i.e., for a total of 100,0000 performance-based options) of QRS will become fully vested when the Company establishes and maintains a stock price of more than $30 for 15 days. In any event, these performance-based options will vest on the sixth anniversary of your employment with QRS."
The Agreement, as amended by this letter, shall remain in full force and effect, and this letter shall be deemed to be incorporated into the Agreement and made a part thereof.
If the amendment to the Agreement set forth in this letter is acceptable to you, please indicate your agreement by executing this letter where indicated below and returning a copy to me.
September 21, 2001
As a result of our recent discussions, it is with pleasure that I confirm our verbal offer for your employment with QRS Corporation. The following summarizes our offer:
President and CEO and Member of the Board of Directors
Peter R. Johnson, Chairman of the Board.
As soon as possible but no later than October 15th, 2001
As a key executive of QRS, you should ensure continued focus on the long-term mission of QRS:
In addition, you will have continuing, significant responsibility for the development of QRS' vision, values, structure, management process and people.
KEY RESULT AREAS
As a key executive of QRS, your focus for the remainder of 2001 and in 2002 should be on successfully addressing the critical issues facing QRS. The following specific objectives have been put forward to encourage more discussion between us during the next several weeks:
In short, we want you to significantly improve execution, performance and shareholder value.
Your annual compensation will be administered by me and reviewed by the Compensation Committee of the Board of Directors.
Key elements of our agreement that impact compensation are as follows:
During 2001 your short-term incentive compensation will depend on your start date, but assuming October 15th, it should approximate $62,500.
During 2001 and 2002 you will receive an advance of $8,333.33 each month, or an advance of $100,000 on an annual basis, of your annual incentive compensation, which amounts shall be non-reimbursable and deemed earned.
Notwithstanding the above, the annual total target compensation (base compensation plus incentive at 100%), shall not be less than $650,000 and for 2001 the total target compensation (base compensation plus incentive at 100%) will depend on your start date, but again assuming October 15th, it should approximate $135,500.
Your compensation, including incentives, will be reviewed in the first quarter of 2002 and each year thereafter (unless there is a change in objectives, locations, etc., in which case it will be reviewed at that time), to ensure that it continues to be equitable, appropriate to the location and provide appropriate incentives and support to the agreed objectives.
QRS will reimburse you for all business expenses reasonably incurred by you in the performance of your duties hereunder. You will adhere to QRS' travel and entertainment polices and procedures, submit expense reports with appropriate vouchers, receipts, and other substantiation of such expenses within thirty (30) days after they are incurred and you should expect prompt reimbursement.
ANNUAL INCENTIVE COMPENSATION COMPONENTS
LONG TERM INCENTIVES
It will be recommended that you receive a stock option grant of 300,000 shares in accordance with the defined plan, copies of which are available for your review. This recommendation will be presented to the Compensation Committee of the Board of Directors at their first meeting subsequent to your start date. The grant date will be the date the Board approves the grant, and the option price will be established by the closing price of the stock on that date.
200,000 of these options will vest over a four-year period with 25% vesting on the first anniversary of your employment and the remainder vesting in equal monthly increments thereafter.
100,000 of these options will vest based on specific performance. Specifically, options to purchase another 25,000 shares of common stock in QRS will be granted to you and will be considered to be fully vested when you accomplish the 2001 revenue and profit plan described above. In addition, options to purchase an additional 75,000 shares of common stock (i.e., for a total of 100,000 performance-based options) in QRS will be granted to you and will be considered to be fully vested when the company establishes and maintains a stock price of more than $30 for more than 15 days. In any event these performance-based options will vest on the sixth anniversary of your employment.
In addition to the benefits available to all QRS associates as defined in the Employee Handbook; as a Senior Vice President and Officer you are provided with additional benefits as follows:
Disability Insurance—The Company shall purchase and maintain in effect disability insurance sufficient to provide you with an income equal to 66% of your base compensation while you are disabled and unable to perform the duties of your current employment with QRS. You will have the option of continuing this additional disability insurance coverage at your own expense in the event of the termination of your employment. This additional insurance benefit is taxable and will be reported for tax purposes as additional income to you.
Liability Insurance—The Company shall purchase and maintain in effect sufficient Officer's liability insurance to provide you with reasonable coverage, including the provision of legal counsel and/or reimbursement of appropriate legal fees you pay personally, against all liability claims and judgments arising from your legal exercise of your duties as an Officer of QRS, including any actions filed after you cease your duties as an Officer or in the event of the termination of your employment. The Company shall also provide in its bylaws, a full indemnification for you as a QRS officer, to the maximum extent permissible under Delaware law.
TERMINATION AND SEVERANCE
This position is for no set period or term and just as you have the right to resign your position, at any time, for any reason, QRS reserves the right to terminate your employment, at any time, with or without cause, with or without notice.
For the period ending twelve months from your start date (i.e. on or before October 2002), in the event your employment is terminated without cause, you will become entitled to twelve (12) months of severance pay equal in the aggregate to your targeted total annual compensation and benefits at the level in effect at the time of your termination. After that initial period (i.e., after October 2002), in the event your employment is terminated without cause, you will become entitled to twelve (12) months of severance pay equal in the aggregate to your base compensation and benefits at the level in effect at
the time of your termination. Your severance payments will be made in accordance with the Company's standard payroll practices for current employees and will be subject to the Company's collection of all applicable withholding taxes.
For purposes of this agreement, termination "for cause" shall mean a termination of your employment for any of the following reasons: (1) your failure to substantially perform the material duties of your position with the Company after a written demand for substantial performance is delivered to you by the Company which specifically identifies the manner in which you have not substantially performed those duties and which provides a reasonable period for you to cure those deficiencies; (2) a material breach by you of your obligations under any confidential or proprietary information agreements with the Company or of any of your fiduciary obligations as an officer of the Company, (3) your failure to follow in a material respect the reasonable policies or directives established on an employee-wide basis by the Company, after written notice to you indicating the policies or directives with which you are not in material compliance, (4) any willful misconduct on your part having a material detrimental effect on the Company or (5) any unauthorized activity on your part which creates a material conflict of interest between you and the Company after you have been provided with a reasonable opportunity to refrain from that activity.
CHANGE OF CONTROL BENEFITS
The accelerated vesting of those unvested shares and options will be limited to the extent and only to the extent necessary to assure that the parachute payment attributable to the accelerated vesting of those shares and options would not constitute an excess parachute payment under Internal Revenue Code Section 280G(b).
To the extent one of more of your options or unvested shares do not vest on an accelerated basis upon a Corporate Transaction or Change in Control by reason of such limitation, those options
will continue to become exercisable in accordance with the original exercise schedule indicated in the respective grant notices for those options, and those unvested shares will continue to vest in accordance with the original vesting schedule set forth in the applicable Restricted Stock Agreements. However, should either (i) your employment be terminated without cause or (ii) you resign by reason of a material change in your base compensation, your targeted annual incentive compensation, your annual total target compensation, or your benefits (for this purpose, 15% will be deemed a material reduction), a material reduction in your duties or responsibilities, or a change in your principal place of employment by more than 50 miles, at the time of such Corporate Transaction or Change in Control or within twenty four (24) months thereafter, then each of your outstanding options, to the extent not otherwise fully exercisable at that time, shall automatically accelerate and become immediately exercisable for all the option shares and may be exercised for any or all of those shares as fully vested shares at any time prior to the expiration or sooner termination of the option term. In addition, all of your unvested shares will immediately vest upon such a termination of employment or resignation.
EMPLOYMENT AT WILL
Your employment in the position of Chief Executive Officer will remain an Employment At Will. This means that your position is for no set period or term and just as you have the right to resign your position, at any time, for any reason, QRS reserves the right to terminate your employment, at any time, with or without cause and with or without notice. If any contrary representation has been made to you, this letter supersedes it. Neither subsequent agreement contrary to this nor any amendment to this term can be made unless it is in writing and signed by both of us and copied to the Chairman of the Compensation Committee.
I trust the above meets your approval. However, should you have any questions or concerns, you should not hesitate to contact either Garth Saloner or myself. For our part we look forward, with tremendous enthusiasm, to you joining QRS and our ongoing relationship.
c.c.: Garth Saloner—Chairman of the Compensation Committee
I accept this ongoing position with QRS Corporation on these terms and conditions on the terms above and understand and agree that it supersedes any other agreement, written or oral, I may have with QRS with respect to employment or compensation by QRS including salary, incentive, options, termination and severance.