EXHIBIT 10.5
[LETTERHEAD OF MERCATOR SOFTWARE]
June 13, 2001
Mr. Robert J. Farrell
123 Edgewood Avenue
Smithtown, NY 11787
Dear Bob:
On behalf of Mercator Software, I am pleased to extend an offer of
employment to you as President of the Americas. In this role you will be a
member of the executive management team, operations committee, strategy council,
and participate in the strategic and operational needs of the business. Bob, I
look forward to bringing you on board as a key member of our executive
leadership team. Following are details of our offer to you.
1. Position. You will start in a full-time position on or before July 9, 2001 as
President of the Americas reporting to me. By signing this letter, you confirm
to the Company that you are under no contractual or other legal obligations that
would prohibit you from entering employment with or performing your duties for
the Company.
2. Compensation and Employee Benefits. You will be paid a starting salary at the
annual rate of $225,000, subject to an annual compensation review, including
options, each year beginning February 1, 2002, and payable in accordance with
the Company's standard payroll schedule. We will also offer you the opportunity
to participate in the Company's annual incentive bonus plan, under which you
will be eligible to earn, at par, a bonus of 100% of your base salary. The bonus
payout is based upon corporate and business unit performance and individual
contribution in meeting our objectives. The payout range is zero to 300%. Your
2001 bonus is guaranteed to be $100,000. It will be payable in the first quarter
of 2002, consistent with when other executives at this level are paid. As a
senior executive of the Company, you will be eligible to participate in the
company-sponsored benefits that the Company makes available to senior executives
(e.g., health insurance, dental insurance, etc.).
3. Options. You will be granted 50,000 options upon joining the company with an
exercise price equal to the fair market value on the date of grant. You will be
eligible for an additional 150,000 options, subject to the attached vesting
schedule.
Upon a change of control of Mercator, Fifty (50%) percent of your outstanding
unvested stock options will vest and become immediately exercisable. A change of
control will be defined as the company being acquired and as a result it is no
longer publicly traded. The options that you acquire shall be subject to the
terms and conditions of the relevant stock option plan and stock option
agreement and other related agreements to be entered into by and between you and
the Company. In the event your employment is terminated by death or disability,
options to be vested within six (6) months of your death or disability will be
vested and be exercisable for the balance of their original term.
Mr. Robert J. Farrell
June 12, 2001
Page 2
4. Vacation. You will be entitled to four weeks vacation, in addition to
scheduled company holidays.
5. Life Insurance. As an executive within the company, you will be entitled to
receive term life insurance in the amount of $500,000 payable by the Company.
6. Severance. If you are terminated for any reason other than for cause, you
will be entitled to six months' salary payable biweekly. In addition, executive
benefits for medical insurance and other executive perquisites will be provided
for six months.
If there is a change of control of the Company as defined in paragraph 3 herein,
within one year following a change of control of the Company, you may terminate
your employment with the Company if, during that one year period without your
written consent, there has occurred a significant diminution of, or assignment
to you of any duties inconsistent with your title, status, duties or
responsibilities as in effect as of the beginning of your employment with
Mercator. This right of termination can be exercised only if you give written
notice to the Company within thirty (30) days of the occurrence of the
significant diminution of, or assignment to you of any duties inconsistent with
your title, status, duties or responsibilities as in effect as of the beginning
of your employment with Mercator which you rely upon to terminate this
agreement. If you elect to terminate your employment pursuant to this provision,
upon such termination Mercator shall pay you twelve (12) months of base salary
in accordance with the Company's usual payroll practices.
7. Outside Activities. While you render services to the Company, you agree that
you will not engage in any other employment, consulting or other business
activity without the written consent of the Company. You also will not assist
any person or entity in competing with the Company, in preparing to compete with
the Company, or in hiring any employees or consultants of the Company.
8. Employment Relationship. The term of your employment with the Company is for
no specific period of time. Your employment with the Company will be "at will,"
meaning that either you or the Company may terminate your employment at any time
and for any reason, with or without cause with 30 days notice. This is the full
and complete agreement between you and the Company on this term. Although your
job duties, title, compensation and benefits, as well as the Company's personnel
policies and procedures, may change from time to time, the "at will" nature of
your employment may only be changed in an express written agreement signed by
you and the Company.
9. Withholding Taxes. All amounts of compensation referred to in this letter are
subject to reduction by the Company to meet all applicable withholding and
payroll tax requirements.
Mr. Robert J. Farrell
June 12, 2001
Page 3
10. Conditions of Employment. Upon joining Mercator, you will be required to
sign the enclosed Conditions of Employment agreement that includes
non-disclosure and non-compete clauses which set forth conditions relating to
the security and protection of the Company's trade secrets. In addition, you
will be required to comply with and periodically sign a certification of
compliance with Mercator's Insider Trading Policy.
11. Entire Agreement. This letter supersedes and replaces any prior
understandings or agreements, whether oral or written, between you and the
Company regarding the subject matter described in this letter.
We hope that you find the foregoing terms acceptable. You may indicate
your agreement with these terms and accept this offer by signing and dating the
line provided below and returning the executed copy to the undersigned. The
terms and conditions of this offer will expire on June 22, 2001. As required by
law, your employment with the Company is also contingent upon your providing
legal proof of your identify and authorization to work in the United States.
I look forward to working with you and having you as a member of my
executive team.
If you have any questions, please call me at (203) 563-1201.
Very truly yours,
MERCATOR SOFTWARE, INC.
/s/ Roy C. King
Roy C. King
Chief Executive Officer and Chairman
I have read and accept this employment offer:
/s/ Robert J. Farrell Date: June 14, 2001
- --------------------------------- ---------------------------
Signature of Robert J. Farrell
July 9, 2001
- ---------------------------------
Agreed start date
Attachment - Vesting Schedule
---------------------------------
# of Options Date of Vesting
---------------------------------
50,000 Date of Hire
---------------------------------
9,375 10/09/01
---------------------------------
9,375 01/09/02
---------------------------------
9,375 04/09/02
---------------------------------
9.375 07/09/02
---------------------------------
9,375 10/09/02
---------------------------------
9,375 01/09/03
---------------------------------
9,375 04/09/03
---------------------------------
9,375 07/09/03
---------------------------------
9,375 10/09/03
---------------------------------
9,375 01/09/04
---------------------------------
9,375 04/09/04
---------------------------------
9,375 07/09/04
---------------------------------
9,375 10/09/04
---------------------------------
9,375 01/09/05
---------------------------------
9,375 04/09/05
-------------------------------
9,375 07/09/05
---------------------------------
June 13, 2001
To: Robert J. Farrell
From: Roy King
Subject: 2001 Senior Management Compensation Programs
I'm very pleased to announce Mercator's new compensation plan for senior
managers. In conjunction with the plan, I am also preparing an enhanced stock
option program, to be announced in the next few weeks. Together they will help
us pursue our vision of being the Premier Provider of Business Integration
Solutions and of creating a company that, in keeping with our newly established
corporate values, hires confident, intelligent, success-driven employees who
attack our clients' challenges with teamwork, power and agility.
The Senior Management Bonus Plan was prepared with the help of Towers Perrin,
one of the world's most respected professional compensation firms. It reflects
the best practices of the most successful corporations. I've experienced this
system several times in my own career at IBM and elsewhere; it is equitable and
efficient and will help improve teamwork and our operations across all business
units.
The plan is simple. Each manager's bonus target will be established in terms of
percentage of salary. As President of the Americas your target bonus for 2001
will be 100% of your salary, prorated from your start date, with a guaranteed
payout of $100,000.00
How the target is achieved will be influenced by at least one of three factors:
Every manager will have the global success of the company as a bonus component.
The other two potential bonus components are the success of each manager's own
business unit or department; and the success of each manager in achieving his or
her personal goals.
o For 2001, global corporate and geographic business unit success will
be measured 30% by revenue and 70% by EBITDA (earnings before
interest, taxes, depreciation and amortization).
----------------------------------------------------------
Measurement Global Americas EMEA Asia/Pacific
Plan Plan Plan Plan
$M $M $M $M
----------------------------------------------------------
Revenue 180.0 100.5 69.1 10.4
----------------------------------------------------------
EBITDA 13.9 18.3 20.3 3.6
----------------------------------------------------------
(Global EBITDA Includes Corporate and R&D Expense)
o Personal goals are to be determined between managers and their
direct reports at the beginning of the year and evaluated at
year-end. Achievement ratings will determine merit increases as well
as be factored into the bonus plan.
o Bonuses will be paid on an annual basis in the first quarter of next
year, accept in the case of line managers in services and sales, who
will receive a portion of their bonus on a quarterly basis. You must
be employed by Mercator when bonuses are paid to qualify for this
plan.
Page Two
This compensation plan makes sure that all of us share alike in the success of
Team Mercator. How will we succeed? By working together through trust and
accountability. And by striving toward one goal: to achieve superior results
distinguished by innovation, operational excellence, quality and integrity ...
all on behalf of our customers.
Congratulations on making the team!
Sincerely,
/s/ Roy King
Mercator Software
2001 Management Incentive Plan
Multipliers For Global and Business Unit Components
- --------------------------------------------------------------------------------
------
EBITDA Component TARGET
70% Weighting
If EBITDA is - 9 10 12 13.9 16 18 20 24 27.8
Multiply Bonus By 50% 75% 90% 100% 150% 175% 200% 250% 300%
Revenue Component
30% Weighting
If Revenue is - 153 163 175 180 200 220 240 260 280
Multiply Bonus By 50% 75% 90% 100% 150% 175% 200% 250% 300%
------
- --------------------------------------------------------------------------------
Percentage Performance / Payout
------
EBITDA Target Achieved 65% 72% 86% 100% 115% 129% 144% 173% 200%
Bonus Multiplied by.. 50% 75% 90% 100% 150% 175% 200% 250% 300%
Revenue Target Achieved 85% 91% 97% 100% 111% 122% 133% 144% 156%
Bonus Multiplied by.. 50% 75% 90% 100% 150% 175% 200% 250% 300%
------
- --------------------------------------------------------------------------------
Below the 65% EBITDA target, no bonus is paid for that component
Below the 85% Revenue target, no bonus is paid for that component
- --------------------------------------------------------------------------------
Individual/Department Objectives
----------------------------------
Performance Bonus
Rating Payout
----------------------------------
1 125%
2 110%
3 100%
4 0
5 0
----------------------------------
Individual Multiplier applies to total bonus amount