-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VamLMg4fd3j+YlIUWUnKltiEJldazjHqeTFnYAzJsSMLJRH42ajFJz7q4Y0wfMDP Ukdr3JckVpMFCl2+jDYc+Q== 0000803058-99-000006.txt : 19991227 0000803058-99-000006.hdr.sgml : 19991227 ACCESSION NUMBER: 0000803058-99-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990928 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TOTAL RESEARCH CORP CENTRAL INDEX KEY: 0000803058 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ENGINEERING, ACCOUNTING, RESEARCH, MANAGEMENT [8700] IRS NUMBER: 222072212 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-15692 FILM NUMBER: 99719013 BUSINESS ADDRESS: STREET 1: 5 INDEPENDENCE WAY STREET 2: PRINCETON CORPORATE CENTER CITY: PRINCETON STATE: NJ ZIP: 08543 BUSINESS PHONE: 6095209100 10-K 1 FORM 10-K FOR YEAR ENDED JUNE 30, 1999 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K [ X ] Annual Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the fiscal year ended June 30, 1999. [ ]Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the transition period from ___ to ___. Commission File Number: 0-15692. TOTAL RESEARCH CORPORATION -------------------------- (Exact name of registrant as specified in its charter) Delaware 22-2072212 - ---------------------------------------- -------------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 5 Independence Way, Princeton, New Jersey 08543-5305 - ---------------------------------------- -------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (609) 520-9100 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered: None Nasdaq - --------------------------- ----------------------------------------- Securities pursuant to Section 12(g) of the Act: Common Stock, $.001 par value ----------------------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO - -- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K ((statute) 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ]. The aggregate market value of shares of Common Stock of the registrant held by non-affiliates of the registrant based on the closing price of the Common Stock on September 14, 1999 was $33,524,000. As of September 14, 1999, there were 11,911,608 shares of the Company's Common Stock ($.001 par value) outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the annual shareholders report for the year ended June 30, 1999 are incorporated by reference into Parts I and II. Portions of the proxy statement for the annual shareholders meeting to be held on December 8, 1999 are incorporated by reference into Part III. PART I Information contained or incorporated by reference in this report contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act), which represent the expectations or beliefs of Total Research Corporation (the "Company"), including, but not limited to, statements concerning industry performance, the Company's operations, performance, financial condition, growth and acquisition strategies, margins and growth in sales of the Company's products. For this purpose, any statements contained in this Annual Report that are not statements of historical fact may be deemed to be forward-looking statements. Such statements can be identified by the use of forward-looking terminology such as "believes," "expects," "may,""will," "should" or"anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy. See, e.g., "Management's Discussion and Analysis of Financial Condition and Results of Operations." No assurance can be given that the future results covered by the forward-looking statements will be achieved. These statements by their nature involve substantial risks and uncertainties, certain of which are beyond the Company's control. The information set forth below identifies important factors with respect to such forward-looking statements, including certain risks and uncertainties that could cause actual results to vary materially from the future results covered in such forward-looking statements. Other factors could also cause actual results to vary materially from the future results covered in such forward-looking statements. ITEM 1. DESCRIPTION OF BUSINESS OVERVIEW OF THE BUSINESS The Company is a leading full-service custom and web-enabled marketing organization that provides marketing research and marketing services to assist its clients with the pricing and positioning of new or existing products, customer loyalty measurements, brand equity and e-commerce issues, organizational structure and other marketing concerns. The Company provides services for its clients by using proprietary market research and other marketing technologies developed by the Company and distributed throughout various mediums, including the Internet. The Company's clients consist principally of Fortune 100 corporations operating in a wide array of industries, including automotive, chemicals, consumer products, financial services, government, health care, information technologies, manufacturing, telecommunications, travel and utilities. The Company's professional staff has business experience in each industry for which it conducts market research. The Company operates as one business segment. It services its clients through its five divisions (Customer Loyalty Management, Global Life Sciences, Strategic Marketing Services-Domestic, Strategic Marketing Services-International, and its Internet subsidiary, BlinkE(trademark)), each of which has specific industry and/or product expertise. The Company's divisions are located in several cities in the United States and in London, England. The Company also maintains relationships with market research organizations in South America and Asia to collect data internationally on behalf of the Company. The Company operates telephone data collection centers in Tampa, Florida and London, England to assist in collecting data for clients. The Tampa calling center currently has 80 fully computerized interviewing stations and the Company plans to expand this center to approximately 130 CATI (Computer Assisted Telephone Interviewing) interviewing stations by November 1999. The London calling center has approximately 140 CATI interviewing stations. The Company's phone centers conduct interviews utilizing computer programmed questionnaires that are immediately uploaded to the Company's central data-processing center, thereby enabling research to be collected and analyzed more efficiently and effectively. The Company also recently introduced Total e-Survey(trademark), a web-based data collection methodology that utilizes its advanced research techniques to collect data over the Internet. The Company has complete in-house data processing operations, which provide for rapid, thorough and secure on-site data management and analysis. The Company supports many platforms and file types both to exchange data and to provide extensive database design and management capabilities. The Company also provides its clients with sample management and survey data results using a variety of software applications. It also has a large and continually expanding array of proprietary software developed internally to reduce research labor, assist with survey data analysis and generate client reports. The Company's software research and development team is continually engaged in efforts to develop, evaluate, and adapt new technologies to improve and expand the Company's processes, services and products. 2 The Company also maintains a state-of-the-art Optical Character Recognition system for scanning hardcopy sample and surveys. This scanner technology enters data directly from thousands of hardcopy questionnaires each day, eliminating the need for labor-intensive manual data entry and minimizing the risk of data-entry error. The Company was incorporated under the laws of the State of New Jersey in 1975 and was reincorporated under the laws of the State of Delaware in 1986. The Company maintains its principal executive offices at 5 Independence Way, Princeton, New Jersey 08543, and its telephone number is (609) 520-9100. CLIENTS In fiscal 1999, approximately 70 percent of the Company's revenues were earned from among the 100 largest commercial and financial companies in the world. The Company currently serves approximately 200 commercial clients and government agencies. During fiscal 1999, approximately 75 percent of the revenues earned by the Company were from clients who had previously retained the Company. For the fiscal years ended June 30, 1999, 1998 and 1997, no single client accounted for greater than 10% of the Company's annual revenues. The following chart sets forth certain information regarding the Company's annual revenues during the past three fiscal years: Fiscal Year Ended June 30, --------------------------
Industry 1999 1998 1997 Representative Clients -------- ---- ---- ---- ---------------------- Telecommunications/ Information 40.9 28.1 24.5 Bell Atlantic, Hewlett Packard, IBM, Systems Lotus, Lucent Technologies, Microsoft, US West Health Care/ Amgen, Bristol-Myers Squibb, Eli AgriBusiness 21.7% 25.3% 32.0% Lilly, John Deere, Novartis, Pfizer Manufacturing/Industrial 9.0 14.1 11.1 Dow Chemical, Dow Corning, DuPont, FMC, Monsanto Consumer Products 9.0 9.3 10.9 3M, Bausch & Lomb, Black & Decker, Eastman Kodak, Michelin Financial Services 6.1 6.8 7.4 Chase, Fidelity Investments, Merrill Lynch, Nations Bank, Prudential Other 13.3 16.4 14.1 Ford, NJ Transit, Walt Disney ------ ------ ------ Totals 100.0% 100.0% 100.0% ------ ------ ------
3 PRODUCTS AND SERVICES The Company believes it enjoys advantages over competitors due to its ability to conduct predictive marketing research studies, which attempt to predict consumer, business, or physician behavior in various alternative scenarios. The Company believes this is superior to more traditional market research, which is diagnostic in nature. The Company's principal proprietary predictive technologies and associated services include the following: o BLINKE(TRADEMARK), a newly established wholly owned subsidiary that integrates the Company's advanced marketing research capabilities with innovative Internet strategies in business-to-business and e-commerce applications. o COMPONENT ASSESSMENT (COMPASS(REGISTERED)) is designed to enable clients to analyze the structure of a competitive market and to determine the effect that individual product attributes have on a customer's purchase decision. COMPASS(registered) is commonly used by clients for developmental stage products and to understand the key drivers of product choice. o EQUITREND(REGISTERED) measures the perceived quality of a brand or product based upon consumer experiences with, and perceptions of, the brand. This product is funded by the Company and is sold to a number of clients. o THE IDEA FARM(TRADEMARK), a newly established wholly owned subsidiary that provides promotional services for agribusiness companies. o PREDICTIVE SEGMENTATION(REGISTERED) is a technology that enables marketers to identify the various segments and or sub-markets of individual products and to differentiate the demands of each segment. Clients utilize Predictive Segmentation to combine demographic and usage/attitude factors to determine the optimal segmentation for their products. o PRICE ELASTICITY MEASUREMENT SYSTEM (PEMS(REGISTERED)) permits the evaluation of pricing strategies for different products and services. PEMS is designed to enable the client to predict sales of products and services under a broad range of possible competitive pricing scenarios. o TOTAL E-SURVEY(TRADEMARK) is the Company's new web service that combines the firm's advanced market research technologies and international expertise to provide a web-based data-collection capability. o TOTAL RESEARCH BIAS CORRECTION (TRBC(REGISTERED)) is a technology that enables marketers to improve the accuracy and value of any research by reducing fundamental sources of bias, error and distortion in market research data. This results in a better understanding of marketing behavior and substantial improvement of the predictive accuracy and value of market research. TRBC(registered) is especially valuable in multi-national studies. GEOGRAPHIC LOCATIONS The Company's headquarters are located in Princeton, New Jersey. The Company has domestic offices in Detroit, Minneapolis, Poughkeepsie, Tampa, and one international office in London, England. The Company has an agreement pursuant to which the Company authorizes Paradigma S.A. ("Paradigma") to use the name "Total Research Argentina". Paradigma represents the Company in Argentina and markets the Company's proprietary research techniques. The Company has an alliance with Asia Marketing Intelligence, ("AMI"), the largest independent data collection services firm in Asia, which enables the Company to offer full, comprehensive service for the Asian component of global studies. INTERNATIONAL OPERATIONS In fiscal 1999, approximately 44% of the Company's revenues were attributable to projects that the Company conducts for its clients involving market research which is performed on a global basis. The Company has conducted research projects in Europe, South America, Canada, Africa, China, Japan, Australia, and India. To engage in its international market research activities, the Company has developed a network of relationships (such as those with Paradigma and AMI) with market research organizations in essential locations around the world. These alliances enable the Company to maintain the quality and reliability of its data collection activities. 4 ORGANIZATIONAL STRUCTURE The Company currently operates four market research divisions. The Customer Loyalty Management division is located in Princeton. This division provides clients with an organized, controlled means of improving their operating results and marketplace performance through the effective use of information from customers and employees. Clients are primarily from the telecommunications, information technology, travel, and banking industries. The Customer Loyalty Division accounted for approximately 24% of the revenues generated by the Company in fiscal 1999. The Global Life Sciences ("GLS") division is international in nature, with staff in both the Princeton and London offices. The division conducts global market research in the pharmaceutical, health care, biotechnology, and agricultural industries. GLS accounted for approximately 20% of the revenues generated by the Company in fiscal 1999. The Strategic Marketing Services Domestic ("SMS Domestic") division operates from the Princeton, Poughkeepsie and Minneapolis offices. The SMS Domestic division conducts market research on a global basis in the consumer products/consumer packaging goods, information technology, automotive and telecommunications industries. This division is responsible for the Company's EquiTrend(registered) product. SMS accounted for approximately 31% of the revenues earned by the Company in fiscal 1999. The Strategic Marketing Services International ("SMS International") division operates from its London, England office. The SMS International division conducts market research mainly within Europe and Asia in the consumer products/consumer packaging goods, financial services, information technology, manufacturing/industrial and telecommunications industries. SMS International accounted for approximately 25% of the revenues earned by the Company in fiscal 1999. In addition to its four market research divisions, the Company recently established BlinkE(trademark), a wholly owned subsidiary. BlinkE(trademark) integrates the Company's advanced marketing research capabilities with innovative Internet strategies in business-to-business and retail e-commerce applications using proactive strategy development and advanced web site implementation. FEE ARRANGEMENTS The Company generally obtains full-service and advanced level research assignments through competitive bidding. Most contracts are awarded on a fixed-fee basis, subject to adjustment under certain circumstances. The Company also designs and implements multi-client studies, such as EquiTrend(registered), to address informational needs shared by multiple existing and potential clients. The Company usually develops the initial focus and study design of a multi-client study at its own expense prior to obtaining client commitments. The Company then sells the completed study to existing and potential clients on a non-exclusive basis. COMPETITION The market research industry is highly competitive and is characterized by a large number of relatively small organizations and a limited number of large full service organizations, many of which are believed to have financial resources greater than those of the Company. Management believes that it is currently one of the leading providers of market research and analysis services using advanced statistical techniques. In 1998, the Company was listed as the 24th largest US company, measured by revenues, in the marketing research industry by Marketing News. The Company's primary competitors include: Burke Marketing Services, Inc.; M/A/R/C, Inc.; Maritz, Market Facts, Inc.; National Analysts; Opinion Research Corporation; and Walker Research Incorporated. The Company believes that the principal competitive factors for traditional market research are the quality and validity of data collection, as well as the ability to efficiently design, execute and prepare reports on marketing research. The Company believes that the principal competitive factors for market research using advanced statistical techniques are the quality of its personnel and the Company's experience in developing and executing statistical market research. During economic downturns, the Company may experience increased competition for research budgets, which are often vulnerable to global corporate overhead reduction. 5 EMPLOYEES As of June 30, 1999, the Company employed 245 full-time employees. The Company uses approximately 350 part-time, hourly employees for data gathering and processing purposes. All employees are non-union. The Company believes that its relationship with its labor force is good. TRADEMARKS The Company owns 17 trademarks registered with the United States Patent and Trademark Office and/or similar regulatory authorities in other countries. Federally registered trademarks have perpetual life, provided they are renewed on a timely basis and used properly as trademarks, subject to the rights of third parties to seek cancellation of the marks. The Company regards its trademarks and other proprietary rights as valuable assets and believes that they have significant value in the marketing of its products. The Company protects its trademarks against infringement. ITEM 2.DESCRIPTION OF PROPERTY The Company's headquarters and principal United States operating facility is located in Princeton, New Jersey. As of June 30, 1999, the Company leased approximately 51,000 square feet of office space for its Princeton operations; the lease expires June 30, 2006. The Company is currently sub-leasing approximately 20,000 square feet of this space to third parties. The Company leases 6,083 square feet for a sales office in Minneapolis, Minnesota. The lease expires on April 30, 2001. The Company leases 2,400 square feet for a sales office in Poughkeepsie, New York. The lease expires on December 31, 1999. The Company leases 7,559 square feet for a telephone data-collection facility in Tampa, Florida. The lease expires on June 30, 2001. In the United Kingdom, the Company leases 21,473 square feet for its Brentford, London office space. The lease expires October 31, 2010 with a tenant break clause at October 31, 2004. ITEM 3. LEGAL PROCEEDINGS As of June 30, 1999, there were no material legal actions or proceedings pending or, to the knowledge of the Company, threatened, to which the property of the Company was subject, or to which the Company was a party. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of fiscal 1999, no matters were submitted to a vote of security holders of the Company. 6 PART II ITEM 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's Common Stock trades on the Nasdaq Small Cap Market. The quarterly high and low bid prices of the Company's common stock, as reported by the Nasdaq Small Cap Market, from fiscal 1998 to date, were as follows: High Low ---- --- Fiscal 1998 First Quarter $2.03 $1.03 Second Quarter 2.00 1.34 Third Quarter 2.10 1.50 Fourth Quarter 4.25 2.00 Fiscal 1999 First Quarter $3.84 $2.50 Second Quarter 2.69 1.88 Third Quarter 3.38 2.38 Fourth Quarter 4.06 2.38 Fiscal 2000 First Quarter (through $3.88 $3.13 September 14, 1999) The above listed quotes reflect inter-dealer prices without retail mark-up, mark-down or commissions and are not necessarily representative of actual transactions or of the true value of the Common Stock. As of September 14, 1999, the Company had 453 shareholders of record of its Common Stock. The Company has never declared a dividend and does not plan to do so in the near future. In July of 1998, the Company entered into an agreement with a number of investors pursuant to which the Company sold 1,000,000 shares of Common Stock at $2.25 per share and issued options to purchase an aggregate of 250,000 shares of common stock at an exercise price of $2.25 per share (exercisable for 5 years). Such Common Stock was sold in a transaction that was exempt from registration under Section 4(2) of the Securities Act of 1933, as amended. The agreement also provides that the investors will, under certain circumstances, provide or arrange for others to provide up to $25,000,000 in debt or equity financing to complete acquisitions and/or projects approved by the Board of Directors. 7 ITEM 6. SELECTED FINANCIAL DATA SELECTED FINANCIAL DATA FOR YEARS ENDED --------------------------------------- JUNE 30, 1999, 1998, 1997, 1996 AND 1995 ---------------------------------------- The selected financial data as of June 30, 1999, 1998, 1997, 1996 and 1995 and for each of the years then ended has been derived from the audited consolidated financial statements of the Company. The selected financial data should be read in conjunction with, and is qualified in its entirety by, the Consolidated Financial Statements of the Company and the notes thereto and the other financial information included in Item 14 of the Annual Report.
Year Ended June 30, -------------------------------------------------------------------------- Statement of income data (000): 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Revenues $41,562 $34,057 $29,443 $23,715 $19,250 Direct costs 20,450 16,641 14,942 11,001 7,905 Gross profit 21,112 17,416 14,501 12,714 11,345 Operating expenses 17,802 14,868 13,221 13,683 9,785 Unusual charges 1,101 320 723 - - Income(loss) from operations 2,990 1,825 1,280 (2,070) 1,560 Interest income (expense) 231 20 (202) (342) (307) Other income, net - 40 50 87 59 Income(loss) before income taxes 3,221 1,885 1,128 (2,325) 1,312 Provision (benefit) for income taxes 1,245 760 490 (842) 552 Net income (loss) $ 1,976 $ 1,125 $ 638 $(1,483) $ 760 Net income(loss) per diluted share* $ .16 $ .10 $ .06 $ (0.15) $ .08 * - not in thousands June 30, -------------------------------------------------------------------------- Balance Sheet Data (000): 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Working capital (deficiency) $ 4,514 $ 801 $(1,151) $ (163) $ 210 Total assets 21,717 15,469 12,948 13,155 11,743 Capital lease obligations and notes payable 282 19 215 2,142 1,406 Stockholders' equity $ 9,079 % 5,077 $ 3,648 $ 2,821 $ 4,323
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with "Selected Financial Data" and the audited Consolidated Financial Statements of the Company and the related notes. RESULTS OF OPERATIONS The Company is a full-service consultative marketing research corporation that provides marketing research and information to assist its clients with the pricing and positioning of new or existing products, customer loyalty measurements, brand equity issues and other marketing concerns. 8 The following table sets forth, for the periods indicated certain historical income statement and other data for the Company and also sets forth such data as a percentage of gross revenues (in thousands).
Year Ended June 30, 1999 1998 1997 ---- ---- ---- Revenues $41,562 100.0% $34,057 100.0% $29,443 100.0% Direct costs 20,450 49.2 16,641 48.9 14,942 50.8 Gross profit 21,112 50.8% 17,416 51.1% 14,501 49.2% Operating expenses 17,802 42.8 14,868 43.7 13,221 44.9 Unusual costs 320 0.8 723 2.1 -- -- Income from operations 2,990 7.2% 1,825 5.3% 1,280 4.3% Interest income (expense) 231 0.6 20 0.1 (202) (0.7) Other income, net - 0.0 40 0.1 50 0.2 Income before income taxes 3,221 7.8% 1,885 5.5% 1,128 3.8% Provision for income taxes 1,245 3.0 760 2.2 490 1.6% Net income $ 1,976 4.8% $ 1,125 3.3% $ 638 2.2%
FISCAL YEAR ENDED JUNE 30, 1999 AS COMPARED TO FISCAL YEAR ENDED JUNE 30, 1998 Revenues increased approximately 22.0 percent from fiscal 1998 to fiscal 1999. The increases are primarily the result of increased activity in its Customer Loyalty and SMS divisions. The gross profit of the Company decreased slightly from 51.1 percent of revenues in fiscal 1998 to 50.8 percent of revenues in fiscal 1999, primarily due to the significantly larger dollar value contracts the Company completed over the past year. The Company's average contract price increased from approximately $50,000 in fiscal 1998 to approximately $95,000 in fiscal 1999. Larger full-service market research studies generally require a greater percentage of data-collection and data-processing costs, which typically lowers the gross profit as a percentage of revenues. Operating costs decreased approximately one percent from 43.7 percent of revenues in fiscal 1998 to 42.8 percent of revenues in fiscal 1999. This decrease is the result of the Company's continuing efforts to keep its operating costs down as it continues to generate greater revenues. Additionally, the Company recognized an unusual charge of $320,000 associated with the retirement of two executives. Income from operations increased as a percentage of revenues from 5.3 percent to 7.2 percent in fiscal 1999, or approximately $1,165,000. The increase can be attributed mainly to the Company's ability to successfully win and complete larger contracts while maintaining its operating cost structure. Interest income increased from 0.1 percent of revenues in fiscal 1998 to 0.6 percent of revenues in fiscal 1999, or approximately $210,000 from approximately $20,000 in fiscal 1998 to approximately $230,000 in fiscal 1999. This increase is the result of the interest earned on the increased cash balances of the Company. The provision for income taxes increased due to increased income in fiscal 1999. The effective tax rate decreased from 40.3 percent in fiscal 1998 to 38.6 percent in fiscal 1999 as a result of varying levels of work being completed in the states in which the Company operates. Overall, the Company increased its net income as a percentage of sales from 3.3 percent in fiscal 1998 to 4.8 percent in fiscal 1999, or approximately $850,000, from approximately $1,125,000 in fiscal 1998 to approximately $1,975,000 in fiscal 1999. The Company defines backlog as the unearned portions of its existing contracts at each balance sheet date. At June 30, 1999, backlog was approximately $18,100,000 as compared to a backlog of approximately $12,300,000 at June 30, 1998. The $18,100,000 figure is the largest backlog figure in the Company's history. The amount of backlog at any time may not be indicative of intermediate or long-term trends in the Company's operations. 9 FISCAL YEAR ENDED JUNE 30, 1998 AS COMPARED TO FISCAL YEAR ENDED JUNE 30, 1997 Revenues increased approximately 15.7 percent from fiscal 1997 to fiscal 1998. This growth is the result of increased activity in three of the Company's four divisions. The Customer Loyalty Division experienced flat sales from year to year due to increased competition. The gross profit of the Company improved from 49.2 percent of revenues in fiscal 1997 to 51.1 percent of revenues in fiscal 1998, primarily due to improved operating efficiencies. This improvement reflects one of management's goals which was to lower the costs of performing research without impairing the quality of the Company's products. Operating costs remained flat from year to year as a percentage of revenues. The Company realized an unusual cost associated with an employment transitional agreement entered into with the former Chairman and Chief Executive Officer in Fiscal 1998. Income from operations increased as a percentage of revenues from 4.3 percent to 4.9 percent in fiscal 1998, or approximately $545,000. On a pro forma basis, excluding the unusual cost, income from operations increased approximately 2.7 percent from fiscal 1997 to fiscal 1998, which reflects the impact of the cost and expense reductions discussed by management. Interest income (expense) changed from (0.7 percent) in fiscal 1997 to 0.1 percent in fiscal 1998. This primarily reflects the elimination of bank debt in the United Kingdom as well as better cash management in the United States. The provision for income taxes increased due to increased income in fiscal 1998. Overall, the Company increased its net income as a percentage of sales from 2.2 percent in fiscal 1997 to 3.3 percent in fiscal 1998, or approximately $447,000, including the unusual cost in fiscal 1998. At June 30, 1998, backlog was approximately $12,300,000 as compared to a backlog of approximately $12,000,000 at June 30, 1997. The amount of backlog at any time may not be indicative of intermediate or long-term trends in the Company's operations. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- The Company's cash balance increased from $2,097,347 to $5,203,383, an increase of approximately $3,100,000 during fiscal 1999. This increase in cash can be attributed to the cash generated from operations as well as the cash received from an agreement with a number of investors who purchased shares of the Company's stock in July of 1998. This agreement consisted of the sale of 1,000,000 shares of common stock at $2.25 per share and options to purchase an aggregate of 250,000 shares of common stock at an exercise price of $2.25 per share (exercisable for 5 years). The Agreement also provides that the investors will, under certain circumstances, provide or arrange for others to provide up to $25,000,000 in debt or equity financing to complete acquisitions and/or projects approved by the Board of Directors. The Company netted approximately $1,925,000 after deducting all costs associated with the transaction. At June 30, 1999, the Company's working capital increased $3,712,811 to $4,513,859 from $801,048 at June 30, 1998, and the current ratio increased to 1.38 from 1.08. For the year ended June 30, 1999, the Company generated cash from operations of approximately $2,073,000. Additional stock issued to the investors in July of 1998 and employee exercised stock options and other miscellaneous items added approximately $2,302,000, for a total of $4,375,000 of cash available during the year. The major uses of this cash were to increase cash balances by approximately $3,100,000 and to purchase computer equipment, office furnishings and fund leasehold improvements for its London office of approximately $1,275,000. The Company has a loan agreement with Summit Bank, located in Princeton, New Jersey. The loan agreement contains the following: o A $2.5 million revolving line of credit at a variable interest rate based on certain financial ratios. As of June 30, 1999, the rate is the prime rate less one-half percent (prime rate at June 30, 1999 was 7.75%). As of June 30, 1999, the Company was in compliance with all of the financial ratios and has not borrowed against this line. o A $500,000 term line secured by equipment, furniture and fixtures at an interest rate based on certain financial ratios. As of June 30, 1999, the rate is the prime rate less one-half percent. As of June 30, 1999, the Company has not borrowed against this line. 10 In addition, the Company has a bank overdraft facility of (pounds)300,000 (approximately U.S. $475,000) with Barclays Bank, a London bank. The borrowings are charged at a rate of 3 percent above the UK Base Rate (the base rate at June 30, 1999 was 5.0%). At June 30, 1999 the Company had borrowed approximately (pounds)178,917 (approximately U.S. $280,000) against this overdraft facility. All of these lines of credit are scheduled to expire on September 30, 1999. The Company is currently negotiating terms for these lines to be extended. On June 30, 1999, the Company's Board of Directors authorized the Company to repurchase from time to time over the next two years in open market transactions or otherwise up to one million shares of the Company's common stock. The Company expects to finance any repurchase with cash generated from operations. Recent Trends - ------------- During fiscal 1999, the Company began a transition from a full-service market research company to a full-service marketing services company. Several initiatives have been announced during the past six months to facilitate this transition. In April of 1999, the Company established the Idea Farm, Inc.(trademark), a wholly-owned subsidiary, to focus primarily on promotional services that support its agribusiness clients, such as peer influence meetings to educate customers about a client's products and services in a more cost-effective manner than traditional promotional methods. In June of 1999, the Company established BlinkE(trademark), a wholly owned subsidiary, that integrates the Company's advanced marketing research capabilities with innovative Internet strategies in business-to-business and retail e-commerce applications including proactive strategy development and advanced web site implementation. In July of 1999, the Company introduced Total e-Survey(trademark), a web-survey product that will combine its advanced market research technologies and international expertise with web survey capabilities. The online surveys will be offered as part of its complete, integrated data collection and analysis systems. The Company anticipates using Total e-Survey(trademark) for strategically designed surveys on topics of current interest as well as client-specific programs. Impact of Inflation - ------------------- Inflation had no material effect on the financial performance of the Company during fiscal 1999. 11 YEAR 2000 The Year 2000 issue is the result of computer programs being written using two digits rather than four to define a specific year. Absent corrective actions, a computer program that has date sensitive software may recognize a date using "00" as the year 1900 instead of the year 2000. This could result in system failures or miscalculations causing disruptions to various activities and operations. The Company recognizes the importance of ensuring that neither its customers nor its business operations are disrupted as a result of Year 2000 software failures. The Company has surveyed, and continues to communicate with, customers, suppliers, financial institutions and other vendors with which it does business to coordinate Year 2000 conversion efforts. Based on the results of this ongoing information exchange, the Company believes that any risks are minimal and that its systems are substantially Year 2000 compliant. Management has initiated a Company-wide program that will make it Year 2000 compliant by November 1, 1999. The Company expects to incur internal staff costs and other expenses necessary during the course of such compliance efforts and the Company has replaced some systems and upgraded others. The total cost of this effort will be $100,000 - $150,000 and has been funded by cash flows from operations. The Company does not expect Year 2000 issues to materially effect its products, services, competitive position or financial performance. However, there can be no assurance that this will be the case. The ability of third parties with which the Company transacts business to adequately address their internal Year 2000 issues is outside the Company's control. There can be no assurance that the failure of such third parties to adequately address their respective Year 2000 issues will not have a material adverse effect on the Company's business, financial condition, cash flows and results of operations. The Company currently has no contingency plans in place in the event it does not complete all phases of the Year 2000 program. ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKETING RISK The Company has one foreign subsidiary whose financial statements are translated using the accounting policies described in Note 1 of the Notes to the Consolidated Financial Statements. The Company is subject to exposure from the risk of currency fluctuations as the value of the foreign currency fluctuates against the dollar. The Company does not believe that it is exposed to material foreign exchange market risk. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements and notes thereto are presented under Item 14 of this Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 12 PART III Information required under Items 10, 11, 12 and 14 is incorporated herein by reference to the Company's definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the year covered by this Form 10-K with respect to its Annual Meeting of Stockholders to be held on December 8, 1999. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS OF FORM 8K (a) The following documents are filed as part of this report. 1. Financial Statements Page Reference -------------------- -------------- Report of Independent Auditors. F-1 - F-2 Consolidated Balance Sheets as of June 30, 1999 and 1998. F-3 Consolidated Statements of Operations for the years ended June 30, 1999, 1998 and 1997. F-4 Consolidated Statements of Stockholders' Equity for the years ended June 30, 1999, 1998 and 1997. F-5 Consolidated Statements of Cash Flows for the years ended June 30, 1999, 1998 and 1997. F-6 Notes to Consolidated Financial Statements. F-7 2. Financial Statement Schedule ---------------------------- Schedule II - Valuation and Qualifying Accounts S-1 All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable or the required information is given in the Financial Statements or Notes thereto, and therefore have been omitted. (b) Reports on Form 8K None 13 (c) Exhibits -------- The following documents are filed as part of this Form 10K at the page indicated or are incorporated by reference herein. Any document incorporated by reference is identified by a parenthetical reference to the filing with the Commission which included such document. Exhibit No. Description - ----------- ----------- 2 Certificate of Merger dated February 17, 1987; 3.1 Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-18, as amended, Registration No. 33-9078-NY; the"Form S-18"); 3.2 By-laws of the Company (incorporated by reference to Exhibit 3.2 to the Form S-18); 10.1 Lease, dated as of December 12, 1985, between the Company and Bellemeade Development Corporation (incorporated by reference to Exhibit 10.2 to the Form S-18); 10.2 Total Research Corporation Savings & Retirement Plan (incorporated by reference to Exhibit 10.3 to the Form S-18); 10.3 Employment Agreement, dated January 1, 1999, between the Company and Terri Flanagan; 10.4 Sublease, dated July 17, 1997, between the Company and Hexaware Technologies (incorporated by reference to Exhibit to the Form S-18); 10.5 Employment Agreement, dated July 1, 1998, between the Company and Albert Angrisani; 10.6 Employment Agreement, dated January 1, 1999, between the Company and Patti Hoffman; 10.7 Employment Agreement, dated January 1, 1999, between the Company and Eric Zissman; 10.8 Employment Agreement, dated January 1, 1999, between the Company and Mark Nissenfeld; 10.9 Loan Agreement between Summit Bank and the Company dated January 1, 1999. 10.10 1995 Stock Incentive Plan (incorporated by reference by the Form S8, Registration No. 333-74635); 10.11 1986 Stock Incentive Plan (incorporated by reference by the Form S8, Registration No. 333-74631); 21.1 List of Subsidiaries; 23.1 Consent of Ernst & Young LLP dated September 28, 1999; 23.2 Consent of Amper, Politziner & Mattia dated September 27, 1999; 27 Financial Data Schedule (EDGAR only). 14 TOTAL RESEARCH CORPORATION AND SUBSIDIARY For the Years Ended June 30, 1999, 1998 and 1997
Independent Auditors Reports F-1 Consolidated Balance Sheets as of June 30, 1999 and 1998 F-3 Consolidated Statements of Operations for the Years Ended June 30, 1999, 1998 and 1997 F-4 Consolidated Statements of Stockholders' Equity for the Years Ended June 30, 1999, 1998 F-5 and 1997 Consolidated Statements of Cash Flows for the Years Ended June 30, 1999, 1998 and 1997 F-6 Notes to the Consolidated Financial Statements F-7 Schedules: Schedule II - Valuation and Qualifying Accounts S-1
15 INDEPENDENT AUDITOR'S REPORT To the Board of Directors and Stockholders of Total Research Corporation and Subsidiary We have audited the accompanying consolidated balance sheet of Total Research Corporation and Subsidiary as of June 30, 1999 and the related consolidated statements of operations, stockholders' equity and cash flows for the year then ended. Our audits also included the financial statement schedule listed in the Index at Item 14A. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Total Research Corporation and Subsidiary as of June 30, 1999 and the consolidated results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set for therein. /s/ Ernst & Young, LLP -------------------------- ERNST & YOUNG, LLP August 27, 1999 MetroPark, New Jersey F-1 INDEPENDENT AUDITOR'S REPORT To the Board of Directors and Stockholders of Total Research Corporation and Subsidiary We have audited the accompanying consolidated balance sheet of Total Research Corporation and Subsidiary as of June 30, 1998 and the related consolidated statements of operations, stockholders' equity and cash flows for the years ended June 30, 1998 and 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Total Research Corporation and Subsidiary as of June 30, 1998, and the results of their operations and their cash flows for the years June 30, 1998 and 1997 in conformity with generally accepted accounting principles. /s/AMPER, POLITZINER & MATTIA, PC September 21, 1998 Edison, New Jersey F-2 TOTAL RESEARCH CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS JUNE 30,
1999 1998 ---- ---- Current assets Cash and cash equivalents $ 5,203,383 $2,097,347 Accounts receivable, less allowance for 7,068,199 6,451,545 doubtful accounts of $110,000 at June 30, 1999 and June 30, 1998 Cost and estimated earnings in excess of 3,248,270 1,201,265 billings on uncompleted contracts Deferred taxes 330,000 243,000 Prepaid expenses and other current assets 585,262 715,376 ----------- ----------- Total current assets 16,435,114 10,708,533 Fixed assets, less accumulated depreciation of $4,553,729 and 2,609,152 2,110,914 $3,923,493, respectively Goodwill, net of accumulated amortization of $379,181 and $301,337, 1,644,696 1,722,540 respectively Deferred Taxes 264,000 361,100 Other assets 763,767 566,071 ----------- ----------- $ 21,716,729 $ 15,469,158 Liabilities and Stockholders' Equity Current liabilities Revolving line of credit $ 282,027 $ - Accounts payable 4,038,566 3,385,709 Accrued expenses and other current liabilities 3,512,938 2,834,060 Billings in excess of costs and estimated earnings 3,373,665 3,394,545 Income taxes payable 714,059 293,171 ----------- ----------- Total current liabilities 11,921,255 9,907,485 Other long-term liabilities 716,605 484,207 ----------- ----------- 12,637,860 10,391,692 ----------- ----------- Stockholders' equity Common stock authorized 20,000,000 shares .001 par value, 11,761,608 shares issued at June 30, 1999 and 10,476,108 shares issued at June 30, 1998 11,762 10,476 Additional paid-in capital 6,627,782 4,172,904 Retained earnings 3,134,938 1,159,201 Accumulated other comprehensive income (35,925) 22,602 ----------- ----------- 9,738,557 5,365,183 Less: Treasury Stock, at cost (659,688) (287,717) ----------- ----------- Total Stockholders' equity 9,078,869 5,077,466 ----------- ----------- Total liabilities and stockholders' equity $21,716,729 $15,469,158 =========== ===========
See accompanying notes to financial statements F-3
TOTAL RESEARCH CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED JUNE 30, 1999 1998 1997 ---- ---- ---- Revenues $41,561,835 $34,057,084 $29,443,302 Direct costs 20,450,287 16,641,169 14,941,632 ----------- ----------- ----------- Gross profit 21,111,548 17,415,915 14,501,670 Operating expenses 17,801,453 14,868,072 13,221,437 Unusual charge 320,000 723,000 ----------- ----------- ----------- - Income from operations 2,990,095 1,824,843 1,280,233 Interest income (expense), net 230,462 20,424 (202,133) Other income, net 40,000 50,050 - ----------- ----------- ----------- Income before provision for income taxes 3,220,557 1,885,267 1,128,150 Provision for income taxes 1,244,820 760,450 489,955 ----------- ----------- ----------- Net income $1,975,737 $1,124,817 $ 638,195 ========== ========== ========== Earnings per share Basic $ 0.17 $ 0.11 $ 0.06 Diluted $ 0.16 $ 0.10 $ 0.06 Weighted average common shares Outstanding - Basic 11,586,010 10,118,908 9,978,351 - Diluted 12,693,423 11,704,804 10,357,073 See accompanying notes to financial statements
F-4
TOTAL RESEARCH CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Common Stock Treasury Stock --------------------------- ------------------ Accumulated Retained Additional Other Earnings Total Shares Paid-In Comprehensive (Accumulated Stockholders Issued Amount Capital Income Deficit) Shares Amount Equity ------ ------ ------- ------ -------- ------ ------ ------ Balance-June 30, 1996 9,882,108 $ 9,882 $ 3,505,835 $(90,685) $ (603,811) - $ - $2,821,221 - Exercise of options 162,000 162 70,710 - - - - 70,872 Translation adjustment - - - 117,780 - - - 117,780 Net Income - - - - 638,195 - - 638,195 ---------- ------ --------- ------ --------- ------ -------- ---------- Balance - June 30, 1997 10,044,108 10,044 3,576,545 27,095 34,384 - - 3,648,068 ---------- ------ --------- ------ --------- ------ -------- ---------- Exercise of Options 432,000 432 172,359 - - 92,930 (287,717) (114,926) Tax Benefit - Exercise of Options - - 424,000 - - - - 424,000 Translation adjustment - - - (4,493) - - - (4,493) Net Income - - - - 1,124,817 - - 1,124,817 ---------- ------ --------- ------ --------- ------ -------- ---------- Balance-June 30, 1998 10,476,108 10,476 4,172,904 22,602 1,159,201 92,930 (287,717) $5,077,466 ---------- ------ --------- ------ --------- ------ -------- ---------- Exercise of Options 285,500 286 259,906 - - 98,949 (371,971) (111,779) Tax Benefit - Exercise of - - Options 272,420 272,420 Shares issued to group of investors 1,000,000 1,000 1,922,552 - - - 1,923,552 Translation adjustment - - - (58,527) - - (58,527) Net Income - - 1,975,737 1,975,737 - - - - ---------- ------ --------- ------ --------- ------ -------- ---------- Balance-June 30, 1999 11,761,608 $ 11,762 $6,627,782 $ (35,925) $3,134,938 191,879 $(659,688) $9,078,869 ========== ====== ========== ======= ========== ======= ========= ========== See accompanying notes to financial statements
F-5
TOTAL RESEARCH CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 1999 1998 1997 ---- ---- ---- Cash flows from operating activities Net income $ 1,975,737 $ 1,124,817 $ 638,195 ------------- ------------- --------------- Adjustments to reconcile net income to net cash provided by operating activities Depreciation 776,371 588,937 634,903 Amortization 343,250 237,844 237,844 Accretion of warrants - - 8,000 Deferred tax benefit 10,100 (93,320) 262,015 Changes in operating assets and liabilities Accounts receivable (616,654) (1,349,949) (935,110) Cost and estimated earnings in excess of billing on uncompleted contracts (2,047,005) 39,587 496,882 Prepaid expenses and other current assets 130,114 (147,591) 136,047 Other assets (463,103) 5,845 13,251 Income tax refund receivable - - 841,495 Accounts payable 652,857 1,279,154 158,151 Accrued expenses and other current liabilities 678,878 187,830 942,376 Accrued restructuring costs - - (425,500) Billings in excess of costs and estimated Earnings (20,880) (492,827) 1,772,230 Income taxes payable 420,888 126,697 80,171 Other long-term liabilities 232,398 205,189 40,957 ------------- ------------- --------------- Net cash provided by operating activities 2,072,951 1,712,213 4,901,907 ------------- ------------- --------------- Cash flows from investing activities Purchases of equipment and lease improvements (1,274,609) (383,221) (721,328) ------------- ------------- --------------- Net cash used in investing activities (1,274,609) (383,221) (721,328) ------------- ------------- --------------- Cash flows from financing activities Increase (decrease) in revolver 282,027 (214,575) (3,512,217) Payment under capital lease obligations, net - - (97,272) Proceeds from issuance of common stock 2,084,194 309,073 70,872 ------------- ------------- --------------- Net cash provided by (used in) financing activities 2,366,221 94,498 (3,538,617) ------------- ------------- --------------- Effect of foreign exchange rate changes on cash (58,527) (4,493) 32,187 ------------- ------------- --------------- Net increase in cash and cash equivalents 3,106,036 1,418,997 674,149 Cash and cash equivalents - beginning of year 2,097,347 678,350 4,201 ------------- ------------- --------------- Cash and cash equivalents - end of year $ 5,203,383 $ 2,097,347 $ 678,350 ============= ============= ============= Supplemental disclosures of cash flow information Income taxes paid $493,310 $ 54,750 $ 90,149 Interest paid $43,789 $ 17,759 $ 191,370 Supplemental disclosure of non-cash financing activity (treasury stock) Exchange of common stock as payment for exercised stock options $ 371,971 $ 287,717 $ - See accompanying notes to financial statements
F-6 TOTAL RESEARCH CORPORATION AND SUBSIDIARY Notes to the Consolidated Financial Statements NOTE 1 - THE COMPANY ----------- The Company performs marketing research and marketing services for various Fortune 100 companies in a broad spectrum of industries. No single customer accounted for more than 10% of the Company's revenues in the years ended June 30, 1999, 1998 and 1997. The Company services these clients through its U.S. locations in Princeton, NJ; Minneapolis, MN; Poughkeepsie, NY; Detroit, MI; Tampa, FL; and its overseas location, London, England. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -------------------------------------------- REVENUE RECOGNITION - ------------------- The Company employs the percentage of completion method of accounting to report its revenues on its single-client studies, while on multi-client studies it recognizes revenues when the results are delivered to its clients. Clients are generally billed in accordance with the terms of the applicable contracts, which are not necessarily indicative of the stage of completion of the project. For single-client studies, the stage of completion and earned revenues are determined for each project for the applicable period. The amount by which the work completed exceeds billings to clients is carried as a current asset on the Company's balance sheet and is shown as "costs and estimated earnings in excess of billings" on uncompleted contracts. Where billings exceed work completed, the amounts are carried on the Company's balance sheet as a current liability and are shown as "billings in excess of costs and estimated earnings." PRINCIPLES OF CONSOLIDATION - --------------------------- The consolidated financial statements include the accounts of the Company and its subsidiary, Total Research Limited, after elimination of material intercompany accounts and transactions. USE OF ESTIMATES - ---------------- The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS - ------------------------- For the purpose of the statement of cash flows, cash equivalents include certificates of deposit and all highly liquid debt instruments with original maturities of three months or less. FIXED ASSETS - ------------ Fixed assets are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets: three years for transportation equipment and five to ten years for office equipment and furnishings. Leasehold improvements are amortized over the shorter of the economic lives or the underlying lease term. Repairs and maintenance, which do not extend the useful lives of the related assets, are expensed as incurred. F-7 DEFERRED RENT - ------------- The excess of lease payments on a straight-line basis over the actual monthly payments is recorded as deferred rent, which will reverse in future periods. Included in other long-term liabilities is deferred rent of approximately $484,000 and $309,000 as of June 30, 1999 and 1998, respectively. GOODWILL - -------- Goodwill has been recorded in relation to the excess of the purchase price over the fair values of the identified assets acquired. The Company amortizes goodwill over 25 years. The carrying value of goodwill is evaluated periodically in relation to the operating performance and future undiscounted net cash flows of the underlying business. Investment adjustments will be recorded if the sum of expected future net cash flows is less than the book value of the goodwill. INCOME TAXES - ------------ The provision for income taxes includes Federal, foreign, state and local income taxes currently payable and receivable and those deferred because of temporary differences between the financial statement and tax basis of assets and liabilities. The unremitted earnings of the Company's foreign subsidiary are considered to be permanently reinvested and are not expected to be remitted to the parent company. IMPAIRMENT OF LONG-LIVED ASSETS - ------------------------------- The Company records impairment losses on long-lived assets used in operations or expected to be disposed when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. STOCK-BASED COMPENSATION - ------------------------ As permitted by FASB Statement No. 123, Accounting for Stock-Based Compensation, the Company has elected to follow Accounting Principal Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related interpretations in accounting for its employee option plans. Under APB 25, no compensation expense is recognized at the time of option grant if the exercise price of the Company's employee stock option equals or exceeds the fair market value of the underlying common stock on the date of grant. EARNINGS PER SHARE - ------------------ In 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings Per Share. Statement 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. All earnings per share amounts for all periods have been presented, and where appropriate, restated to conform to the Statement 128 requirements. F-8 COMPREHENSIVE INCOME - -------------------- As of July 1, 1998, the Company adopted Statement No. 130, Reporting Comprehensive Income. Statement 130 establishes new rules for the reporting and display of comprehensive income and its components. Since this Statement requires only additional disclosure, there will be no effect on the Company's results of operations or financial position. Statement 130 requires foreign currency translation adjustments, which prior to adoption were reported separately in stockholders' equity, to be included in other comprehensive income. Prior year financial statements have been reclassified to conform to the requirements of Statement 130. SEGMENTS - -------- Effective July 1, 1998, the Company adopted Statement No. 131, Disclosures about Segments of an Enterprise and Related Information. Statement 131 superceded FASB Statement No. 14, Financial Reporting for Segments of a Business Enterprise. Statement 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. Statement 131 also establishes standards for related disclosures about products and services, geographic areas, and major customers. The adoption of Statement 131 did not affect results of operations or financial position, but did affect the disclosure of segment information. See Note 11. FOREIGN OPERATIONs - ------------------ The assets and liabilities of Total Research Limited operations are translated at current exchange rates, and income statement accounts are translated at the weighted average rates during the period. The related translation adjustments are recorded as a separate component of other comprehensive income. NOTE 3 - CONCENTRATION OF CASH BALANCE ----------------------------- At June 30, 1999, a cash balance of $5,049,009 is maintained in a bank account insured by the Federal Deposit Insurance Corporation (FDIC). This balance exceeds the insured amount of $100,000. NOTE 4 - FIXED ASSETS ------------ Fixed assets consist of the following: June 30, 1999 1998 ---- ---- Office Equipment & Fixtures $ 6,421,769 $ 5,729,984 Leasehold Improvements 741,113 304,423 --------- --------- 7,162,882 6,034,407 Less: Accumulated depreciation and amortization 4,553,729 3,923,493 --------- --------- $ 2,609,153 $ 2,110,914 ========= ========= Depreciation expense for the years ended June 30, 1999, 1998 and 1997 was approximately $692,000, $585,000 and $631,000, respectively. Amortization expense for the years ended June 30, 1999, 1998 and 1997 was approximately $84,000, $4,000 and $4,000, respectively. F-9 NOTE 5 - NOTES PAYABLE ------------- The Company has the following agreements in the United States: A $2.5 million revolving line of credit at a variable interest rate based on certain financial ratios. As of June 30, 1999, the rate is prime (7.75% at June 30, 1999) plus one-half percent. As of June 30, 1999, the Company complied with all of the financial ratios and has not borrowed against this line. A $500,000 term line collateralized by equipment, furniture and fixtures at an interest rate based on certain financial ratios. As of June 30, 1999, the rate is the prime plus one-half percent. As of June 30, 1999, the Company complied with all of the financial ratios and has not borrowed against this line. In addition, the Company has a bank overdraft facility of (pounds)300,000 (approximately $472,500 U.S. dollars) with Barclays Bank, its London bank. The borrowings are charged at a rate of 3 percent above the UK base Rate (at 5.00% on June 30, 1999). At June 30, 1999 the Company had borrowed approximately (pounds)178,917 (approximately $280,000 U.S. dollars) against this overdraft facility. All of these lines of credit are scheduled to expire on September 30, 1999. The Company is currently negotiating terms for these lines to be extended. NOTE 6 - COMMITMENTS AND CONTINGENCIES ----------------------------- OPERATING LEASES - ---------------- The Company is committed under various leases for office space. In addition, the Company subleases a portion of its office premises. Approximate future minimum rental payments and sublease rentals under non-cancelable leases are as follows: For the Years Ending June 30, -------- Rental Sublease Payments Rentals Net -------- ------- --- 2000 1,671,927 314,181 1,357,746 2001 1,805,716 326,595 1,479,121 2002 1,777,649 341,333 1,436,316 2003 1,771,919 259,601 1,512,318 2004 1,640,479 - 1,640,479 Thereafter 2,579,425 2,579,425 - ------------- ----------- ------------ Total minimum Payments required $ 11,247,115 $ 1,241,710 $ 10,005,405 ============= =========== ============ In addition to the above minimum rentals, the leases are subject to escalation clauses covering increases in real estate taxes and operating costs over the base year. The leases provide for renewal options for periods from two to ten years. Net rental expense charged to operations was approximately $1,178,000, $1,130,000 and $1,572,000 for the fiscal years ended June 30, 1999, 1998 and 1997, respectively. F-10 EMPLOYMENT AGREEMENTS - --------------------- The Company has entered into employment agreements with key management personnel. These agreements expire at different times through June 30, 2001. They contain provisions for future base salaries through this date that total $1,144,000. There is also a bonus arrangement for up to 20 percent of the base salary if individual goals are met. In addition, they will be eligible for an excess bonus if they exceed such goals. On July 1, 1998, the Company entered into an employment agreement with an officer of the Company, providing, among other things, for the employment by the Company of the officer for a term of three years, effective immediately. Included in other assets as of June 30, 1999 is a non-collateralized loan receivable from this officer amounting to $100,000 which is due June 30, 2001. NOTE 7 - INCOME TAXES ------------ Deferred tax attributes resulting from differences between financial accounting amounts and tax basis of assets and liabilities at June 30 are as follows: Current assets and (liabilities) 1999 1998 ---- ---- Allowance for doubtful accounts $ 43,000 $ 44,000 Accrued vacation 148,000 64,000 Retirement plans 83,000 54,000 Accrued royalties - 39,000 Accrued expenses 26,000 42,000 Other 30,000 - -------- -------- Total current deferred tax asset $ 330,000 $ 243,000 -------- -------- Non-current assets and (liabilities) Depreciation $(198,000) $(220,000) Deferred rental obligation 172,000 124,000 Capitalized market research products 84,000 119,100 State net operating loss carryforward - 80,000 Severance plan 212,000 254,000 Other (6,000) 4,000 -------- -------- Total non-current deferred tax asset $ 264,000 $ 361,100 ========== ========== The Company has a history of operating earnings. Although recognition is not assured, management has determined that the future operating income of the Company will more likely than not be sufficient to recognize fully these net deferred tax assets. As a result, no valuation allowance has been provided for either year. The sources of income before income taxes for the year ended June 30 is as follows: 1999 1998 1997 ---- ---- ---- United States $2,422,613 $1,144,775 $808,217 United Kingdom 797,944 740,492 319,933 --------- --------- --------- Total $3,220,557 $1,885,267 $1,128,150 ========= ========= ========= F-11 TOTAL RESEARCH CORPORATION AND SUBSIDIARY Notes to the Consolidated Financial Statements NOTE 7 - INCOME TAXES ------------ The components of the provision for income taxes for the years ended June 30 are as follows: 1999 1998 1997 ---- ---- ---- Current expense Federal $ 866,768 $ 601,320 $ 99,600 State 138,095 - - United Kingdom 229,886 252,450 128,340 --------- ------- ------- 1,234,749 853,770 227,940 Deferred expense (benefit) 10,071 (93,320) 262,015 --------- ------- ------- $1,244,820 $ 760,450 $ 489,955 ========= ======= ======= Reconciliation of the U.S. statutory tax rate to the effective tax rate for the years ended June 30 is as follows: 1999 1998 1997 ---- ---- ---- Computed provision at the statutory rate $1,055,508 $641,000 $383,571 Permanent differences 39,967 33,000 $42,904 International rate differences 12,707 450 17,118 State income tax, net 136,638 69,000 48,493 Alternative minimum tax - - (40,000) Other - 17,000 37,869 ---------- -------- -------- Income tax provision $1,244,820 $760,450 $489,955 ========== ======== ======== NOTE 8 - EMPLOYEE BENEFIT AND DEFERRED COMPENSATION ------------------------------------------ The Company maintains a 401(k) Savings Plan for the benefit of all its employees. The 401(k) Savings Plan is funded through the Company's and participating employees' contributions and generally provides that employees may contribute, through payroll reductions, from 1% to 15% of their compensation. The Company has, in the past, made a matching contribution in an amount equal to 50% of each participating employee's elective contribution up to 6% of the participating employee's compensation. Company contributions charged to operating expense were approximately $205,000, $195,000 and $215,000 for fiscal years ended June 30, 1999, 1998 and 1997, respectively. NOTE 9 - ACCRUED EXPENSES ---------------- The following is a summary of the items that comprise the accrued expenses and other current liabilities at June 30: 1999 1998 ---- ---- Bonus and other payroll accrual $1,966,181 $1,287,594 Vacation accrual 392,568 318,568 Accrued project direct costs 200,000 164,450 Accrued unusual charges 737,613 723,000 Other 216,576 340,448 ---------- ---------- Totals $3,512,938 $2,834,060 F-12 NOTE 10 - STOCK OPTION PLANS ------------------ The Company has elected to apply Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related interpretations in accounting for its employee stock options as permitted under Financial Accounting Standards Statement No. 123, "Accounting for Stock-Based Compensation," (SFAS 123) the fair value alternative method. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Under SFAS 123, the Company will provide pro forma net income and pro forma earnings per share. The Company's 1986 Stock Option Plan has authorized the grant of options to personnel for up to 1,800,000 shares of the Company's common stock. Under the Plan, options may be granted at not less than fair market value on the date of grant (85% of fair market value with respect to non-qualified options). Options granted under the plan become exercisable immediately and expire five years after the date of grant (five years and one day with respect to non-qualified options). On April 16, 1996 the Company adopted the 1995 Stock Incentive Plan and froze the 1986 Stock Option Plan. The 1995 Stock Incentive Plan has the authority to issue 2,500,000 options to existing and future Officers, Directors, Employees and Consultants of the Company. Incentive Stock Options or Non-Statutory Stock Options become exercisable immediately and may be issued for a term of no more than ten years from the date of grant, at an option price not less than 100% of the fair market value of the Company's common stock at the date of grant. In addition, any non-employee director and/or advisory board director shall be automatically granted an option to purchase 10,000 shares of common stock for each year that such person serves as a director. However, such options shall vest 33-1/3% for each twelve months of continuous service until fully vested. Pro forma information regarding net income and earnings per share is required by SFAS 123 and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value for all options was estimated at the date of grant using the Black-Scholes option "pricing model with the following weighted-average assumptions for June 30, 1999, 1998 and 1997, respectively: risk-free interest rates of 5.20%, 5.72% and 6.50%; dividend yields of 0%, 0% and 0%; volatility factors of the expected market price of the Company's common stock of .76 , .75 and .76; and a weighted average expected life of the option of 5 years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. June 30, 1999 1998 1997 ---- ---- ---- Pro forma net income $1,640,445 $817,563 $70,437 Pro forma income per share Basic 0.14 0.08 0.01 Diluted 0.13 0.07 0.01 Pro forma compensation expense arising from stock options was $335,292, $512,090 and $946,264 for the years ended June 30, 1999, 1998 and 1997, respectively. F-13 NOTE 10 - STOCK OPTION PLANS (CONTINUED) ------------------------------ A summary of the Company's stock option activity, and related information for the years ended June 30, follows:
1999 1998 1997 ------------------------------- ------------------------------- ------------------------------- Weighted - Weighted - Weighted - Options Average Options Average Options Average (000) Exercise Price (000) Exercise Price (000) Exercise Price ----- -------------- ----- -------------- ----- -------------- Outstanding - Beginning of Year 2,710 $1.04 2,832 $ 0.78 1,526 $0.71 Granted 1,429 2.50 330 2.38 1,726 0.83 Exercised (286) (1.07) (431) (0.43) (162) (0.44) Forfeited 0 0 (21) (0.86) (258) (0.87) Outstanding - end of year 3,853 $1.56 2,710 $1.04 2,832 $0.78 Exercisable - end of year 876 $1.85 1,209 $1.32 1,332 $0.75 Weighted-average fair value of options granted during the year: $1.61 $1.55 $0.55
Following is a summary of the status of stock options outstanding at June 30, 1999:
Outstanding Options Exercisable Options ------------------- ------------------- Weighted Average Weighted Average Weighted Remaining Exercise Price Average Exercise Price Contractual Life Exercise Price Range Number Number - ----------------------- ---------------- ------------------- ------------------ ------------------- --------------------- $ .00 - $ .99 1,855,000 2.3 years $0.80 198,200 $0.68 $1.00 - $1.99 328,000 2.3 years $1.14 228,000 $1.20 $2.00 - $2.99 1,570,000 8.8 years $2.40 350,000 $2.37 $3.00 - $3.99 100,000 9.9 years $3.81 100,000 $3.81
The Company received 98,949 and 92,300 shares of its own Common Stock with a fair market value of $371,971 and $287,717 in connection with the exercise of certain stock options during fiscal years 1999 and 1998, respectively. F-14 TOTAL RESEARCH CORPORATION AND SUBSIDIARY Notes to the Consolidated Financial Statements NOTE 11 - GEOGRAPHIC SEGMENT INFORMATION ------------------------------ The Company identifies its segments based on the Company's geographic locations and industries in which the Company operates. The Company currently has two reportable segments: US Market Research and UK Market Research. There were no significant inter-segment events which materially affected the financial statements. The Company measures segment profits based on income before income taxes. Information on segments and reconciliation to consolidated total for the years ended June 30 (in thousands) are as follows: Year ended June 30, 1999: US Market UK Market Total Research Research Segments -------- -------- -------- Revenues $28,990 $12,572 $41,562 Depreciation and amortization 902 218 1,120 Unusual charge 320 - 320 Operating income 1,715 842 2,990 Interest income (expense) 274 (44) 230 Income before income taxes 2,423 798 3,221 Total assets 14,783 6,934 21,717 Capital expenditures 414 861 1,275 Year ended June 30, 1998: Revenues $23,319 $10,738 $34,057 Depreciation and amortization 639 188 827 Unusual charge 723 - 723 Operating income 980 845 1,825 Interest income (expense) 124 (104) 20 Other income 40 - 40 Income before income taxes 1,145 740 1,885 Total assets 9,718 5,751 15,469 Capital expenditures 110 273 383 Year ended June 30, 1997: Revenues $20,781 $8,662 $29,443 Depreciation and amortization 701 172 873 Operating income 912 368 1,280 Interest (expense) (154) (48) (202) Other income 50 - 50 Income before income taxes 809 319 1,128 Total assets 7,837 5,111 12,948 Capital expenditures 558 163 721 F-15 NOTE 12 - STOCKHOLDERS' EQUITY -------------------- On July 1, 1998, the Company closed an agreement with a number of investors, pursuant to which among other things, the Investors purchased an aggregate of 1,000,000 shares of the Company's Common Stock at a price of $2.25 per share, and the Company issued options, exercisable at any time within five(5) years from the issuance thereof, to purchase an aggregate of 250,000 shares of the Company's Common Stock at an exercise price of $2.25 per share. The terms of the Purchase Agreement include an undertaking by the Investors, under certain circumstances, to assist the Company in obtaining $25,000,000 in debt or equity financing for acquisitions or other projects approved by the Board of Directors of the Company. On June 30, 1999, the Company's Board of Directors authorized the Company to repurchase from time to time over the next two years in open market transactions or otherwise up to one million shares of the Company's common stock. The Company expects to finance any repurchase with cash generated from operations. NOTE 13- UNUSUAL ITEMS ------------- In fiscal 1999 the Company has entered into transition agreements with two former employees and directors of the Company. The agreements end on June 30, 2001 and sets forth the total compensation of $320,000. In fiscal 1998 the Company entered into an employment transition agreement with the former Chairman of the Board and Chief Executive Officer, who now holds the position of Chairman Emeritus and retains a seat on the Corporation's Board of Directors. The agreement ends on June 30, 2001 and sets forth the total compensation of $723,000. NOTE 14 - NEW ACCOUNTING STANDARDS ------------------------ IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS - ---------------------------------------------- In March 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-1 (SOP"98-1"), "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1 establishes standards for recording the costs of software for internal use. SOP 98-1 indicated that certain costs incurred in the development or purchase of software designated for internal use should be capitalized. All other associated costs should be expensed. The Company will adopt SOP 98-1 in the fiscal year ending June 30, 2000. Adoption of this statement is not anticipated to have a material effect on the Company's financial position or results of operations. F-16 SIGNATURES In accordance with Section 13 or 15 (d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: TOTAL RESEARCH CORPORATION By:/s/ Albert Angrisani ----------------------------------------- ALBERT ANGRISANI, Chief Executive Officer In accordance with Section 13 or 15 (d) of the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. TOTAL RESEARCH CORPORATION By:/s/ David Brodsky ----------------------------------------- DAVID BRODSKY, Chairman of the Board of Directors Dated: By:/s/ Albert Angrisani ----------------------------------------- ALBERT ANGRISANI, Chief Executive Officer Dated: By:/s/ Eric C. Zissman ----------------------------------------- ERIC C. ZISSMAN, Chief Financial Officer and Chief Accounting Officer Dated: By:/s/ Howard Shecter ----------------------------------------- HOWARD SHECTER, Director Dated: By:/s/ George Lindemann ----------------------------------------- GEORGE LINDEMANN, Director Dated: By:/s/ Anthony Galli ----------------------------------------- ANTHONY GALLI, Director Dated: By:/s/ J. Edward Shrawder ----------------------------------------- J. EDWARD SHRAWDER, Director Dated: By:/s/ Lorin Zissman ----------------------------------------- LORIN ZISSMAN, Director Schedule II - Valuation and Qualifying Accounts TOTAL RESEARCH CORPORATION AND SUBSIDIARIES Rule 12-09. Valuation and Qualifying Accounts
Balance at Charged to Beginning Costs and Deductions- Balance at Description of Period Expenses Describe End of period - ----------- --------- -------- -------- ------------- YEAR ENDED JUNE 30, 1999: Allowance for uncollectible accounts $110,000 - - $110,000 YEAR ENDED JUNE 30, 1998: Allowance for uncollectible accounts $110,000 - - $110,000 YEAR ENDED JUNE 30, 1997: Allowance for uncollectible accounts $110,000 - - $110,000
S-1 EX-2 2 CERTIFICATE OF MERGER CERTIFICATE OF MERGER OF TOTAL RESEARCH CORPORATION (a New Jersey Corporation) INTO TOTAL RESEARCH CORPORATION (a Delaware Corporation) The undersigned corporation DOES HEREBY CERTIFY: FIRST: That the name and state of incorporation of each of the constituent corporations of the merger is as follows: NAME STATE OF INCORPORATION ---- ---------------------- TOTAL RESEARCH CORPORATION Delaware TOTAL RESEARCH CORPORATION New Jersey SECOND: That an agreement of merger between the parties to the merger has been approved, adopted, certified, executed and acknowledged by each of the constituent corporations in accordance with the requirements of subsection (c) of section 252 of the General Corporation Law of the State of Delaware. THIRD: The name of the surviving corporation of the merger is TOTAL RESEARCH CORPORATION (herein referred to TRC-Del), a Delaware corporation. FOURTH: That the amendments or changes in the Certificate of Incorporation of TRC-Del, a Delaware corporation, which is the surviving corporation, that are to be effected by the merger are as follows: 4. The total number of shares of common stock which the corporation shall have authority to issue is Twenty Million (20,000,000) and the par value of each of such shares is One Million ($0.001) amounting in the aggregate to Twenty Thousand Dollars ($20,000.00). FIFTH: That the executed agreement of merger is on file at the principal place of business of the surviving corporation. The address of said principal place of business is 5 Independence Way, Princeton, New Jersey 08540. SIXTH: That a copy of the agreement of merger will be furnished on request and without cost to any stockholder of any constituent corporation. SEVENTH: The authorized capital stock of each foreign corporation which is a party to the merger is as follows: Corporation Class Number of Shares Par value per share or statement that shares are without par value Total Research Common 50,000,000 $0.01 Corporation Dated: 2/17/87 TOTAL RESEARCH CORPORATION (Delaware Domestic) By:/s/ Lorin Zissman --------------------------- LORIN ZISSMAN President ATTEST: By:/s/ William N. Levy --------------------------- WILLIAM N. LEVY Secretary EX-10.3 3 TERRI FLANAGAN EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT -------------------- EMPLOYMENT AGREEMENT dated as of January 1, 1999 between Total Research Corporation, a Delaware corporation ("Company"), and Terri Flanagan ("Executive"). BACKGROUND ---------- Executive is presently serving as the President, Customer Loyalty Division of the Company under an Employment Agreement with Company effective January 2, 1997 (the "Original Employment Agreement"). Company desires to have Executive continue in the employment of the Company beyond the June 30, 1999 termination date in the Original Employment Agreement, and Executive wishes to remain in the employment of the Company beyond such date, on the terms and conditions contained in this Agreement. NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein and intending to be legally bound hereby, the parties hereto agree as follows: TERMS ----- SECTION 1. CAPACITY AND DUTIES 1.1 EMPLOYMENT; ACCEPTANCE OF EMPLOYMENT. Company hereby employs Executive and Executive hereby accepts employment by Company for the period and upon the terms and conditions hereinafter set forth. 1.2 CAPACITY AND DUTIES. (a) Executive shall initially serve as President of the Customer Loyalty Division of Company. Executive shall perform the duties and have the responsibilities of a Division President as described in the "Position Description" previously delivered to Executive, as such "Position Description" may be revised by Company from time to time. Executive shall perform such other duties and shall have such authority consistent with his position as may from time to time be specified by the Chief Executive Officer of Company. Executive may be appointed by the Chief Executive Officer to another senior level position, provided such appointment does not result in a reduction in Executive's compensation and benefits under this Agreement. Executive shall report directly to the Chief Executive Officer, and shall perform Executive's duties for Company principally at Company's principal executive offices, presently in Princeton, New Jersey , except for periodic travel that may be necessary or appropriate in connection with the performance of Executive's duties hereunder. (b) Executive shall devote Executive's full working time, energy, skill and best efforts to the performance of Executive's duties hereunder, in a manner that will faithfully and diligently further the business and interests of Company, and shall not be employed by, or participate or engage in or in any manner be a part of the management or operation of, any business enterprise other than Company without the prior written consent of the Board of Directors of Company (the 1 "Board"). Notwithstanding the above, Executive shall be permitted, to the extent such activities do not interfere or conflict with the performance by Executive of Executive's duties and responsibilities hereunder, (i) to manage Executive's personal, financial and legal affairs, and (ii) to serve on civic, charitable or professional boards or committees (it being expressly understood and agreed that Executive's continuing to serve on any such board and/or committees on which Executive is serving, or with which Executive is otherwise associated (each of which has been disclosed to Company in writing prior to the execution of Executive's Agreement), as of the Commencement Date (as defined below), shall be deemed not to interfere with the performance by Executive of Executive's duties and responsibilities under this Agreement). (c) Executive represents and warrants to Company that Executive is under no contractual or other restriction or obligation which conflicts with, violates or is inconsistent with the execution of this Agreement, the performance of Executive's duties hereunder, or the other rights of Company hereunder. (d) During the Term, Executive shall be entitled to participate as a member of the Company's Management Council. The Management Council shall consist of Executive and certain other senior officers of the Company and shall serve as an advisory and consultative body on such significant strategic and operating issues as the Chairman or President of the Company determine to present to the Management Council prior to decisions on such issues being made by the President, the Executive Committee or the Board of Directors. SECTION 2. TERM OF EMPLOYMENT 2.1 TERM. The term of Executive's employment hereunder shall commence on the date hereof (the "Commencement Date") and continue until June 30, 2000, as further extended or unless sooner terminated in accordance with the other provisions hereof (the "Term"). Except as hereinafter provided, on expiration of the initial Term, the Term shall be automatically extended for one additional year unless either party shall have given to the other party written notice of nonrenewal of this Agreement at least six months prior to such expiration date. After the initial Term, the Term shall be automatically extended for successive one year Terms unless written notice of nonrenewal is given by either party to the other at least six (6) months prior to the expiration of the then current Term. If written notice of termination is given as provided above, Executive's employment under this Agreement shall terminate on the last day of the then-current Term. SECTION 3. COMPENSATION 3.1 BASIC COMPENSATION. As compensation for Executive's services during the Term, Company shall pay to Executive a salary effective January 1, 1999 in the amount specified on Exhibit A, attached hereto and made a part hereof. The Executive shall continue to receive Executive's salary at the rate presently in effect under the Original Employment Agreement through December 31, 1998. The salary shall be payable in periodic installments in accordance with Company's regular payroll practices for its executive personnel at the time of payment, but in no event less frequently than monthly. Executive's annual salary, as determined in accordance with this Section 3.1, is hereinafter referred to as Executive's "Base Salary." 2 3.2 PERFORMANCE BONUS. As additional compensation for the services rendered by Executive to Company pursuant to this Agreement for fiscal periods commencing July 1, 1998, the Executive shall be entitled to participate in the Senior Management Compensation Plan, attached hereto and incorporated hereby as Exhibit A (the "Compensation Plan"). 3.3 EMPLOYEE BENEFITS. During the Term, Executive shall be entitled to participate in such of Company's employee benefit plans and benefit programs, including medical, hospitalization, dental, disability, accidental death and dismemberment and travel accident plans and programs, as may from time to time be provided by Company for its senior executives generally. In addition, during the Term Executive shall be eligible to participate in all pension, retirement, savings and other employee benefit plans and programs maintained from time to time by Company for the benefit of its senior executives generally. Company shall have no obligation, however, to maintain any particular program or level of benefits referred to in this Section 3.3. 3.4 OTHER BENEFITS. During the Term, the Company shall provide Executive with an automobile allowance of $500.00 per month for the use of an automobile owned or leased by Executive in accordance with the policies and procedures established by the Company from time to time for executive employees. 3.5 VACATION. Executive shall be entitled to the normal and customary amount of paid vacation provided to senior executives of the Company generally, but in no event less than 20 days during each 12 month period, beginning on July 1, 1998. Any vacation days that are not taken in a given 12 month period shall accrue and carry over from year to year up to a maximum of 20 days. The Executive may be granted leaves of absence with or without pay for such valid and legitimate reasons as the Board in its sole and absolute discretion may determine, and is entitled to the same sick leave and holidays provided to other senior executive officers of Company. 3.6 EXPENSE REIMBURSEMENT. Company shall reimburse Executive for all reasonable and documented expenses incurred by him in connection with the performance of Executive's duties hereunder in accordance with its regular reimbursement policies as in effect from time to time. 3.7 STOCK OPTION AGREEMENT. Company acknowledges the prior grant to Executive of 250,000 stock options (the "Option Shares") made pursuant to the Original Employment Agreement under which, subject to the terms thereof, the Option Shares are scheduled to vest on June 30, 1999. SECTION 4. TERMINATION OF EMPLOYMENT 4.1 DEATH OF EXECUTIVE. If Executive dies during the Term, Company shall not thereafter be obligated to make any further payments hereunder other than amounts (including Base Salary, bonuses, expense reimbursement, etc.) accrued as of the date of Executive's death in accordance with generally accepted accounting principles (the "Accrued Obligations", which, for purposes of this Agreement in situations other than death, shall reference the date of termination). 3 4.2 DISABILITY OF EXECUTIVE. If Executive is permanently disabled (as defined in Company's long-term disability insurance policy then in effect), then the Board shall have the right to terminate Executive's employment upon 30 days' prior written notice to Executive at any time during the continuation of such disability. In the event Executive's employment is terminated for disability in accordance with this Section 4.2, Company shall not thereafter be obligated to make any further payments hereunder other than (i) Accrued Obligations through the date of such termination and (ii) continued Base Salary and benefits, until the earlier of (x) such time as payments to Executive commence under Company's long-term disability insurance policy then in effect, or (y) the expiration of the then current Term. 4.3 TERMINATION FOR CAUSE. Executive's employment hereunder shall terminate immediately upon notice that the Board is terminating Executive for Cause (as defined herein), in which event Company shall not thereafter be obligated to make any further payments of Base Salary, bonus or other payments. "Cause" shall be limited to the following: (i) willful failure to substantially perform Executive's duties as described in Section 1.2 (other than such failure resulting from Executive's physical or mental illness, or the failure of Executive to perform such duties during the remedy period set forth in Section 4.4 hereof following the issuance of a Notice of Termination (as herein defined) by Executive for Good Reason, unless an arbitrator acting pursuant to Section 6.2 hereof finds Executive to have acted in bad faith in issuing such Notice of Termination), after (x) demand for substantial performance is delivered by Company in writing that identifies the manner in which Company believes Executive has not substantially performed Executive's duties and (y) Executives' failure to cure such nonperformance within ten days after receipt of such written demand. (ii) willful misconduct that is materially and demonstrably injurious to Company or any of its subsidiaries; (iii) conviction or plea of guilty or nolo contendere to a felony or to any other crime which involves moral turpitude or, if not involving moral turpitude, the act giving rise to such conviction or plea is materially and demonstrably injurious to the Company or any of its subsidiaries; (iv) material violation of (x) Company's policies relating to sexual harassment, substance or alcohol abuse or the disclosure or misuse of Confidential Information (as hereinafter defined), or (y) other Company polices set forth in Company manuals or written statements of policy provided in the case of this clause (y) that such violation is materially and demonstrably injurious to Company and continues for more than three (3) days after written notice thereof is given to Executive by the Board; and (v) material breach of any provision of this Agreement by Executive, which breach continues for more then ten days after written notice thereof is given by the Board to Executive. Cause shall not exist under this Section 4.3 unless and until Company has delivered to Executive a copy of a resolution duly adopted by a majority of the Board at a meeting of the Board called and held for such purpose (or by unanimous written consent of the Board), finding 4 that such Cause exists in the good faith opinion of the Board. This Section 4.3 shall not prevent Executive from challenging in any arbitration proceeding or court of competent jurisdiction the Board's determination that Cause exists or that Executive has failed to cure any act (or failure to act), to the extent permitted by this Agreement, that purportedly formed the basis for the Board's determination. Company must provide notice to Executive that it is intending to terminate Executive's employment for Cause within one hundred and twenty (120) days after the Board has actual knowledge of the occurrence of the event it believes constitutes Cause. 4.4 TERMINATION WITHOUT CAUSE OR BY EXECUTIVE FOR GOOD REASON. (a) If (i) Executive's employment is terminated by Company for any reason (other than (x) Cause or (y) disability of Executive) or (ii) Executive's employment is terminated by Executive for Good Reason, then Company shall within thirty (30) days of termination of employment pay to Executive a lump sum cash payment equal to Executive's Base Salary for a period equal to the greater of (x) the date of termination of employment through the date that is one (1) year after the date of delivery of a proper notice of termination of employment or nonrenewal of the Agreement or (y) the then remaining Term (the "Severance Payment"). Further, in the event of termination by Company under such circumstances Company shall maintain in full force and effect, for the continued benefit of Executive, Executive's spouse and Executive's dependents for the remaining balance of the unexpired Term as of the date of termination, the medical, hospitalization, dental and life insurance programs in which Executive, Executive's spouse and Executive's dependents were participating immediately prior to the date of such termination at substantially the level in effect and upon substantially the same terms and conditions (including without limitation contributions required by Executive for such benefits) as existed immediately prior to the date of termination (except to the extent thereafter reduced for senior executives of Company generally); provided, that if Executive, Executive's spouse or Executive's dependents cannot continue to participate in the Company programs providing such benefits, the Company shall arrange to provide Executive, Executive's spouse and Executive's dependents with the economic equivalent of such benefits which they otherwise would have been entitled to receive under such plans and programs, provided that such benefits shall terminate upon the date or dates Executive receives coverage and benefits which are substantially similar, taken as a whole, without waiting period or pre-existing condition limitations, under the plans and programs of a subsequent employer . Upon making the payments described in this Section 4.4, Company shall have no further obligation to Executive hereunder. (b) Notwithstanding the foregoing, if Executive's employment is terminated (i) by Company without Cause but due to Executive's failure for four consecutive calendar quarters to attain all the performance goals as outlined in the Compensation Plan or (ii) by Executive for Good Reason under Section 4.4(c)(vi) provided Executive terminates employment under Section 4.4(c)(vi) within ten (10) days of the Company's delivery of the revised performance goals to Executive, the Severance Payment shall be reduced by fifty percent (50%). (c) "Good Reason" shall mean the following: (i) material breach of Company's obligations hereunder, provided that Executive shall have given reasonably specific written notice thereof to Company, and Company shall have failed to remedy the circumstances within 60 days thereafter; 5 (ii) any decrease in Executive's salary below the amount set forth in the Compensation Plan (except for decreases that are in conjunction with decreases in salaries generally) or any material reduction in the general nature of Executive's duties or authority to a level inconsistent with a senior executive position, unless previously agreed to in writing by Executive; (iii) the failure of Executive to be appointed initially to the positions set forth in Section 1.2(a); (iv) the relocation of Executive's principal place of employment to a location more than thirty (30) miles from Princeton, New Jersey; (v) the failure of any successor in interest of Company to be bound by the terms of this Agreement in accordance with Section 6.5 hereof; (vi) The financial Bonus Goals established by the Company in the Senior Management Compensation Plan for any fiscal year are more than 125% of the financial Bonus Goals for the preceding fiscal year and are not approved in writing by the Chief Executive Officer or, if Albert Angrisani is not then serving as Chief Executive Officer, approved by a majority of the participants in the Compensation Plan; or (vii) Executive's termination of the Agreement after Company notice of nonrenewal under Section 2.1. Executive must provide notice to Company that Executive is intending to terminate Executive's employment for Good Reason within one hundred and twenty (120) days after Executive has actual knowledge of the occurrence of an event he believes constitutes Good Reason. Executive's right to terminate Executive's employment hereunder for Good Reason shall not be affected by Executive's Disability. Subject to compliance by Executive with the notice provisions of Section 4.4(c)(i), Executive's continued employment prior to terminating employment for Good Reason shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason. In the event Executive delivers to the Company a Notice of Termination for Good Reason, Executive agrees to appear before a meeting of the Board called and held for such purpose (after reasonable notice) and specify to the Board the particulars as to why Executive believes adequate grounds for termination for Good Reason exist. No action by the Board, other than the remedy of the circumstances within the time periods specified in Section 4.4(c)(i), shall be binding on Executive. 4.5 CHANGE IN CONTROL. (a) If, during the Term, there should be a Change of Control (as defined herein), and within one year thereafter either (i) Executive's employment should be terminated for any reason other than for Cause or (ii) Executive terminates Executive's employment for Good Reason (other than under Section 4.4(c)(vi)), Company shall, on or before Executive's last day of full-time employment hereunder, pay to Executive, the amounts set forth in Section 4.4 above, provided that it is the intention of the parties that the payments under this Section 4.5 shall not constitute "excess parachute payments" within the meaning of Section 280G of the Internal 6 Revenue Code of 1986, as amended. Accordingly, notwithstanding anything in this Agreement to the contrary, if any of the amounts otherwise payable under this Section would constitute "excess parachute payments," or if the independent accountants acting as auditors for Company on the date of the Change in Control determine that such payments may constitute "excess parachute payments," then the amounts otherwise payable under this Agreement shall be reduced to the maximum amounts that may be paid without any such payments constituting, or potentially constituting, "excess parachute payments." (b) Upon the occurrence of a Change in Control, any stock options previously granted to Executive that are not then exercisable, ie. unvested, shall immediately vest and become exercisable by Executive . The Company shall execute all necessary amendments to the applicable stock option plans and agreements provided such amendments are permitted by law and will not adversely affect the tax status or qualification of the plan as an Incentive Stock Option Plan or Non-qualified Stock Option Plan. (c) Upon making the payments described in this Section 4.5, Company shall have no further obligation to Executive hereunder. (d) A "Change in Control" of Company shall be deemed to have occurred if (1) at any time after the date hereof, there shall occur (i) any consolidation or merger of Company in which Company is not the continuing or surviving corporation or pursuant to which the shares of common stock of Company ("Common Stock") would be converted into cash, securities or other property, or (ii) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of assets accounting for 50% or more of total assets or 50% or more of the total revenues of Company, other than, in case of either (i) or (ii) a consolidation or merger with, or transfer to, a corporation or other entity of which, or of the parent entity of which, immediately following such consolidation, merger or transfer, (x) more than 50% of the combined voting power of the then outstanding voting securities of such entity entitled to vote generally in the election of directors (or other determination of governing body) is then beneficially owned (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934) by all or substantially all of the individuals and entities who were such owners of Common Stock immediately prior to such consolidation, merger or transfer in substantially the same proportion, as among themselves, as their ownership of Common Stock immediately prior to such sale consolidation, merger or transfer, or (y) a majority of the directors (or other governing body) consists of members of the Board of Directors of Company in office on the date hereof for purposes of (2) below or approved as provided in (2) below; (2) at any time after the date hereof, (x) members of the Board of Directors of Company in office on the date hereof (including any designated as contemplated by Section 4.2 of the Stock Purchase Agreement made as of April 16, 1998 between Company and David Brodsky) plus (y) any new director (excluding a director designated by a person or group who has entered into an agreement with Company to effect a transaction described in Section 4.5(d)(1)) whose election by the Board of Directors of Company or nomination for election by Company's stockholders was approved by (i) Executive (if a director) or (ii) a vote of at least a majority of the directors then still in office who either were directors on the date hereof or whose 7 election or nomination for election was previously so approved, shall cease for any reason to constitute a majority of the Board; or (3) at any time after the date hereof, the stockholders of Company approve a complete liquidation or dissolution of Company, except in connection with a recapitalization or other transaction which does not otherwise constitute a Change of Control for purposes of Section 4.5(a)(1) above. 4.6 TERMINATION BY EXECUTIVE WITHOUT GOOD REASON. In the event Executive's employment is voluntarily terminated by Executive without Good Reason, Company shall not be obligated to make any further payments to Executive hereunder other than Accrued Obligations through the date of such termination. 4.7 FAILURE TO EXTEND. A failure by Company to extend this Agreement pursuant to Section 2.1 shall not be treated as a termination of Executive's employment for purposes of this Agreement. 4.8 MITIGATION. Executive shall not be required to mitigate amounts payable under this Section 4 by seeking other employment or otherwise, and there shall be no offset against amounts due Executive under this Agreement on account of subsequent employment except as specifically provided herein. SECTION 5. NON-COMPETITION AND CONFIDENTIALITY 5.1 NON-COMPETITION. (a) During the Term and for a period of one year thereafter (the "Non-Competition Period"), Executive shall not, directly or indirectly, own, manage, operate, join, control, participate in, invest in or otherwise be connected or associated with, in any manner, including, without limitation, as an officer, director, employee, distributor, independent contractor, independent representative, partner, consultant, advisor, agent, proprietor, trustee or investor, any Competing Business located in any state or region (including foreign jurisdictions) where Company conducts business; provided, however, that ownership of 1% or less of the stock or other securities of a corporation, the stock of which is listed on a national securities exchange or is quoted on the NASDAQ Stock Market's National market, shall not constitute a breach of this Section 5, so long as the Executive does not in fact have the power to control, or direct the management of, or is not otherwise engaged in activities with, such corporation. (b) For purposes hereof, the term "Competing Business" shall mean any business or venture which is substantially similar to the whole or any significant part of the business conducted by Company. (c) Notwithstanding the above, the Non-Competition Period shall be limited to the period for which a Severance Payment is received under Section 4.4(a) above if Executive's employment is terminated (i) by Company without Cause, (ii) by Executive for Good Reason or (iii) as a result of nonrenewal of the Agreement by Company. 8 (d) If the Executive's employment is terminated for any reason other than the reasons specified in Section 5.1(c) above and Executive is not entitled to a Severance Payment under Section 4.4(a) as a result of such termination, the Non-Competition Period shall continue for one (1) year after termination of employment. 5.2 NO SOLICITATION. During the Term, including any unexpired portion thereof, and for a period of one year thereafter, the Executive shall not, directly or indirectly, including on behalf of, for the benefit of, or in conjunction with, any other person or entity, (i) solicit, assist, advise, influence, induce or otherwise encourage in any way, any employee of Company to terminate Executive's relationship with Company for any reason, or assist any person or entity in doing so, or employ, engage or otherwise contract with any employee or former employee of Company in a Competing Business or any other business unless such former employee shall not have been employed by Company for a period of at least one year, (ii) interfere in any manner with the relationship between any employee and Company or (iii) contact, service or solicit any existing clients, customers or accounts of Company on behalf of a Competing Business, either as an individual on Executive's own account, as an investor, or as an officer, director, partner, joint venturer, consultant, employee, agent or sales man of any other person or entity. 5.3 CONFIDENTIAL INFORMATION (a) "Confidential Information" shall mean confidential records and information, including, but not limited to, development, marketing, purchasing, organizational, strategic, financial, managerial, administrative, manufacturing, production, distribution and sales information, distribution methods, data, specifications and processes (including the Transferred Property as hereinafter defined) presently owned or at any time hereafter developed by Company or its agents or consultants or used presently or at any time hereafter in the course of the business of Company, that are not otherwise part of the public domain. (b) Executive hereby sells, transfers and assigns to Company, or to any person or entity designated by Company, all of Executive's entire right, title and interest in and to all inventions, ideas, methods, developments, disclosures and improvements (the "Inventions"), whether patented or unpatented, and copyrightable material, and all trademarks, trade names, all goodwill associated therewith and all federal and state registrations or applications thereof, made, adopted or conceived by solely or jointly, in whole or in part (collectively, the "Transferred Property"), prior to or during the Term which (i) relate to methods, apparatus, designs, products, processes or devices sold, leased, used or under construction or development by Company or (ii) otherwise relate to or pertain to the business, products, services, functions or operations of the Company. Executive shall make adequate written records of all Inventions, which records shall be Company's property and shall communicate promptly and disclose Company, in such forms Company requests, all information, details and data pertaining to the aforementioned Inventions. Whether during the Term or thereafter, Executive shall execute and deliver to Company such formal transfers and assignments and such other papers and documents as may be required of Executive to permit Company, or any person or entity designated by Company, to file and prosecute patent applications (including, but not limited to, records, memoranda or instruments deemed necessary by Company for the prosecution of the patent application or the acquisition of 9 letters patent in the United states, foreign counties or otherwise) and, as to copyrightable material, to obtain copyrights thereon, and as to trademarks, to record the transfer of ownership of any federal or state registrations or applications. (c) All such Confidential Information is considered secret and will be disclosed to the Executive in confidence, and Executive acknowledges that, as a consequence of Executive's employment and position with Company, Executive may have access to and become acquainted with Confidential Information. Except in the performance of Executive's duties as an employee of Company, Executive shall not, during the term and at all times thereafter, directly or indirectly for any reason whatsoever, disclosure or use any such Confidential Information. All records, files, drawings, documents, equipment and other tangible items, wherever located, relating in any way to or containing Confidential Information, which Executive has prepared, used or encountered or shall in the future prepare, use or encounter, shall be and remain Company's sole and exclusive property and shall be included in the Confidential Information. Upon termination of Executive's agreement, or whenever requested by Company, Executive shall promptly deliver to Company any and all of the Confidential Information and copies thereof, not previously delivered to Company, that may be in the possession or under the control of the Executive. The foregoing restrictions shall not apply to the use, divulgence, disclosure or grant of access to Confidential Information to the extent, but only to the extent, (i) expressly permitted or required pursuant to any other written agreement between Executive and Company, (ii) such Confidential Information has been publicly disclosed (not due to a breach by the Executive of Executive's obligations hereunder, or by breach of any other person, of a fiduciary or confidential obligation to Company or (iii) the Executive is required to disclose Confidential Information by or to any court of competent jurisdiction or any governmental or quasi-governmental agency, authority or instrumentality of competent jurisdiction, provided, however, that the Executive shall, prior to any such disclosure, immediately notify Company of such requirements and provided further, however, that the Company shall have the right, at its expense, to object to such disclosures and to seek confidential treatment of any Confidential Information to be so disclosed on such terms as it shall determine. 5.4 ACKNOWLEDGEMENT; REMEDIES; SURVIVAL OF THIS AGREEMENT. (a) Executive acknowledges that violation of any of the covenants and provisions set forth in this Agreement would cause Company irreparable damage and agrees that Company's remedies at law for a breach or threatened breach of any of the provisions of this Agreement would be inadequate and, in recognition of this fact, in the event of a breach or threatened breach by Executive of any of the provisions of this Agreement, it is agreed that, in addition to the remedies at law or in equity, Company shall be entitled, without the posting of a bond, to equitable relief in the form of specific performance, a temporary restraining order, temporary or permanent injunction, or any other equitable remedy which may then be available for the purposes of restraining Executive from any actual or threatened breach of such covenants. Without limiting the generality of the foregoing, if Executive breaches or threatens to breach this Section 5 hereof, such breach or threatened breach will entitle Company to enjoin Executive from disclosing any Confidential Information to any Competing 10 Business, to enjoin any Competing Business from retaining Executive or using any such Confidential Information, to enjoin Employee form rendering personal services to or in connection with any Competing Business. The rights and remedies of the parties hereto are cumulative and shall not be exclusive, and each such party shall be entitled to pursue all legal and equitable rights and remedies and to secure performance of the obligations and duties of the other under this Agreement, and the enforcement of one or more of such rights and remedies by a party shall in no way preclude such party from pursuing, at the same time or subsequently, any and all other rights and remedies available to it. (b) The provisions of this Agreement shall survive the termination of Executive's employment with Company. SECTION 6. MISCELLANEOUS 6.1 CANCELLATION OF ORIGINAL EMPLOYMENT AGREEMENT With the exception of the obligation to pay salary, benefits and performance bonus for the period through December 31, 1998, the Original Employment Agreement is hereby cancelled; provided, however, that this Section 6.1 shall not be construed to limit or terminate Executive's entitlement under the Original Employment Agreement to amounts accrued for periods through the date of this Agreement, including, without limitation, the 250,000 stock options granted thereunder. 6.2 ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Princeton, New Jersey, in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. The parties consent to the authority of the arbitrator, if the arbitrator so determines, to award fees and expenses (including legal fees) to the prevailing party in the arbitration. Notwithstanding the foregoing, Company shall be entitled to enforce the provisions of Section 5 hereof through proceedings brought in a court of competent jurisdiction as contemplated by Section 6.9 hereof. 6.3 SEVERABILITY; Reasonableness of Agreement. If any term, provision or covenant of this Agreement or part thereof, or the application thereof to any person, place or circumstance shall be held to be invalid, unenforceable or void by a court of competent jurisdiction, the remainder of this Agreement and such term, provision or covenant shall remain in full force and effect, and any such invalid, unenforceable or void term, provision or covenant shall be deemed, without further action on the part of the parties hereto, modified, amended and limited, and the court shall have the power to modify, amend and limit any such term, provision or covenant, to the extent necessary to render the same and the remainder of the Agreement valid, enforceable and lawful. In this regard, the Executive understands that the provisions of Section 5 may limit Executive's ability to earn a livelihood in a business similar or related to the business of Company, but nevertheless agrees and acknowledges that (i) the provisions of Section 5 are reasonable and necessary for the protection of Company, and do not impose a greater restraint than necessary to protect the goodwill or other business interest of Company and (ii) such provisions contain reasonable limitations as to the time and the scope of activity to be restrained. In consideration of the foregoing and in light of Executive's education, skills and abilities, Executive agrees that all defenses by Executive to the strict enforcement of such provisions are hereby waived by Executive. 11 6.4 KEY EMPLOYEE INSURANCE. Company shall have the right at its expense to purchase insurance on the life of Executive, in such amounts as it shall from time to time determine, of which Company shall be the beneficiary. Executive shall submit to such physical examinations as may reasonably be required and shall otherwise cooperate with Company in obtaining such insurance. 6.5 ASSIGNMENT; BENEFIT. This Agreement shall not be assignable by Executive, other than Executive's rights to payments or benefits hereunder, which may be transferred only by will or the laws of descent and distribution. Upon Executive's death, this Agreement and all rights of Executive hereunder shall inure to the benefit of and be enforceable by Executive's beneficiary or beneficiaries, personal or legal representatives, or estate, to the extent any such person succeeds to Executive's interests under this Agreement. No rights or obligations of Company under this Agreement may be assigned or transferred except that Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean Company as herein before defined and any successor to its business and/or assets (by merger, purchase or otherwise) which executes and delivers the agreement provided for in this Section 5.4 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. 6.6 NOTICES. All notices hereunder shall be in writing and shall be sufficiently given if hand-delivered, sent by documented overnight delivery service or registered or certified mail, postage prepaid, return receipt requested or by telegram or telefax (confirmed by U.S. mail), receipt acknowledged, addressed as set forth below or at such other address for either party as may be specified in a notice given as provided herein by such party to the other. Any such notice shall be deemed to have been given as of the date received, in the case of personal delivery, or on the date shown on the receipt or confirmation therefor, in all other cases. Any and all service of process and any other notice in any such action, suit or proceeding shall be effective against any party if given as provided in this Agreement; provided that nothing herein shall be deemed to affect the right of any party to serve process in any other manner permitted by law. (a) If to Company: Total Research Corporation Princeton Corporate Center 5 Independence Way Princeton, NJ 08540 With copies to: Thomas A. Belton, Esq. Drinker Biddle & Reath LLP 105 College Road East Princeton, NJ 08540 12 Peter G. Smith, Esq. Kramer, Levin, Naftalis & Frankel 919 Third Avenue New York, NY 10022-3903 (b) If to Executive: 6.7 TERMINATION PROCEDURES. Any termination of Executive's employment by the Company or by Executive during the Term (other than termination pursuant to death) shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 5.5. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated. 6.8 ENTIRE AGREEMENT AND MODIFICATION. This Agreement constitutes the entire agreement between the parties hereto with respect to the matters contemplated herein and supersedes all prior agreements and understandings with respect thereto. No amendment, modification, or waiver of this Agreement shall be effective unless in writing. Neither the failure nor any delay on the part of any party to exercise any right, remedy, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power, or privilege with respect to such occurrence or with respect to any other occurrence. 6.9 GOVERNING LAW. This Agreement is made pursuant to, and shall be construed and enforced in accordance with, the laws of the State of New Jersey and the federal laws of the United States of America, to the extent applicable, without giving effect to otherwise applicable principles of conflicts of law. The parties hereto expressly consent to the jurisdiction of any state or federal court located in New Jersey, and to venue therein, and consent to the service of process in any such action or proceeding by certified or registered mailing of the summons and complaint therein directed to Executive or Company, as the case may be, at its address as provided in Section 6.6 hereof. 6.10 WITHHOLDING. All payments hereunder shall be subject to any required withholding of Federal, state and local taxes pursuant to any applicable law or regulation. 6.11 HEADINGS; COUNTERPARTS. The headings of paragraphs in this Agreement are for convenience only and shall not affect its interpretation. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original and all of which, when taken together, shall be deemed to constitute the same Agreement. 13 6.12 FURTHER ASSURANCES. Each of the parties hereto shall execute such further instruments and take such other actions as the other party shall reasonably request in order to effectuate the purposes of this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. TOTAL RESEARCH CORPORATION By/s/ALBERT ANGRISANI --------------------------------- Title: /s/TERRI FLANAGAN --------------------------------- Executive 14 Exhibit A SENIOR MANAGEMENT COMPENSATION PLAN TERM SHEET FISCAL YEAR 1999 THROUGH FISCAL YEAR 2000 Name: Terri Flanagan Title: President Customer Loyalty Division A. COMPENSATION/SHORT-TERM I. Base Salary Base salary for second half of fiscal year 1999 will be $135,000. Salary increases beyond year one will be set by the CEO and approved by the Executive Committee and will be based on individual performance and contribution. The amount of the increase awarded will be based on a salary increase range of 0-10%. II. Bonus: Compensates the Executive if established performance measures are achieved. The performance measures listed below are based on goals established for core business only against the performance plans for fiscal year 1999. This additional compensation would be in cash, and represents a bonus opportunity at 20% of the base salary if the goals listed below are met. Should the results fall slightly below plan, i.e., ninety-five (95) percent of goal, the Executive will be entitled to a reduced bonus. The reduced bonus will pay the Executive ten (10) percent of the Base Salary if ninety-five (95) to ninety-nine and nine tenths (99.9) percent of the goal is achieved. No bonus will be paid if results fall below 95% of goal. Goal Reward 1. Revenue of $8,300,000 30% of 20% cash opportunity 2. Gross Profit greater than 53% 30% of 20% cash opportunity Income Before Tax of $802,000 3. Money Management 20% of 20% cash opportunity a. Invoicing at 95% of plan or greater b. Cash Received at 95% of plan of greater c. Receivables+ 45 days no greater than 30% of monthly receivables 9 out of 12 months 4. Non Financial 20% of 20% cash opportunity a. Sales Infrastructure Expansion b. Product Development 15 c. Process Improvement d. Other Performance goals for subsequent fiscal years shall be established by the CEO. IBT shall be defined in the Senior Management Compensation Plan (Fiscal Years 1999-2001) for the CEO. B. EXCESS PERFORMANCE BONUS OPPORTUNITY: Payment under this portion of the compensation plan is for performance in excess of established goals. The bonus opportunity under this portion of the compensation plan, provides a bonus based on the following formula: The Executive will receive 15% of the entire excess division's IBT if the division's IBT is 10% or more greater than plan; provided that, regardless of division performance, the Company's IBT goal must be achieved before the Executive is eligible to receive any excess bonus payments. C. LONG TERM PERFORMANCE REWARD The primary goal of Total Research's Long Term Performance Reward is to enhance senior management performance through equity ownership opportunities. The granting of stock options that a participant may receive in each year is based on an assessment by the Chief Executive Officer and the Executive Committee of the Board of Directors. Any option grant is totally discretionary. 16 EX-10.5 4 ALBERT ANGRISANI EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT -------------------- EMPLOYMENT AGREEMENT dated as of July 1, 1998 between Total Research Corporation, a Delaware corporation ("Company"), and Albert Angrisani ("Executive"). BACKGROUND ---------- Executive is presently serving as the Chief Executive Officer of the Company. Company desires to have Executive continue in that capacity with the Company, and Executive wishes to remain in the employment of the Company, on the terms and conditions contained in this Agreement. NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein and intending to be legally bound hereby, the parties hereto agree as follows: TERMS ----- SECTION 1. CAPACITY AND DUTIES ------------------- 1.1 EMPLOYMENT; ACCEPTANCE OF EMPLOYMENT. Company hereby employs Executive and Executive hereby accepts employment by Company for the period and upon the terms and conditions hereinafter set forth. 1.2 CAPACITY AND DUTIES. (a) Executive shall serve as the President and Chief Executive Officer of Company. Executive shall perform such other duties and shall have such authority consistent with Executive's position as may from time to time be specified by the Board of Directors of Company (the "Board"). Executive shall report directly to the Board, and shall perform Executive's duties for Company principally at Company's principal executive offices, presently in Princeton, New Jersey, except for periodic travel that may be necessary or appropriate in connection with the performance of Executive's duties hereunder. Executive shall also serve as a member of the Executive Committee so long as he shall be a member of the Board. Company shall use its reasonable efforts to cause Executive to be elected a member of the Board during the period this Agreement is in effect, but the failure of the stockholders of Company to elect the Executive a member of the Board shall not constitute a breach of this Agreement by Company. (b) Executive shall devote sufficient working time, energy, skill and best efforts to the performance of Executive's duties hereunder, in a manner that will faithfully and diligently further the business and interests of Company. Company acknowledges that Executive has interests in the management or operation of other business enterprises and such participation will not constitute a breach of this Agreement by Executive or constitute grounds for termination for Cause (as defined herein) as long as (i) Executive is not an employee of any other business enterprise during the Term (as defined below) and (ii)such activities do not unreasonably interfere with the Executive's performance of Executive's duties and responsibilities hereunder. SECTION 2. TERM OF EMPLOYMENT ------------------ 2.1 TERM. The term of Executive's employment hereunder shall commence on July 1, 1998 (the "Commencement Date") and continue until June 30, 2001, as further extended or unless sooner terminated in accordance with the other provisions hereof (the "Term"). Except as hereinafter provided, on June 30, 2001, the Term shall be automatically extended for one additional year unless Company shall have given to Executive written notice of nonrenewal of this Agreement on or before July 1, 2000. Executive shall notify the Company in writing on or before December 31, 2000 if Executive elects nonrenewal of the Agreement. After the initial Term, the written notice of nonrenewal by either party must be given to the other party at least six months prior to the expiration date of the current Term. If written notice of nonrenewal is given as provided above, Executive's employment under this Agreement shall terminate on the last day of the then-current Term. SECTION 3. COMPENSATION ------------ 3.1 BASE COMPENSATION. As compensation for Executive's services commencing July 1, 1998, Company shall pay to Executive base compensation in the form of salary of $175,000 per annum and "at risk" compensation in the amount of $125,000 per annum. The salary shall be payable in periodic installments in accordance with Company's regular payroll practices for its executive personnel at the time of payment, but in no event less frequently than monthly. The "at risk" component of compensation shall be payable in accordance with Executive's Senior Management Compensation Plan, attached hereto and made a part hereof as Exhibit A (the "Compensation Plan"). Executive's annual salary plus the "at risk" compensation, as determined in accordance with this Section 3.1 in the Compensation Plan, is hereinafter referred to as Executive's "Base Compensation". The Executive Committee agrees to review Base Compensation for fiscal years 2000 and 2001 for the purpose of determining whether Base Compensation should be increased for such fiscal years. 3.2 PERFORMANCE BONUS. As additional compensation for the services rendered by Executive to Company pursuant to this Agreement for fiscal periods commencing July 1, 1998, Executive shall be entitled to participate in the Compensation Plan. Executive shall be entitled to a performance bonus for the fiscal year ending June 30, 1998 in accordance with the terms and conditions of the existing Consulting Agreement with Company (the "Consulting Agreement"). 3.3 EMPLOYEE BENEFITS. During the Term, Executive shall be entitled to participate in such of Company's employee benefit plans and benefit programs, including medical, hospitalization, dental, disability, accidental death and dismemberment and travel accident plans and programs, as may from time to time be provided by Company for its senior executives generally. In addition, during the Term Executive shall be eligible to participate in all pension, retirement, savings and other employee benefit plans and programs maintained from time to time 2 by Company for the benefit of its senior executives generally. Company shall have no obligation, however, to maintain any particular program or level of benefits referred to in this Section 3.3. 3.4 OTHER BENEFITS. During the Term, the Company shall provide Executive with an automobile allowance of $1000.00 per month for the use of an automobile owned or leased by him in accordance with the policies and procedures established by the Company from time to time for executive employees. 3.5 VACATION. Executive shall be entitled to the normal and customary amount of paid vacation provided to senior executive officers of the Company, but in no event less than 20 days during each 12 month period, beginning on July 1, 1998. Any vacation days that are not taken in a given 12 month period shall accrue and carry over from year to year up to a maximum of 20 days. The Executive may be granted leaves of absence with or without pay for such valid and legitimate reasons as the Board in its sole and absolute discretion may determine, and is entitled to the same sick leave and holidays provided to other senior executive officers of Company. 3.6 EXPENSE REIMBURSEMENT. Company shall reimburse Executive for all reasonable and documented expenses incurred by him in connection with the performance of Executive's duties hereunder in accordance with its regular reimbursement policies as in effect from time to time. 3.7 STOCK OPTION AGREEMENT. Company acknowledges the prior grant to Executive of 500,000 stock options (the "Option Shares") made pursuant to the Consulting Agreement and various Stock Option Agreements (collectively the "Option Agreement"). Under the Option Agreement, 250,000 Option Shares are currently vested and 250,000 Option Shares are scheduled to vest on June 30, 1999 (the "Original Vesting Date"). Executive agrees to execute an amendment to the Option Agreement relating to the Option Shares to extend the Original Vesting Date and restructure the vesting and exercise schedules for the Option Shares as follows: (i) all 500,000 Option Shares shall be forfeited if Executive resigns prior to June 30, 2001 for other than Good Reason; (ii) 250,000 of the Option Shares shall be forfeited by Executive if Executive's employment is terminated by Company for Cause (as defined herein) prior to the Original Vesting Date; (iii) 125,000 of the Option Shares shall be forfeited if Executive's employment is terminated by the Company for Cause on or after the Original Vesting Date but prior to June 30, 2000; (iv) 62,500 of the Option Shares shall be forfeited if Executive's employment is terminated by the Company for Cause on or after June 30, 2000 but prior to June 30, 2001; and (v) all 500,000 Option Shares shall vest on June 30, 2001, or earlier, if (x) the Company terminates Executive's employment without Cause after the Commencement Date; (y) Executive terminates employment for Good Reason or (z) employment is terminated by the death of Executive. If Executive exercises any of the Option Shares prior to June 30, 2001, the shares so purchased (the "Restricted Shares") shall reflect the same forfeiture restrictions imposed upon the Option Shares. Company and Executive shall execute such amendments to the Option Agreement as may be reasonably necessary or appropriate to further clarify or reflect such grant and the revised deferral of the vesting of the Option Shares and Restricted Shares. 3 SECTION 4. TERMINATION OF EMPLOYMENT ------------------------- 4.1 DEATH OF EXECUTIVE. If Executive dies during the Term, Company shall not thereafter be obligated to make any further payments hereunder other than amounts for Base Compensation (including for this purpose the immediate accrual of the "at risk" component, adjusted pro rata through the date of termination), expense reimbursement, and other amounts which have accrued as of the date of Executive's death in accordance with generally accepted accounting principles (the "Accrued Obligations", which, for purposes of this Agreement in situations other than death, shall reference the date of termination). 4.2 DISABILITY OF EXECUTIVE. If Executive is permanently disabled (as defined in Company's long-term disability insurance policy then in effect), then the Board shall have the right to terminate Executive's employment upon 30 days' prior written notice to Executive at any time during the continuation of such disability. In the event Executive's employment is terminated for disability in accordance with this Section 4.2, Company shall not thereafter be obligated to make any further payments hereunder other than (i) Accrued Obligations through the date of such termination and (ii) continued Base Salary and benefits, until the earlier of (x) such time as payments to Executive commence under Company's long-term disability insurance policy then in effect, or (y) the expiration of the then current Term. 4.3 TERMINATION FOR CAUSE. Executive's employment hereunder shall terminate immediately upon notice that the Board is terminating Executive for Cause (as defined herein), in which event Company shall not thereafter be obligated to make any further payments hereunder other than Accrued Obligations. "Cause" shall be limited to the following: (i) willful failure to substantially perform Executive's duties as described in Section 1.2 (other than such failure resulting from Executive's physical or mental illness, or the failure of Executive to perform such duties during the remedy period set forth in Section 4.4(b)(i) hereof following the issuance of a Notice of Termination (as herein defined) by Executive for Good Reason, unless an arbitrator acting pursuant to Section 6.2 hereof finds Executive to have acted in bad faith in issuing such Notice of Termination), after demand for substantial performance is delivered by Company in writing that specifically identifies the manner in which Company believes Executive has not substantially performed Executive's duties and Executive's failure to cure such non-performance within ten days after receipt of the Company's written demand; (ii) willful misconduct that is materially and demonstrably injurious to Company or any of its subsidiaries; or (iii) conviction or plea of guilty or nolo contendere to a felony or to any other crime which involves moral turpitude or, if not including moral turpitude, provided the act giving rise to such conviction or plea is materially and demonstrably injurious to the Company or any of its subsidiaries; 4 (iv) material violation of (x) Company's policies relating to sexual harassment, substance or alcohol abuse or the disclosure or misuse of Confidential Information (as hereinafter defined), or (y) other Company polices set forth in Company manuals or written statements of policy provided in the case of this clause (y) that such violation is materially and demonstrably injurious to Company and continues for more then three (3) days after written notice thereof is given to Executive by the Board; and (v) material breach of any material provision of this Agreement by Executive, which breach continues for more than ten days after written notice thereof is given by the Board to Executive. Cause shall not exist under this Section 4.3 unless and until Company has delivered to Executive a copy of a resolution duly adopted by a majority of the Board at a meeting of the Board called and held for such purpose, or by written consent, finding that such Cause exists in the good faith opinion of the Board. This Section 4.3 shall not prevent Executive from challenging in any arbitration proceeding or court of competent jurisdiction the Board's determination that Cause exists or that Executive has failed to cure any act (or failure to act), to the extent permitted by this Agreement that purportedly formed the basis for the Board's determination. Company must provide written notice to Executive that it is intending to terminate Executive's employment for Cause within one hundred and twenty (120) days after the Board Company has actual knowledge of the occurrence of the event it believes constitutes Cause. 4.4 TERMINATION WITHOUT CAUSE OR BY EXECUTIVE FOR GOOD REASON. (a) If (i) Executive's employment is terminated by Company during the initial Term for any reason (other than (x) Cause under Section 4.3, or (y) disability of Executive), or (ii) Executive's employment is terminated by Executive for Good Reason, then Company shall pay to Executive a lump sum cash payment equal to one million dollars ($1,000,000.00)(the "Severance Payment"), within ninety (90) days after expiration of the Term. Further, in the event of termination by Company under such circumstances, or during any renewal Term, Company shall maintain in full force and effect, for the continued benefit of Executive, Executive's spouse and Executive's dependents for the remaining balance of the unexpired Term as of the date of termination, the medical, hospitalization, dental and life insurance programs in which Executive, Executive's spouse and Executive's dependents were participating immediately prior to the date of such termination at substantially the level in effect and upon substantially the same terms and conditions (including without limitation contributions required by Executive for such benefits) as existed immediately prior to the date of termination (except to the extent thereafter reduced for senior executives of Company generally); provided, that if Executive, Executive's spouse or Executive's dependents cannot continue to participate in the Company programs providing such benefits, the Company shall arrange to provide Executive, Executive's spouse and Executive's dependents with the economic equivalent of such benefits which they otherwise would have been 5 entitled to receive under such plans and programs, provided that such benefits shall terminate upon the date or dates Executive receives coverage and benefits which are substantially similar, taken as a whole, without waiting period or pre-existing condition limitations, under the plans and programs of a subsequent employer. Upon making the payments described in this Section 4.4, Company shall have no further obligation to Executive hereunder. (b) "Good Reason" shall mean the following: (i) material breach of Company's obligations hereunder, provided that Executive shall have given reasonably specific written notice thereof to Company, and Company shall have failed to remedy the circumstances within 60 days thereafter; (ii) any decrease in Executive's salary as increased during the Term (except for decreases that are in conjunction with decreases in salaries generally) or any material reduction in the general nature of Executive's duties or authority to a level inconsistent with a Chief Executive Officer, unless previously agreed to in writing by Executive; (iii) the failure of Executive to be elected to all of the positions set forth in Section 1.2(a), ie., President, Chief Executive Officer, Executive Committee and Board member, provided, however, the failure to be appointed to the Board or Executive Committee shall not constitute Good Reason if such failure is the result of the nonelection of Executive to the Board by a shareholder vote at a duly convened meeting of the shareholders after nomination of Executive to the Board by the Executive Committee and the Board and submission of such nomination to a shareholder vote. (iv) the relocation of Company's principal executive offices to a location more than thirty (30) miles from Princeton, New Jersey; (v) the failure of any successor in interest of Company to be bound by the terms of this Agreement in accordance with Section 6.5 hereof; (vi) substantial interference by the Board with Executive's performance of Executive's duties, which interference results in the inability of Executive to substantially perform Executive's duties hereunder; or (vii) the appointment by the Board of a Chief Operating Officer or Chief Financial Officer, or other offices or positions with duties substantially similar to either, without first obtaining the prior written consent of Executive, which consent will not be unreasonably withheld. Executive must provide notice to the Company that he is intending to terminate Executive's employment for Good Reason within one hundred and twenty (120) days after Executive has actual knowledge of the occurrence of an event he believes constitutes Good Reason. Executive's right to terminate Executive's employment hereunder for Good Reason shall not be affected by Executive's Disability. Subject to compliance by Executive with the notice provisions of this Section 4.4, Executive's continued employment prior to terminating 6 employment for Good Reason shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason. In the event Executive delivers to the Company a Notice of Termination for Good Reason, Executive agrees to appear before a meeting of the Board called and held for such purpose (after reasonable notice) and specify to the Board the particulars as to why Executive believes adequate grounds for termination for Good Reason exist. No action by the Board, other than the remedy of the circumstances within the time periods specified in Section this 4.4, shall be binding on Executive. 4.5 CHANGE IN CONTROL. (a) If, during the Term, there should be a Change of Control (as defined herein), and within one year thereafter either (i) Executive's employment should be terminated for any reason other than for Cause or (ii) Executive terminates Executive's employment for Good Reason, Company shall, on or before Executive's last day of full-time employment hereunder, pay to Executive, the amounts set forth in Section 4.4 above, provided that it is the intention of the parties that the payments under this Section 4.5 shall not constitute "excess parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended. Accordingly, notwithstanding anything in this Agreement to the contrary, if any of the amounts otherwise payable under this Section would constitute "excess parachute payments," or if the independent accountants acting as auditors for Company on the date of the Change in Control determine that such payments may constitute "excess parachute payments," then the amounts otherwise payable under this Agreement shall be reduced to the maximum amounts that may be paid without any such payments constituting, or potentially constituting, "excess parachute payments." (b) Upon the occurrence of a Change in Control, any stock options previously granted to Executive that are not then exercisable, ie. unvested, shall immediately vest and become exercisable by Executive . The Company shall execute all necessary amendments to the applicable stock option plans and agreements provided such amendments are permitted by law and will not adversely affect the tax status or qualification of the plan as an Incentive Stock Option Plan or Non-qualified Stock Option Plan. (c) Upon making the payments described in this Section 4.5, Company shall have no further obligation to Executive hereunder. (d) A "Change in Control" of Company shall be deemed to have occurred if: (1) at any time after the date hereof, there shall occur (i) any consolidation or merger of Company in which Company is not the continuing or surviving corporation or pursuant to which the shares of common stock of Company ("Common Stock") would be converted into cash, securities or other property, or (ii) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of assets accounting for 50% or more of total assets or 50% or more of the total revenues of Company, other than, in case of either (i) or (ii), a consolidation or merger with, or transfer to, a corporation or other entity of which, or of the parent entity of which, immediately following such consolidation, merger or transfer, (x) more than 50% of the combined voting power of the then outstanding voting 7 securities of such entity entitled to vote generally in the election of directors (or other determination of governing body) is then beneficially owned (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934) by all or substantially all of the individuals and entities who were such owners of Common Stock immediately prior to such consolidation, merger or transfer in substantially the same proportion, as among themselves, as their ownership of Common Stock immediately prior to such consolidation, merger or transfer, or (y) a majority of the directors (or other governing body) consists of members of the Board of Directors of Company in office on the date hereof for purposes of (2) below or approved as provided in (2) below; (2) at any time after the date hereof, (x) members of the Board of Directors of Company in office on the date hereof (including any designated as contemplated by Section 4.2 of the Stock Purchase Agreement made as of April 16, 1998 between Company and David Brodsky) plus (y) any new director (excluding a director designated by a person or group who has entered into an agreement with Company to effect a transaction described in Section 4.5(d)(1) whose election by the Board of Directors of Company or nomination for election by Company's stockholders was approved by (i) Executive (if a director) or (ii) a vote of at least a majority of the directors then still in office who either were directors on the date hereof or whose election or nomination for election was previously so approved, shall cease for any reason to constitute a majority of the Board; or (3) at any time after the date hereof, the stockholders of Company approve a complete liquidation or dissolution of Company, except in connection with a recapitalization or other transaction which does not otherwise constitute a Change of Control for purposes of Section 4.5(a)(1) above; 4.6 TERMINATION BY EXECUTIVE WITHOUT GOOD REASON. In the event Executive's employment is voluntarily terminated by Executive without Good Reason, Company shall not be obligated to make any further payments to Executive hereunder other than Accrued Obligations through the date of such termination. 4.7 FAILURE TO EXTEND. A failure by Company to extend Executive's Agreement pursuant to Section 2.1 shall not be treated as a termination of Executive's employment for purposes of this Agreement; provided, however, that if the Company gives notice of nonrenewal of the initial Term in accordance with Section 2.1, the Company shall continue to pay to Executive Base Compensation for the twelve (12) month period after expiration of the initial Term. For this purpose, the "at risk" component of Base Compensation shall be added to and paid as part of Executive's salary. 4.8 MITIGATION. Executive shall not be required to mitigate amounts payable under this Section 4 by seeking other employment or otherwise, and there shall be no offset against amounts due Executive under this Agreement on account of subsequent employment except as specifically provided herein. 8 SECTION 5. NON-COMPETITION AND CONFIDENTIALITY ----------------------------------- 5.1 NON-COMPETITION (a) During the Term, including any unexpired portion thereof, and for a period of one year thereafter (the "Non-Competition Period"), Executive shall not, directly or indirectly, own, manage, operate, join, control, participate in, invest in or otherwise be connected or associated with, in any manner, including, without limitation, as an officer, director, employee, distributor, independent contractor, independent representative, partner, consultant, advisor, agent, proprietor, trustee or investor, any Competing Business located in any state or region (including foreign jurisdictions) where Company conducts business; provided, however, that (i) ownership of 4.9% or less of the stock or other securities of a corporation, the stock of which is listed on a national securities exchange or is quoted on the NASDAQ Stock Market's National market, shall not constitute a breach of this Section 5, so long as the Executive does not in fact have the power to control, or direct the management of, or is not otherwise engaged in activities with, such corporation and (ii) investment banking and similar advisory services after the Term, even if provided to a Competing Business, shall not constitute a breach of this Section 5. (b) For purposes hereof, the term "Competing Business" shall mean any business or venture which is substantially similar to the whole or any significant part of the business conducted by Company. (c) Notwithstanding the above, except as provided below, the non-competition obligation in Section 5.1(a) shall not apply after the Term if Executive's employment is terminated (i) by Company without Cause, (ii) by Executive for Good Reason or (iii) as a result of nonrenewal of the Agreement by Company; provided, however, in the event of any such termination, the non-competition obligation shall continue after the Term for the remainder of the Non-Competition period if (i) Executive is entitled to the Severance Payment and payment thereof is made within 90 days after expiration of the Term or (ii) Company has given written notice to Executive at least 12 months prior to the expiration of the Term agreeing to continue payment of Base Compensation to Executive after the Term and during the remainder of the Non-Competition Period. For this purpose, the "at risk" component of Base Compensation shall be added to and paid as part of Executive's salary. 5.2 NO SOLICITATION. During the Term, including any unexpired portion thereof, and for a period of one year thereafter, the Executive shall not, directly or indirectly, including on behalf of, for the benefit of, or in conjunction with, any other person or entity, (i) solicit, assist, advise, influence, induce or otherwise encourage in any way, any employee of Company to terminate Executive's relationship with Company for any reason, or assist any person or entity in doing so, or employ, engage or otherwise contract with any employee or former employee of Company in a Competing Business or any other business unless such former employee shall not have been employed by Company for a period of at least one year, (ii) interfere in any manner with the relationship between any employee and Company or (iii) contact, service or solicit any existing clients, customers or accounts of Company on behalf of a Competing Business, either as an individual on Executive's own account, as an investor, or as an officer, director, partner, joint venturer, consultant, employee, agent or sales man of any other person or entity. 9 5.3 CONFIDENTIAL INFORMATION (a) "Confidential Information" shall mean confidential records and information, including, but not limited to, development, marketing, purchasing, organizational, strategic, financial, managerial, administrative, manufacturing, production, distribution and sales information, distribution methods, data, specifications and processes (including the Transferred Property as hereinafter defined) presently owned or at any time hereafter developed by Company or its agents or consultants or used presently or at any time hereafter in the course of the business of Company, that are not otherwise part of the public domain. (b) Executive hereby sells, transfers and assigns to Company, or to any person or entity designated by Company, all of Executive's entire right, title and interest in and to all inventions, ideas, methods, developments, disclosures and improvements (the "Inventions"), whether patented or unpatented, and copyrightable material, and all trademarks, trade names, all goodwill associated therewith and all federal and state registrations or applications thereof, made, adopted or conceived by solely or jointly, in whole or in part (collectively, the "Transferred Property"), prior to or during the Term which (i) relate to methods, apparatus, designs, products, processes or devices sold, leased, used or under construction or development by Company or (ii) otherwise relate to or pertain to the business, products, services, functions or operations of the Company. Executive shall make adequate written records of all Inventions, which records shall be Company's property and shall communicate promptly and disclose Company, in such forms Company requests, all information, details and data pertaining to the aforementioned Inventions. Whether during the Term or thereafter, Executive shall execute and deliver to Company such formal transfers and assignments and such other papers and documents as may be required of Executive to permit Company, or any person or entity designated by Company, to file and prosecute patent applications (including, but not limited to, records, memoranda or instruments deemed necessary by Company for the prosecution of the patent application or the acquisition of letters patent in the United states, foreign counties or otherwise) and, as to copyrightable material, to obtain copyrights thereon, and as to trademarks, to record the transfer of ownership of any federal or state registrations or applications. (c) All such Confidential Information is considered secret and will be disclosed to the Executive in confidence, and Executive acknowledges that, as a consequence of Executive's employment and position with Company, Executive may have access to and become acquainted with Confidential Information. Except in the performance of Executive's duties as an employee of Company, Executive shall not, during the term and at all times thereafter, directly or indirectly for any reason whatsoever, discloser or use any such Confidential Information. All records, files, drawings, documents, equipment and other tangible items, wherever located, relating in any way to or containing Confidential Information, which Executive has prepared, used or encountered or shall in the future prepare, use or encounter, shall be and remain Company's sole and exclusive property and shall be included in the Confidential Information. Upon termination of this agreement, or whenever requested by Company, Executive shall promptly deliver to Company any and all of the Confidential Information and copies thereof, not previously delivered to Company, that may be in the possession or under the control of the Executive. The foregoing restrictions shall not apply to the use, divulgence, disclosure or grant 10 of access to Confidential Information to the extent, but only to the extent, (i) expressly permitted or required pursuant to any other written agreement between Executive and Company, (ii) such Confidential Information has been publicly disclosed (not due to a breach by the Executive of Executive's obligations hereunder, or by breach of any other person, of a fiduciary or confidential obligation to Company or (iii) the Executive is required to disclose Confidential Information by or to any court of competent jurisdiction or any governmental or quasi-governmental agency, authority or instrumentality of competent jurisdiction, provided, however, that the Executive shall, prior to any such disclosure, immediately notify Company of such requirements and provided further, however, that the Company shall have the right, at its expense, to object to such disclosures and to seek confidential treatment of any Confidential Information to be so disclosed on such terms as it shall determine. 5.4 ACKNOWLEDGEMENT; REMEDIES; SURVIVAL OF THIS AGREEMENT (a) Executive acknowledges that violation of any of the covenants and provisions set forth in this Agreement would cause Company irreparable damage and agrees that Company's remedies at law for a breach or threatened breach of any of the provisions of this Agreement would be inadequate and, in recognition of this fact, in the event of a breach or threatened breach by Executive of any of the provisions of this Agreement, it is agreed that, in addition to the remedies at law or in equity, Company shall be entitled, without the posting of a bond, to equitable relief in the form of specific performance, a temporary restraining order, temporary or permanent injunction, or any other equitable remedy which may then be available for the purposes of restraining Executive from any actual or threatened breach of such covenants. Without limiting the generality of the foregoing, if Executive breaches or threatens to breach this Section 5 hereof, such breach or threatened breach will entitle Company to enjoin Executive from disclosing any Confidential Information to any Competing Business, to enjoin any Competing Business from retaining Executive or using any such Confidential Information, to enjoin Employee form rendering personal services to or in connection with any Competing Business. The rights and remedies of the parties hereto are cumulative and shall not be exclusive, and each such party shall be entitled to pursue all legal and equitable rights and remedies and to secure performance of the obligations and duties of the other under this Agreement, and the enforcement of one or more of such rights and remedies by a party shall in no way preclude such party from pursuing, at the same time or subsequently, any and all other rights and remedies available to it. (b) The provisions of this Agreement shall survive the termination of Executive's employment with Company. SECTION 6. MISCELLANEOUS ------------- 6.1 CANCELLATION OF CONSULTING AGREEMENT Except for the obligation to pay the consulting fees and the 20% performance bonus (to the extent earned) through June 30, 1998, the Consulting Agreement is hereby cancelled, provided, however, that this shall not be construed to limit or terminate Executive's entitlement to amounts accrued for periods through the date of this Agreement, including, without limitation, the 250,000 stock options granted thereunder. Nothing 11 in this Agreement or the Consulting Agreement shall be construed to entitle Executive to any fee on other compensation relating to the Company's sale of stock to David Brodsky and the Designees (as defined therein) pursuant to the terms of an Amended and Restated Stock Purchase Agreement dated June 18, 1998. 6.2 ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Princeton, New Jersey, in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. The parties consent to the authority of the arbitrator, if the arbitrator so determines, to award fees and expenses (including legal fees) to the prevailing party in the arbitration. Notwithstanding the foregoing, Company shall be entitled to enforce the provisions of Section 5 hereof through proceedings brought in a court of competent jurisdiction as contemplated by Section 6.9 hereof. 6.3 SEVERABILITY; Reasonableness of Agreement. If any term, provision or covenant of this Agreement or part thereof, or the application thereof to any person, place or circumstance shall be held to be invalid, unenforceable or void by a court of competent jurisdiction, the remainder of this Agreement and such term, provision or covenant shall remain in full force and effect, and any such invalid, unenforceable or void term, provision or covenant shall be deemed, without further action on the part of the parties hereto, modified, amended and limited, and the court shall have the power to modify, amend and limit any such term, provision or covenant, to the extent necessary to render the same and the remainder of the Agreement valid, enforceable and lawful. In this regard, the Executive understands that the provisions of Section 5 may limit Executive's ability to earn a livelihood in a business similar or related to the business of Company, but nevertheless agrees and acknowledges that (i) the provisions of Section 5 are reasonable and necessary for the protection of Company, and do not impose a greater restraint than necessary to protect the goodwill or other business interest of Company and (ii) such provisions contain reasonable limitations as to the time and the scope of activity to be restrained. In consideration of the foregoing and in light of Executive's education, skills and abilities, Executive agrees that all defenses by Executive to the strict enforcement of such provisions are hereby waived by Executive. 6.4 KEY EMPLOYEE INSURANCE. Company shall have the right at its expense to purchase insurance on the life of Executive, in such amounts as it shall from time to time determine, of which Company shall be the beneficiary. Executive shall submit to such physical examinations as may reasonably be required and shall otherwise cooperate with Company in obtaining such insurance. 6.5 ASSIGNMENT; BENEFIT. This Agreement shall not be assignable by Executive, other than Executive's rights to payments or benefits hereunder, which may be transferred only by will or the laws of descent and distribution. Upon Executive's death, this Agreement and all rights of Executive hereunder shall inure to the benefit of and be enforceable by Executive's beneficiary or beneficiaries, personal or legal representatives, or estate, to the extent any such person succeeds to Executive's interests under this Agreement. No rights or obligations of Company under this Agreement may be assigned or transferred except that Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all 12 or substantially all of the business and/or assets of Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean Company as hereinbefore defined and any successor to its business and/or assets (by merger, purchase or otherwise) which executes and delivers the agreement provided for in this Section 5.4 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. 6.6 NOTICES. All notices hereunder shall be in writing and shall be sufficiently given if hand-delivered, sent by documented overnight delivery service or registered or certified mail, postage prepaid, return receipt requested or by telegram or telefax (confirmed by U.S. mail), receipt acknowledged, addressed as set forth below or at such other address for either party as may be specified in a notice given as provided herein by such party to the other. Any such notice shall be deemed to have been given as of the date received, in the case of personal delivery, or on the date shown on the receipt or confirmation therefor, in all other cases. Any and all service of process and any other notice in any such action, suit or proceeding shall be effective against any party if given as provided in this Agreement; provided that nothing herein shall be deemed to affect the right of any party to serve process in any other manner permitted by law. (a) If to Company: Total Research Corporation Princeton Corporate Center 5 Independence Way Princeton, NJ 08540 With Copies To: Thomas A. Belton, Esq. Drinker Biddle & Reath LLP 105 College Road East Princeton, NJ 08540 Peter G. Smith, Esq. Kramer, Levin, Naftalis & Frankel 919 Third Avenue New York, NY 10022 If to Executive: Albert Angrisani 50 Gallup Road Princeton, NJ 08540 13 6.7 TERMINATION PROCEDURES. Any termination of Executive's employment by the Company or by Executive during the Term (other than termination pursuant to death) shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated. 6.8 ENTIRE AGREEMENT AND MODIFICATION. This Agreement constitutes the entire agreement between the parties hereto with respect to the matters contemplated herein and supersedes all prior agreements and understandings with respect thereto. No amendment, modification, or waiver of this Agreement shall be effective unless in writing. Neither the failure nor any delay on the part of any party to exercise any right, remedy, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power, or privilege with respect to such occurrence or with respect to any other occurrence. 6.9 GOVERNING LAW. This Agreement is made pursuant to, and shall be construed and enforced in accordance with, the laws of the State of New Jersey and the federal laws of the United States of America, to the extent applicable, without giving effect to otherwise applicable principles of conflicts of law. The parties hereto expressly consent to the jurisdiction of any state or federal court located in New Jersey, and to venue therein, and consent to the service of process in any such action or proceeding by certified or registered mailing of the summons and complaint therein directed to Executive or Company, as the case may be, at its address as provided in Section 6.6 hereof. 6.10 WITHHOLDING. All payments hereunder shall be subject to any required withholding of Federal, state and local taxes pursuant to any applicable law or regulation. 6.11 HEADINGS; COUNTERPARTS. The headings of paragraphs in this Agreement are for convenience only and shall not affect its interpretation. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original and all of which, when taken together, shall be deemed to constitute the same Agreement. 6.12 FURTHER ASSURANCES. Each of the parties hereto shall execute such further instruments and take such other actions as the other party shall reasonably request in order to effectuate the purposes of this Agreement. 14 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. TOTAL RESEARCH CORPORATION By: /s/ David Brodsky ----------------- David Brodsky, Chairman of the Executive Committee By: /s/ Howard L. Shecter --------------------- Howard L. Shecter, Executive Committee /s/ Albert Angrisani -------------------- Executive 15 Exhibit A SENIOR MANAGEMENT COMPENSATION PLAN TERM SHEET FISCAL YEAR 1999 THROUGH FISCAL YEAR 2001 Name: Albert Angrisani Title: President and Chief Executive Officer A. COMPENSATION/SHORT-TERM I. BASE COMPENSATION: Base compensation for fiscal year 1999 will be $300,000; $175,000 of salary will be paid on normally scheduled Company paydays, with the remaining $125,000 constituting "at risk" compensation to be paid within 90 days after the end of the fiscal year if, and only if, at least ninety-five percent (95%) of Company's Income Before Tax (as defined below) performance goal is achieved. Base compensation increases beyond year one, will be based on individual performance and contribution as set by the Executive Committee. II. BONUS COMPENSATION: Compensates the Executive if either the established Company Income Before Tax (IBT) or Net Income (NI) performance goal is achieved. These corporate goals ( the "Performance Goals"), as identified in the attached exhibit title Three Year Performance Goals, Fiscal Years 1999-2001, have been approved by the Executive Committee at time of signing. The Performance Goals include certain assumptions regarding revenue and expenses that are fundamental to the attainment of the Bonus Compensation. If the Executive Committee or the Board initiates and approves any material changes to these assumptions or projections that have not been approved in advance in writing by the CEO, such change (a "Nonbudget Item") , and the resulting direct effect on revenue and expenses, shall be disregarded in calculating IBT or NI. Executive and Company shall mutually agree as to the effect on revenue and expenses of the Nonbudget Item ( a "Nonbudget Item Effect") within 10 days after Executive's or Company's written proposal as to the effect of the Nonbudget Item Effect. If the parties fail to agree in writing within such 10 day period, the Nonbudget Item Effect shall be determined by an arbitrator mutually agreeable to the Company and Executive. By way of illustration of a Nonbudget Item, changes that would require a CEO approval include (I) material increases in discretionary expense items or new expense line items, (ii) material changes in budgets and allocations that alter the revenue or expense allocation or mix of the four divisions of the company, (iii) material changes in the overhead or expense structure of the four divisions or (iv) expenditures or reallocations of internally generated cash flow to acquisitions of new business or lines of business. 16 IBT and NI shall be adjusted to add back any compensation expense item resulting from the exercise, cancellation, repurchase or conversion of any Stock Option, or the issuance of any Company stock, after June 30, 1998. This Bonus Compensation represents a bonus of 20% of the total Base Compensation for the applicable fiscal year and will be paid as follows: If either the IBT or NI goals have been reached, the Executive will be issued 20% of his annual Base Compensation for the applicable fiscal year in the form of restricted shares of Company stock (the "Bonus Shares", including for this purpose any additions as a results of a stock dividend or split). The valuation of the Bonus Shares will be based on the average of the closing bid price of the Company stock on the NASDAQ exchange for a period of 90 calendar days ending on the last day of the week prior to the determination of such stock bonus. The amount of the stock bonus will be determined within 90 days after the end of the fiscal year. Additionally, the Executive agrees that he will hold the Bonus shares and forfeit the Bonus Shares if he voluntarily elects to leave the Company prior to the expiration of the Term of his Employment Agreement or is terminated for Cause under such Agreement. Should the IBT and NI performance fall below the Performance Goals but one is at least 95% thereof, the Executive will be entitled to a reduced bonus in the form of Bonus Shares of ten percent (10%) of Base Compensation. The method of payment for this performance level is indicated in the preceding paragraph. The Income Before Tax (IBT) goal referenced above and in the Excess Performance Bonus Opportunity, excludes any extra ordinary expenses that may result from the cancellation, repurchase, conversion or reissuing of stock options. B. EXCESS PERFORMANCE BONUS OPPORTUNITY: Payment under this portion of the Compensation Plan is for performance in excess of established Performance Goals. The Executive will be paid 15% of all NI in excess of the NI Performance Goal if, and only if IBT performance is 10% greater than the IBT Performance Goal. This payment will be made in the form of Bonus Shares based on the same provisions covered in the bonus section of A of this Plan. For purposes of this Paragraph B only, NI, IBT, and NI and IBT Performance Goals will be based only on revenue and expenses allocable to the existing lines of the Company's business, sometimes referred to as the "Core Business", unless the Executive and Company otherwise agree in writing. (e.g. results from acquisitions will not be included in NI or IBT unless the Executive and Company agree first in writing). Core Business NI and IBT calculations shall be made by the CFO, the Executive, subject to approval by the Executive Committee. C. LOAN The Executive will be offered a non-collaterialized loan provision from the Company, which provides the Executive with three annual loans of $100,000 each, to be made separately on 17 August 1, 1998, August 1,1999 and August 1, 2000. Interest will be at minimum applicable federal rate for IRS purposes. The term of the loan will be as follows. The entire principal and interest due under the loan will be due on June 30, 2001 provided, however, the entire amount will be forgiven if (i) the price of the Company stock is at least $10 per share (after adjustments for stock dividend ,stock splits and similar recapitalization), determined by averaging the closing price on the NASDAQ exchange for the 90 calendar day period preceding June 30, 2001 or (ii) the Executive's Employment Agreement is terminated prior to June 30, 2001 in a manner that requires a Severance Payment (as defined in such Agreement) to Executive. This provision shall survive termination of Executive's employment. EX-10.6 5 PATTI HOFFMAN EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT -------------------- EMPLOYMENT AGREEMENT dated as of January 1, 1999 between Total Research Corporation, a Delaware corporation ("Company"), and Patti Hoffman ("Executive"). BACKGROUND ---------- Executive is presently serving as the President US Regional Offices Division of the Company under an Employment Agreement with Company effective January 2, 1997 (the "Original Employment Agreement"). Company desires to have Executive continue in the employment of the Company beyond the June 30, 1999 termination date in the Original Employment Agreement, and Executive wishes to remain in the employment of the Company beyond such date, on the terms and conditions contained in this Agreement. NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein and intending to be legally bound hereby, the parties hereto agree as follows: TERMS ----- SECTION 1. CAPACITY AND DUTIES 1.1 EMPLOYMENT; ACCEPTANCE OF EMPLOYMENT. Company hereby employs Executive and Executive hereby accepts employment by Company for the period and upon the terms and conditions hereinafter set forth. 1.2 CAPACITY AND DUTIES. (a) Executive shall initially serve as President of the Customer Loyalty Division of Company. Executive shall perform the duties and have the responsibilities of a Division President as described in the "Position Description" previously delivered to Executive, as such "Position Description" may be revised by Company from time to time. Executive shall perform such other duties and shall have such authority consistent with his position as may from time to time be specified by the Chief Executive Officer of Company. Executive may be appointed by the Chief Executive Officer to another senior level position, provided such appointment does not result in a reduction in Executive's compensation and benefits under this Agreement. Executive shall report directly to the Chief Executive Officer, and shall perform Executive's duties for Company principally at Company's principal executive offices, presently in Princeton, New Jersey , except for periodic travel that may be necessary or appropriate in connection with the performance of Executive's duties hereunder. (b) Executive shall devote Executive's full working time, energy, skill and best efforts to the performance of Executive's duties hereunder, in a manner that will faithfully and diligently further the business and interests of Company, and shall not be employed by, or participate or engage in or in any manner be a part of the management or operation of, any business enterprise other than Company without the prior written consent of the Board of Directors of Company (the 1 "Board"). Notwithstanding the above, Executive shall be permitted, to the extent such activities do not interfere or conflict with the performance by Executive of Executive's duties and responsibilities hereunder, (i) to manage Executive's personal, financial and legal affairs, and (ii) to serve on civic, charitable or professional boards or committees (it being expressly understood and agreed that Executive's continuing to serve on any such board and/or committees on which Executive is serving, or with which Executive is otherwise associated (each of which has been disclosed to Company in writing prior to the execution of Executive's Agreement), as of the Commencement Date (as defined below), shall be deemed not to interfere with the performance by Executive of Executive's duties and responsibilities under this Agreement). (c) Executive represents and warrants to Company that Executive is under no contractual or other restriction or obligation which conflicts with, violates or is inconsistent with the execution of this Agreement, the performance of Executive's duties hereunder, or the other rights of Company hereunder. (d) During the Term, Executive shall be entitled to participate as a member of the Company's Management Council. The Management Council shall consist of Executive and certain other senior officers of the Company and shall serve as an advisory and consultative body on such significant strategic and operating issues as the Chairman or President of the Company determine to present to the Management Council prior to decisions on such issues being made by the President, the Executive Committee or the Board of Directors. SECTION 2. TERM OF EMPLOYMENT 2.1 TERM. The term of Executive's employment hereunder shall commence on the date hereof (the "Commencement Date") and continue until June 30, 2000, as further extended or unless sooner terminated in accordance with the other provisions hereof (the "Term"). Except as hereinafter provided, on expiration of the initial Term, the Term shall be automatically extended for one additional year unless either party shall have given to the other party written notice of nonrenewal of this Agreement at least six months prior to such expiration date. After the initial Term, the Term shall be automatically extended for successive one year Terms unless written notice of nonrenewal is given by either party to the other at least six (6) months prior to the expiration of the then current Term. If written notice of termination is given as provided above, Executive's employment under this Agreement shall terminate on the last day of the then-current Term. SECTION 3. COMPENSATION 3.1 BASIC COMPENSATION. As compensation for Executive's services during the Term, Company shall pay to Executive a salary effective January 1, 1999 in the amount specified on Exhibit A, attached hereto and made a part hereof. The Executive shall continue to receive Executive's salary at the rate presently in effect under the Original Employment Agreement through December 31, 1998. The salary shall be payable in periodic installments in accordance with Company's regular payroll practices for its executive personnel at the time of payment, but in no event less frequently than monthly. Executive's annual salary, as determined in accordance with this Section 3.1, is hereinafter referred to as Executive's "Base Salary." 2 3.2 PERFORMANCE BONUS. As additional compensation for the services rendered by Executive to Company pursuant to this Agreement for fiscal periods commencing July 1, 1998, the Executive shall be entitled to participate in the Senior Management Compensation Plan, attached hereto and incorporated hereby as Exhibit A (the "Compensation Plan"). 3.3 EMPLOYEE BENEFITS. During the Term, Executive shall be entitled to participate in such of Company's employee benefit plans and benefit programs, including medical, hospitalization, dental, disability, accidental death and dismemberment and travel accident plans and programs, as may from time to time be provided by Company for its senior executives generally. In addition, during the Term Executive shall be eligible to participate in all pension, retirement, savings and other employee benefit plans and programs maintained from time to time by Company for the benefit of its senior executives generally. Company shall have no obligation, however, to maintain any particular program or level of benefits referred to in this Section 3.3. 3.4 OTHER BENEFITS. During the Term, the Company shall provide Executive with an automobile allowance of $500.00 per month for the use of an automobile owned or leased by Executive in accordance with the policies and procedures established by the Company from time to time for executive employees. 3.5 VACATION. Executive shall be entitled to the normal and customary amount of paid vacation provided to senior executives of the Company generally, but in no event less than 20 days during each 12 month period, beginning on July 1, 1998. Any vacation days that are not taken in a given 12 month period shall accrue and carry over from year to year up to a maximum of 20 days. The Executive may be granted leaves of absence with or without pay for such valid and legitimate reasons as the Board in its sole and absolute discretion may determine, and is entitled to the same sick leave and holidays provided to other senior executive officers of Company. 3.6 EXPENSE REIMBURSEMENT. Company shall reimburse Executive for all reasonable and documented expenses incurred by him in connection with the performance of Executive's duties hereunder in accordance with its regular reimbursement policies as in effect from time to time. 3.7 STOCK OPTION AGREEMENT. Company acknowledges the prior grant to Executive of 250,000 stock options (the "Option Shares") made pursuant to the Original Employment Agreement under which, subject to the terms thereof, the Option Shares are scheduled to vest on June 30, 1999. SECTION 4. TERMINATION OF EMPLOYMENT 4.1 DEATH OF EXECUTIVE. If Executive dies during the Term, Company shall not thereafter be obligated to make any further payments hereunder other than amounts (including Base Salary, bonuses, expense reimbursement, etc.) accrued as of the date of Executive's death in accordance with generally accepted accounting principles (the "Accrued Obligations", which, for purposes of this Agreement in situations other than death, shall reference the date of termination). 3 4.2 DISABILITY OF EXECUTIVE. If Executive is permanently disabled (as defined in Company's long-term disability insurance policy then in effect), then the Board shall have the right to terminate Executive's employment upon 30 days' prior written notice to Executive at any time during the continuation of such disability. In the event Executive's employment is terminated for disability in accordance with this Section 4.2, Company shall not thereafter be obligated to make any further payments hereunder other than (i) Accrued Obligations through the date of such termination and (ii) continued Base Salary and benefits, until the earlier of (x) such time as payments to Executive commence under Company's long-term disability insurance policy then in effect, or (y) the expiration of the then current Term. 4.3 TERMINATION FOR CAUSE. Executive's employment hereunder shall terminate immediately upon notice that the Board is terminating Executive for Cause (as defined herein), in which event Company shall not thereafter be obligated to make any further payments of Base Salary, bonus or other payments. "Cause" shall be limited to the following: (i) willful failure to substantially perform Executive's duties as described in Section 1.2 (other than such failure resulting from Executive's physical or mental illness, or the failure of Executive to perform such duties during the remedy period set forth in Section 4.4 hereof following the issuance of a Notice of Termination (as herein defined) by Executive for Good Reason, unless an arbitrator acting pursuant to Section 6.2 hereof finds Executive to have acted in bad faith in issuing such Notice of Termination), after (x) demand for substantial performance is delivered by Company in writing that identifies the manner in which Company believes Executive has not substantially performed Executive's duties and (y) Executives' failure to cure such nonperformance within ten days after receipt of such written demand. (ii) willful misconduct that is materially and demonstrably injurious to Company or any of its subsidiaries; (iii) conviction or plea of guilty or nolo contendere to a felony or to any other crime which involves moral turpitude or, if not involving moral turpitude, the act giving rise to such conviction or plea is materially and demonstrably injurious to the Company or any of its subsidiaries; (iv) material violation of (x) Company's policies relating to sexual harassment, substance or alcohol abuse or the disclosure or misuse of Confidential Information (as hereinafter defined), or (y) other Company polices set forth in Company manuals or written statements of policy provided in the case of this clause (y) that such violation is materially and demonstrably injurious to Company and continues for more than three (3) days after written notice thereof is given to Executive by the Board; and (v) material breach of any provision of this Agreement by Executive, which breach continues for more then ten days after written notice thereof is given by the Board to Executive. Cause shall not exist under this Section 4.3 unless and until Company has delivered to Executive a copy of a resolution duly adopted by a majority of the Board at a meeting of the Board called and held for such purpose (or by unanimous written consent of the Board), finding 4 that such Cause exists in the good faith opinion of the Board. This Section 4.3 shall not prevent Executive from challenging in any arbitration proceeding or court of competent jurisdiction the Board's determination that Cause exists or that Executive has failed to cure any act (or failure to act), to the extent permitted by this Agreement, that purportedly formed the basis for the Board's determination. Company must provide notice to Executive that it is intending to terminate Executive's employment for Cause within one hundred and twenty (120) days after the Board has actual knowledge of the occurrence of the event it believes constitutes Cause. 4.4 TERMINATION WITHOUT CAUSE OR BY EXECUTIVE FOR GOOD REASON. (a) If (i) Executive's employment is terminated by Company for any reason (other than (x) Cause or (y) disability of Executive) or (ii) Executive's employment is terminated by Executive for Good Reason, then Company shall within thirty (30) days of termination of employment pay to Executive a lump sum cash payment equal to Executive's Base Salary for a period equal to the greater of (x) the date of termination of employment through the date that is one (1) year after the date of delivery of a proper notice of termination of employment or nonrenewal of the Agreement or (y) the then remaining Term (the "Severance Payment"). Further, in the event of termination by Company under such circumstances Company shall maintain in full force and effect, for the continued benefit of Executive, Executive's spouse and Executive's dependents for the remaining balance of the unexpired Term as of the date of termination, the medical, hospitalization, dental and life insurance programs in which Executive, Executive's spouse and Executive's dependents were participating immediately prior to the date of such termination at substantially the level in effect and upon substantially the same terms and conditions (including without limitation contributions required by Executive for such benefits) as existed immediately prior to the date of termination (except to the extent thereafter reduced for senior executives of Company generally); provided, that if Executive, Executive's spouse or Executive's dependents cannot continue to participate in the Company programs providing such benefits, the Company shall arrange to provide Executive, Executive's spouse and Executive's dependents with the economic equivalent of such benefits which they otherwise would have been entitled to receive under such plans and programs, provided that such benefits shall terminate upon the date or dates Executive receives coverage and benefits which are substantially similar, taken as a whole, without waiting period or pre-existing condition limitations, under the plans and programs of a subsequent employer . Upon making the payments described in this Section 4.4, Company shall have no further obligation to Executive hereunder. (b) Notwithstanding the foregoing, if Executive's employment is terminated (i) by Company without Cause but due to Executive's failure for four consecutive calendar quarters to attain all the performance goals as outlined in the Compensation Plan or (ii) by Executive for Good Reason under Section 4.4(c)(vi) provided Executive terminates employment under Section 4.4(c)(vi) within ten (10) days of the Company's delivery of the revised performance goals to Executive, the Severance Payment shall be reduced by fifty percent (50%). (c) "Good Reason" shall mean the following: (i) material breach of Company's obligations hereunder, provided that Executive shall have given reasonably specific written notice thereof to Company, and Company shall have failed to remedy the circumstances within 60 days thereafter; 5 (ii) any decrease in Executive's salary below the amount set forth in the Compensation Plan (except for decreases that are in conjunction with decreases in salaries generally) or any material reduction in the general nature of Executive's duties or authority to a level inconsistent with a senior executive position, unless previously agreed to in writing by Executive; (iii) the failure of Executive to be appointed initially to the positions set forth in Section 1.2(a); (iv) the relocation of Executive's principal place of employment to a location more than thirty (30) miles from Princeton, New Jersey; (v) the failure of any successor in interest of Company to be bound by the terms of this Agreement in accordance with Section 6.5 hereof; (vi) The financial Bonus Goals established by the Company in the Senior Management Compensation Plan for any fiscal year are more than 125% of the financial Bonus Goals for the preceding fiscal year and are not approved in writing by the Chief Executive Officer or, if Albert Angrisani is not then serving as Chief Executive Officer, approved by a majority of the participants in the Compensation Plan; or (vii) Executive's termination of the Agreement after Company notice of nonrenewal under Section 2.1. Executive must provide notice to Company that Executive is intending to terminate Executive's employment for Good Reason within one hundred and twenty (120) days after Executive has actual knowledge of the occurrence of an event he believes constitutes Good Reason. Executive's right to terminate Executive's employment hereunder for Good Reason shall not be affected by Executive's Disability. Subject to compliance by Executive with the notice provisions of Section 4.4(c)(i), Executive's continued employment prior to terminating employment for Good Reason shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason. In the event Executive delivers to the Company a Notice of Termination for Good Reason, Executive agrees to appear before a meeting of the Board called and held for such purpose (after reasonable notice) and specify to the Board the particulars as to why Executive believes adequate grounds for termination for Good Reason exist. No action by the Board, other than the remedy of the circumstances within the time periods specified in Section 4.4(c)(i), shall be binding on Executive. 4.5 CHANGE IN CONTROL. (a) If, during the Term, there should be a Change of Control (as defined herein), and within one year thereafter either (i) Executive's employment should be terminated for any reason other than for Cause or (ii) Executive terminates Executive's employment for Good Reason (other than under Section 4.4(c)(vi)), Company shall, on or before Executive's last day of full-time employment hereunder, pay to Executive, the amounts set forth in Section 4.4 above, provided that it is the intention of the parties that the payments under this Section 4.5 shall not constitute "excess parachute payments" within the meaning of Section 280G of the Internal 6 Revenue Code of 1986, as amended. Accordingly, notwithstanding anything in this Agreement to the contrary, if any of the amounts otherwise payable under this Section would constitute "excess parachute payments," or if the independent accountants acting as auditors for Company on the date of the Change in Control determine that such payments may constitute "excess parachute payments," then the amounts otherwise payable under this Agreement shall be reduced to the maximum amounts that may be paid without any such payments constituting, or potentially constituting, "excess parachute payments." (b) Upon the occurrence of a Change in Control, any stock options previously granted to Executive that are not then exercisable, ie. unvested, shall immediately vest and become exercisable by Executive . The Company shall execute all necessary amendments to the applicable stock option plans and agreements provided such amendments are permitted by law and will not adversely affect the tax status or qualification of the plan as an Incentive Stock Option Plan or Non-qualified Stock Option Plan. (c) Upon making the payments described in this Section 4.5, Company shall have no further obligation to Executive hereunder. (d) A "Change in Control" of Company shall be deemed to have occurred if (1) at any time after the date hereof, there shall occur (i) any consolidation or merger of Company in which Company is not the continuing or surviving corporation or pursuant to which the shares of common stock of Company ("Common Stock") would be converted into cash, securities or other property, or (ii) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of assets accounting for 50% or more of total assets or 50% or more of the total revenues of Company, other than, in case of either (i) or (ii) a consolidation or merger with, or transfer to, a corporation or other entity of which, or of the parent entity of which, immediately following such consolidation, merger or transfer, (x) more than 50% of the combined voting power of the then outstanding voting securities of such entity entitled to vote generally in the election of directors (or other determination of governing body) is then beneficially owned (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934) by all or substantially all of the individuals and entities who were such owners of Common Stock immediately prior to such consolidation, merger or transfer in substantially the same proportion, as among themselves, as their ownership of Common Stock immediately prior to such sale consolidation, merger or transfer, or (y) a majority of the directors (or other governing body) consists of members of the Board of Directors of Company in office on the date hereof for purposes of (2) below or approved as provided in (2) below; (2) at any time after the date hereof, (x) members of the Board of Directors of Company in office on the date hereof (including any designated as contemplated by Section 4.2 of the Stock Purchase Agreement made as of April 16, 1998 between Company and David Brodsky) plus (y) any new director (excluding a director designated by a person or group who has entered into an agreement with Company to effect a transaction described in Section 4.5(d)(1)) whose election by the Board of Directors of Company or nomination for election by Company's stockholders was approved by (i) Executive (if a director) or (ii) a vote of at least a majority of the directors then still in office who either were directors on the date hereof or whose 7 election or nomination for election was previously so approved, shall cease for any reason to constitute a majority of the Board; or (3) at any time after the date hereof, the stockholders of Company approve a complete liquidation or dissolution of Company, except in connection with a recapitalization or other transaction which does not otherwise constitute a Change of Control for purposes of Section 4.5(a)(1) above. 4.6 TERMINATION BY EXECUTIVE WITHOUT GOOD REASON. In the event Executive's employment is voluntarily terminated by Executive without Good Reason, Company shall not be obligated to make any further payments to Executive hereunder other than Accrued Obligations through the date of such termination. 4.7 FAILURE TO EXTEND. A failure by Company to extend this Agreement pursuant to Section 2.1 shall not be treated as a termination of Executive's employment for purposes of this Agreement. 4.8 MITIGATION. Executive shall not be required to mitigate amounts payable under this Section 4 by seeking other employment or otherwise, and there shall be no offset against amounts due Executive under this Agreement on account of subsequent employment except as specifically provided herein. SECTION 5. NON-COMPETITION AND CONFIDENTIALITY 5.1 NON-COMPETITION. (a) During the Term and for a period of one year thereafter (the "Non-Competition Period"), Executive shall not, directly or indirectly, own, manage, operate, join, control, participate in, invest in or otherwise be connected or associated with, in any manner, including, without limitation, as an officer, director, employee, distributor, independent contractor, independent representative, partner, consultant, advisor, agent, proprietor, trustee or investor, any Competing Business located in any state or region (including foreign jurisdictions) where Company conducts business; provided, however, that ownership of 1% or less of the stock or other securities of a corporation, the stock of which is listed on a national securities exchange or is quoted on the NASDAQ Stock Market's National market, shall not constitute a breach of this Section 5, so long as the Executive does not in fact have the power to control, or direct the management of, or is not otherwise engaged in activities with, such corporation. (b) For purposes hereof, the term "Competing Business" shall mean any business or venture which is substantially similar to the whole or any significant part of the business conducted by Company. (c) Notwithstanding the above, the Non-Competition Period shall be limited to the period for which a Severance Payment is received under Section 4.4(a) above if Executive's employment is terminated (i) by Company without Cause, (ii) by Executive for Good Reason or (iii) as a result of nonrenewal of the Agreement by Company. 8 (d) If the Executive's employment is terminated for any reason other than the reasons specified in Section 5.1(c) above and Executive is not entitled to a Severance Payment under Section 4.4(a) as a result of such termination, the Non-Competition Period shall continue for one (1) year after termination of employment. 5.2 NO SOLICITATION. During the Term, including any unexpired portion thereof, and for a period of one year thereafter, the Executive shall not, directly or indirectly, including on behalf of, for the benefit of, or in conjunction with, any other person or entity, (i) solicit, assist, advise, influence, induce or otherwise encourage in any way, any employee of Company to terminate Executive's relationship with Company for any reason, or assist any person or entity in doing so, or employ, engage or otherwise contract with any employee or former employee of Company in a Competing Business or any other business unless such former employee shall not have been employed by Company for a period of at least one year, (ii) interfere in any manner with the relationship between any employee and Company or (iii) contact, service or solicit any existing clients, customers or accounts of Company on behalf of a Competing Business, either as an individual on Executive's own account, as an investor, or as an officer, director, partner, joint venturer, consultant, employee, agent or sales man of any other person or entity. 5.3 CONFIDENTIAL INFORMATION (a) "Confidential Information" shall mean confidential records and information, including, but not limited to, development, marketing, purchasing, organizational, strategic, financial, managerial, administrative, manufacturing, production, distribution and sales information, distribution methods, data, specifications and processes (including the Transferred Property as hereinafter defined) presently owned or at any time hereafter developed by Company or its agents or consultants or used presently or at any time hereafter in the course of the business of Company, that are not otherwise part of the public domain. (b) Executive hereby sells, transfers and assigns to Company, or to any person or entity designated by Company, all of Executive's entire right, title and interest in and to all inventions, ideas, methods, developments, disclosures and improvements (the "Inventions"), whether patented or unpatented, and copyrightable material, and all trademarks, trade names, all goodwill associated therewith and all federal and state registrations or applications thereof, made, adopted or conceived by solely or jointly, in whole or in part (collectively, the "Transferred Property"), prior to or during the Term which (i) relate to methods, apparatus, designs, products, processes or devices sold, leased, used or under construction or development by Company or (ii) otherwise relate to or pertain to the business, products, services, functions or operations of the Company. Executive shall make adequate written records of all Inventions, which records shall be Company's property and shall communicate promptly and disclose Company, in such forms Company requests, all information, details and data pertaining to the aforementioned Inventions. Whether during the Term or thereafter, Executive shall execute and deliver to Company such formal transfers and assignments and such other papers and documents as may be required of Executive to permit Company, or any person or entity designated by Company, to file and prosecute patent applications (including, but not limited to, records, memoranda or instruments deemed necessary by Company for the prosecution of the patent application or the acquisition of 9 letters patent in the United states, foreign counties or otherwise) and, as to copyrightable material, to obtain copyrights thereon, and as to trademarks, to record the transfer of ownership of any federal or state registrations or applications. (c) All such Confidential Information is considered secret and will be disclosed to the Executive in confidence, and Executive acknowledges that, as a consequence of Executive's employment and position with Company, Executive may have access to and become acquainted with Confidential Information. Except in the performance of Executive's duties as an employee of Company, Executive shall not, during the term and at all times thereafter, directly or indirectly for any reason whatsoever, disclosure or use any such Confidential Information. All records, files, drawings, documents, equipment and other tangible items, wherever located, relating in any way to or containing Confidential Information, which Executive has prepared, used or encountered or shall in the future prepare, use or encounter, shall be and remain Company's sole and exclusive property and shall be included in the Confidential Information. Upon termination of Executive's agreement, or whenever requested by Company, Executive shall promptly deliver to Company any and all of the Confidential Information and copies thereof, not previously delivered to Company, that may be in the possession or under the control of the Executive. The foregoing restrictions shall not apply to the use, divulgence, disclosure or grant of access to Confidential Information to the extent, but only to the extent, (i) expressly permitted or required pursuant to any other written agreement between Executive and Company, (ii) such Confidential Information has been publicly disclosed (not due to a breach by the Executive of Executive's obligations hereunder, or by breach of any other person, of a fiduciary or confidential obligation to Company or (iii) the Executive is required to disclose Confidential Information by or to any court of competent jurisdiction or any governmental or quasi-governmental agency, authority or instrumentality of competent jurisdiction, provided, however, that the Executive shall, prior to any such disclosure, immediately notify Company of such requirements and provided further, however, that the Company shall have the right, at its expense, to object to such disclosures and to seek confidential treatment of any Confidential Information to be so disclosed on such terms as it shall determine. 5.4 ACKNOWLEDGEMENT; REMEDIES; SURVIVAL OF THIS AGREEMENT. (a) Executive acknowledges that violation of any of the covenants and provisions set forth in this Agreement would cause Company irreparable damage and agrees that Company's remedies at law for a breach or threatened breach of any of the provisions of this Agreement would be inadequate and, in recognition of this fact, in the event of a breach or threatened breach by Executive of any of the provisions of this Agreement, it is agreed that, in addition to the remedies at law or in equity, Company shall be entitled, without the posting of a bond, to equitable relief in the form of specific performance, a temporary restraining order, temporary or permanent injunction, or any other equitable remedy which may then be available for the purposes of restraining Executive from any actual or threatened breach of such covenants. Without limiting the generality of the foregoing, if Executive breaches or threatens to breach this Section 5 hereof, such breach or threatened breach will entitle Company to enjoin Executive from disclosing any Confidential Information to any Competing 10 Business, to enjoin any Competing Business from retaining Executive or using any such Confidential Information, to enjoin Employee form rendering personal services to or in connection with any Competing Business. The rights and remedies of the parties hereto are cumulative and shall not be exclusive, and each such party shall be entitled to pursue all legal and equitable rights and remedies and to secure performance of the obligations and duties of the other under this Agreement, and the enforcement of one or more of such rights and remedies by a party shall in no way preclude such party from pursuing, at the same time or subsequently, any and all other rights and remedies available to it. (b) The provisions of this Agreement shall survive the termination of Executive's employment with Company. SECTION 6. MISCELLANEOUS 6.1 CANCELLATION OF ORIGINAL EMPLOYMENT AGREEMENT With the exception of the obligation to pay salary, benefits and performance bonus for the period through December 31, 1998, the Original Employment Agreement is hereby cancelled; provided, however, that this Section 6.1 shall not be construed to limit or terminate Executive's entitlement under the Original Employment Agreement to amounts accrued for periods through the date of this Agreement, including, without limitation, the 250,000 stock options granted thereunder. 6.2 ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Princeton, New Jersey, in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. The parties consent to the authority of the arbitrator, if the arbitrator so determines, to award fees and expenses (including legal fees) to the prevailing party in the arbitration. Notwithstanding the foregoing, Company shall be entitled to enforce the provisions of Section 5 hereof through proceedings brought in a court of competent jurisdiction as contemplated by Section 6.9 hereof. 6.3 SEVERABILITY; Reasonableness of Agreement. If any term, provision or covenant of this Agreement or part thereof, or the application thereof to any person, place or circumstance shall be held to be invalid, unenforceable or void by a court of competent jurisdiction, the remainder of this Agreement and such term, provision or covenant shall remain in full force and effect, and any such invalid, unenforceable or void term, provision or covenant shall be deemed, without further action on the part of the parties hereto, modified, amended and limited, and the court shall have the power to modify, amend and limit any such term, provision or covenant, to the extent necessary to render the same and the remainder of the Agreement valid, enforceable and lawful. In this regard, the Executive understands that the provisions of Section 5 may limit Executive's ability to earn a livelihood in a business similar or related to the business of Company, but nevertheless agrees and acknowledges that (i) the provisions of Section 5 are reasonable and necessary for the protection of Company, and do not impose a greater restraint than necessary to protect the goodwill or other business interest of Company and (ii) such provisions contain reasonable limitations as to the time and the scope of activity to be restrained. In consideration of the foregoing and in light of Executive's education, skills and abilities, Executive agrees that all defenses by Executive to the strict enforcement of such provisions are hereby waived by Executive. 11 6.4 KEY EMPLOYEE INSURANCE. Company shall have the right at its expense to purchase insurance on the life of Executive, in such amounts as it shall from time to time determine, of which Company shall be the beneficiary. Executive shall submit to such physical examinations as may reasonably be required and shall otherwise cooperate with Company in obtaining such insurance. 6.5 ASSIGNMENT; BENEFIT. This Agreement shall not be assignable by Executive, other than Executive's rights to payments or benefits hereunder, which may be transferred only by will or the laws of descent and distribution. Upon Executive's death, this Agreement and all rights of Executive hereunder shall inure to the benefit of and be enforceable by Executive's beneficiary or beneficiaries, personal or legal representatives, or estate, to the extent any such person succeeds to Executive's interests under this Agreement. No rights or obligations of Company under this Agreement may be assigned or transferred except that Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean Company as herein before defined and any successor to its business and/or assets (by merger, purchase or otherwise) which executes and delivers the agreement provided for in this Section 5.4 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. 6.6 NOTICES. All notices hereunder shall be in writing and shall be sufficiently given if hand-delivered, sent by documented overnight delivery service or registered or certified mail, postage prepaid, return receipt requested or by telegram or telefax (confirmed by U.S. mail), receipt acknowledged, addressed as set forth below or at such other address for either party as may be specified in a notice given as provided herein by such party to the other. Any such notice shall be deemed to have been given as of the date received, in the case of personal delivery, or on the date shown on the receipt or confirmation therefor, in all other cases. Any and all service of process and any other notice in any such action, suit or proceeding shall be effective against any party if given as provided in this Agreement; provided that nothing herein shall be deemed to affect the right of any party to serve process in any other manner permitted by law. (a) If to Company: Total Research Corporation Princeton Corporate Center 5 Independence Way Princeton, NJ 08540 With copies to: Thomas A. Belton, Esq. Drinker Biddle & Reath LLP 105 College Road East Princeton, NJ 08540 12 Peter G. Smith, Esq. Kramer, Levin, Naftalis & Frankel 919 Third Avenue New York, NY 10022-3903 (b) If to Executive: 6.7 TERMINATION PROCEDURES. Any termination of Executive's employment by the Company or by Executive during the Term (other than termination pursuant to death) shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 5.5. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated. 6.8 ENTIRE AGREEMENT AND MODIFICATION. This Agreement constitutes the entire agreement between the parties hereto with respect to the matters contemplated herein and supersedes all prior agreements and understandings with respect thereto. No amendment, modification, or waiver of this Agreement shall be effective unless in writing. Neither the failure nor any delay on the part of any party to exercise any right, remedy, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power, or privilege with respect to such occurrence or with respect to any other occurrence. 6.9 GOVERNING LAW. This Agreement is made pursuant to, and shall be construed and enforced in accordance with, the laws of the State of New Jersey and the federal laws of the United States of America, to the extent applicable, without giving effect to otherwise applicable principles of conflicts of law. The parties hereto expressly consent to the jurisdiction of any state or federal court located in New Jersey, and to venue therein, and consent to the service of process in any such action or proceeding by certified or registered mailing of the summons and complaint therein directed to Executive or Company, as the case may be, at its address as provided in Section 6.6 hereof. 6.10 WITHHOLDING. All payments hereunder shall be subject to any required withholding of Federal, state and local taxes pursuant to any applicable law or regulation. 6.11 HEADINGS; COUNTERPARTS. The headings of paragraphs in this Agreement are for convenience only and shall not affect its interpretation. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original and all of which, when taken together, shall be deemed to constitute the same Agreement. 13 6.12 FURTHER ASSURANCES. Each of the parties hereto shall execute such further instruments and take such other actions as the other party shall reasonably request in order to effectuate the purposes of this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. TOTAL RESEARCH CORPORATION By/s/ALBERT ANGRISANI --------------------------------- Title: President and CEO /s/ PATTI HOFFMAN -------------------------------- Executive 14 Exhibit A SENIOR MANAGEMENT COMPENSATION PLAN TERM SHEET FISCAL YEAR 1999 THROUGH FISCAL YEAR 2000 Name: Patti Hoffman Title: President US Regional Offices Division A. COMPENSATION/SHORT-TERM I. Base Salary Base salary for the second half of fiscal year 1999 will be $150,000. Salary increases beyond year one, will be set by the CEO and approved by the Executive Committee and will be based on individual performance and contribution. The amount of the increase awarded will be based on a salary increase range of 0-10%. II. Bonus: Entitled to a guaranteed bonus of $10,000 for fiscal year 1999 if performance for such year is deemed acceptable by CEO. An additional bonus compensates the Executive if established performance measures are achieved. The performance measures listed below are based on goals established for core business only against the performance plans for fiscal year 1999. This additional compensation would be in cash, and represents a bonus opportunity at 20% of the base salary if the goals listed below are met. Should the results fall slightly below plan, i.e., ninety-five (95) percent of goal, the Executive will be entitled to a reduced bonus. The reduced bonus will pay the Executive ten (10) percent of the Base Salary if ninety-five (95) to ninety-nine and nine tenths (99.9) percent of the goal is achieved. No bonus will be paid if results fall below 95% of goal. Goal Reward 1. Revenue of $6,500,000 30% of 20% cash opportunity 2. Gross Profit greater than 56% 30% of 20% cash opportunity Income Before Tax of $686,000 3. Money Management 20% of 20% cash opportunity a. Invoicing at 95% of plan or greater b. Cash Received at 95% of plan or greater c. Receivables + 45 days no greater than 30% of monthly receivables 9 out of 12 months A-1 4. Non Financial (as set by CEO) 20% of 20% cash opportunity a. Sales Infrastructure Expansion b. Product Development c. Process Improvement d. Other Performance goals for subsequent fiscal years shall be established by the CEO. IBT shall be defined in the Senior Management Compensation Plan (Fiscal Years 1999-2001) for the CEO. B. EXCESS PERFORMANCE BONUS OPPORTUNITY: Payment under this portion of the compensation plan is for performance in excess of established goals. The bonus opportunity under this portion of the compensation plan, provides a bonus based on the following formula: The Executive will receive 15% of the entire excess division's IBT if the division's IBT is 10% or more greater than plan; provided that, regardless of division performance, the Company's IBT goal must be achieved before the Executive is eligible to receive any excess bonus payments. C. LONG TERM PERFORMANCE REWARD The primary goal of Total Research's Long Term Performance Reward is to enhance senior management performance through equity ownership. The granting of stock options that a participant may receive in each year is based on an assessment by the Chief Executive Officer and the Executive Committee of the Board of Directors. Any option grant is totally discretionary. A-2 EX-10.7 6 ERIC ZISSMAN EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT -------------------- EMPLOYMENT AGREEMENT dated as of January 1, 1999 between Total Research Corporation, a Delaware corporation ("Company"), and Eric Zissman ("Executive"). BACKGROUND ---------- Executive is presently serving as the Chief Financial Officer under an Employment Agreement with Company effective January 2, 1997 (the "Original Employment Agreement"). Company desires to have Executive continue in the employment of the Company beyond the June 30, 1999 termination date in the Original Employment Agreement, and Executive wishes to remain in the employment of the Company beyond such date, on the terms and conditions contained in this Agreement. NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein and intending to be legally bound hereby, the parties hereto agree as follows: TERMS ----- SECTION 1. CAPACITY AND DUTIES 1.1 EMPLOYMENT; ACCEPTANCE OF EMPLOYMENT. Company hereby employs Executive and Executive hereby accepts employment by Company for the period and upon the terms and conditions hereinafter set forth. 1.2 CAPACITY AND DUTIES. (a) Executive shall initially serve as President of the Customer Loyalty Division of Company. Executive shall perform the duties and have the responsibilities of a Division President as described in the "Position Description" previously delivered to Executive, as such "Position Description" may be revised by Company from time to time. Executive shall perform such other duties and shall have such authority consistent with his position as may from time to time be specified by the Chief Executive Officer of Company. Executive may be appointed by the Chief Executive Officer to another senior level position, provided such appointment does not result in a reduction in Executive's compensation and benefits under this Agreement. Executive shall report directly to the Chief Executive Officer, and shall perform Executive's duties for Company principally at Company's principal executive offices, presently in Princeton, New Jersey , except for periodic travel that may be necessary or appropriate in connection with the performance of Executive's duties hereunder. (b) Executive shall devote Executive's full working time, energy, skill and best efforts to the performance of Executive's duties hereunder, in a manner that will faithfully and diligently further the business and interests of Company, and shall not be employed by, or participate or engage in or in any manner be a part of the management or operation of, any business enterprise other than Company without the prior written consent of the Board of Directors of Company (the 1 "Board"). Notwithstanding the above, Executive shall be permitted, to the extent such activities do not interfere or conflict with the performance by Executive of Executive's duties and responsibilities hereunder, (i) to manage Executive's personal, financial and legal affairs, and (ii) to serve on civic, charitable or professional boards or committees (it being expressly understood and agreed that Executive's continuing to serve on any such board and/or committees on which Executive is serving, or with which Executive is otherwise associated (each of which has been disclosed to Company in writing prior to the execution of Executive's Agreement), as of the Commencement Date (as defined below), shall be deemed not to interfere with the performance by Executive of Executive's duties and responsibilities under this Agreement). (c) Executive represents and warrants to Company that Executive is under no contractual or other restriction or obligation which conflicts with, violates or is inconsistent with the execution of this Agreement, the performance of Executive's duties hereunder, or the other rights of Company hereunder. (d) During the Term, Executive shall be entitled to participate as a member of the Company's Management Council. The Management Council shall consist of Executive and certain other senior officers of the Company and shall serve as an advisory and consultative body on such significant strategic and operating issues as the Chairman or President of the Company determine to present to the Management Council prior to decisions on such issues being made by the President, the Executive Committee or the Board of Directors. SECTION 2. TERM OF EMPLOYMENT 2.1 TERM. The term of Executive's employment hereunder shall commence on the date hereof (the "Commencement Date") and continue until June 30, 2000, as further extended or unless sooner terminated in accordance with the other provisions hereof (the "Term"). Except as hereinafter provided, on expiration of the initial Term, the Term shall be automatically extended for one additional year unless either party shall have given to the other party written notice of nonrenewal of this Agreement at least six months prior to such expiration date. After the initial Term, the Term shall be automatically extended for successive one year Terms unless written notice of nonrenewal is given by either party to the other at least six (6) months prior to the expiration of the then current Term. If written notice of termination is given as provided above, Executive's employment under this Agreement shall terminate on the last day of the then-current Term. SECTION 3. COMPENSATION 3.1 BASIC COMPENSATION. As compensation for Executive's services during the Term, Company shall pay to Executive a salary effective January 1, 1999 in the amount specified on Exhibit A, attached hereto and made a part hereof. The Executive shall continue to receive Executive's salary at the rate presently in effect under the Original Employment Agreement through December 31, 1998. The salary shall be payable in periodic installments in accordance with Company's regular payroll practices for its executive personnel at the time of payment, but in no event less frequently than monthly. Executive's annual salary, as determined in accordance with this Section 3.1, is hereinafter referred to as Executive's "Base Salary." 2 3.2 PERFORMANCE BONUS. As additional compensation for the services rendered by Executive to Company pursuant to this Agreement for fiscal periods commencing July 1, 1998, the Executive shall be entitled to participate in the Senior Management Compensation Plan, attached hereto and incorporated hereby as Exhibit A (the "Compensation Plan"). 3.3 EMPLOYEE BENEFITS. During the Term, Executive shall be entitled to participate in such of Company's employee benefit plans and benefit programs, including medical, hospitalization, dental, disability, accidental death and dismemberment and travel accident plans and programs, as may from time to time be provided by Company for its senior executives generally. In addition, during the Term Executive shall be eligible to participate in all pension, retirement, savings and other employee benefit plans and programs maintained from time to time by Company for the benefit of its senior executives generally. Company shall have no obligation, however, to maintain any particular program or level of benefits referred to in this Section 3.3. 3.4 OTHER BENEFITS. During the Term, the Company shall provide Executive with an automobile allowance of $500.00 per month for the use of an automobile owned or leased by Executive in accordance with the policies and procedures established by the Company from time to time for executive employees. 3.5 VACATION. Executive shall be entitled to the normal and customary amount of paid vacation provided to senior executives of the Company generally, but in no event less than 20 days during each 12 month period, beginning on July 1, 1998. Any vacation days that are not taken in a given 12 month period shall accrue and carry over from year to year up to a maximum of 20 days. The Executive may be granted leaves of absence with or without pay for such valid and legitimate reasons as the Board in its sole and absolute discretion may determine, and is entitled to the same sick leave and holidays provided to other senior executive officers of Company. 3.6 EXPENSE REIMBURSEMENT. Company shall reimburse Executive for all reasonable and documented expenses incurred by him in connection with the performance of Executive's duties hereunder in accordance with its regular reimbursement policies as in effect from time to time. 3.7 STOCK OPTION AGREEMENT. Company acknowledges the prior grant to Executive of 250,000 stock options (the "Option Shares") made pursuant to the Original Employment Agreement under which, subject to the terms thereof, the Option Shares are scheduled to vest on June 30, 1999. SECTION 4. TERMINATION OF EMPLOYMENT 4.1 DEATH OF EXECUTIVE. If Executive dies during the Term, Company shall not thereafter be obligated to make any further payments hereunder other than amounts (including Base Salary, bonuses, expense reimbursement, etc.) accrued as of the date of Executive's death in accordance with generally accepted accounting principles (the "Accrued Obligations", which, for purposes of this Agreement in situations other than death, shall reference the date of termination). 3 4.2 DISABILITY OF EXECUTIVE. If Executive is permanently disabled (as defined in Company's long-term disability insurance policy then in effect), then the Board shall have the right to terminate Executive's employment upon 30 days' prior written notice to Executive at any time during the continuation of such disability. In the event Executive's employment is terminated for disability in accordance with this Section 4.2, Company shall not thereafter be obligated to make any further payments hereunder other than (i) Accrued Obligations through the date of such termination and (ii) continued Base Salary and benefits, until the earlier of (x) such time as payments to Executive commence under Company's long-term disability insurance policy then in effect, or (y) the expiration of the then current Term. 4.3 TERMINATION FOR CAUSE. Executive's employment hereunder shall terminate immediately upon notice that the Board is terminating Executive for Cause (as defined herein), in which event Company shall not thereafter be obligated to make any further payments of Base Salary, bonus or other payments. "Cause" shall be limited to the following: (i) willful failure to substantially perform Executive's duties as described in Section 1.2 (other than such failure resulting from Executive's physical or mental illness, or the failure of Executive to perform such duties during the remedy period set forth in Section 4.4 hereof following the issuance of a Notice of Termination (as herein defined) by Executive for Good Reason, unless an arbitrator acting pursuant to Section 6.2 hereof finds Executive to have acted in bad faith in issuing such Notice of Termination), after (x) demand for substantial performance is delivered by Company in writing that identifies the manner in which Company believes Executive has not substantially performed Executive's duties and (y) Executives' failure to cure such nonperformance within ten days after receipt of such written demand. (ii) willful misconduct that is materially and demonstrably injurious to Company or any of its subsidiaries; (iii) conviction or plea of guilty or nolo contendere to a felony or to any other crime which involves moral turpitude or, if not involving moral turpitude, the act giving rise to such conviction or plea is materially and demonstrably injurious to the Company or any of its subsidiaries; (iv) material violation of (x) Company's policies relating to sexual harassment, substance or alcohol abuse or the disclosure or misuse of Confidential Information (as hereinafter defined), or (y) other Company polices set forth in Company manuals or written statements of policy provided in the case of this clause (y) that such violation is materially and demonstrably injurious to Company and continues for more than three (3) days after written notice thereof is given to Executive by the Board; and (v) material breach of any provision of this Agreement by Executive, which breach continues for more then ten days after written notice thereof is given by the Board to Executive. Cause shall not exist under this Section 4.3 unless and until Company has delivered to Executive a copy of a resolution duly adopted by a majority of the Board at a meeting of the Board called and held for such purpose (or by unanimous written consent of the Board), finding 4 that such Cause exists in the good faith opinion of the Board. This Section 4.3 shall not prevent Executive from challenging in any arbitration proceeding or court of competent jurisdiction the Board's determination that Cause exists or that Executive has failed to cure any act (or failure to act), to the extent permitted by this Agreement, that purportedly formed the basis for the Board's determination. Company must provide notice to Executive that it is intending to terminate Executive's employment for Cause within one hundred and twenty (120) days after the Board has actual knowledge of the occurrence of the event it believes constitutes Cause. 4.4 TERMINATION WITHOUT CAUSE OR BY EXECUTIVE FOR GOOD REASON. (a) If (i) Executive's employment is terminated by Company for any reason (other than (x) Cause or (y) disability of Executive) or (ii) Executive's employment is terminated by Executive for Good Reason, then Company shall within thirty (30) days of termination of employment pay to Executive a lump sum cash payment equal to Executive's Base Salary for a period equal to the greater of (x) the date of termination of employment through the date that is one (1) year after the date of delivery of a proper notice of termination of employment or nonrenewal of the Agreement or (y) the then remaining Term (the "Severance Payment"). Further, in the event of termination by Company under such circumstances Company shall maintain in full force and effect, for the continued benefit of Executive, Executive's spouse and Executive's dependents for the remaining balance of the unexpired Term as of the date of termination, the medical, hospitalization, dental and life insurance programs in which Executive, Executive's spouse and Executive's dependents were participating immediately prior to the date of such termination at substantially the level in effect and upon substantially the same terms and conditions (including without limitation contributions required by Executive for such benefits) as existed immediately prior to the date of termination (except to the extent thereafter reduced for senior executives of Company generally); provided, that if Executive, Executive's spouse or Executive's dependents cannot continue to participate in the Company programs providing such benefits, the Company shall arrange to provide Executive, Executive's spouse and Executive's dependents with the economic equivalent of such benefits which they otherwise would have been entitled to receive under such plans and programs, provided that such benefits shall terminate upon the date or dates Executive receives coverage and benefits which are substantially similar, taken as a whole, without waiting period or pre-existing condition limitations, under the plans and programs of a subsequent employer . Upon making the payments described in this Section 4.4, Company shall have no further obligation to Executive hereunder. (b) Notwithstanding the foregoing, if Executive's employment is terminated (i) by Company without Cause but due to Executive's failure for four consecutive calendar quarters to attain all the performance goals as outlined in the Compensation Plan or (ii) by Executive for Good Reason under Section 4.4(c)(vi) provided Executive terminates employment under Section 4.4(c)(vi) within ten (10) days of the Company's delivery of the revised performance goals to Executive, the Severance Payment shall be reduced by fifty percent (50%). (c) "Good Reason" shall mean the following: (i) material breach of Company's obligations hereunder, provided that Executive shall have given reasonably specific written notice thereof to Company, and Company shall have failed to remedy the circumstances within 60 days thereafter; 5 (ii) any decrease in Executive's salary below the amount set forth in the Compensation Plan (except for decreases that are in conjunction with decreases in salaries generally) or any material reduction in the general nature of Executive's duties or authority to a level inconsistent with a senior executive position, unless previously agreed to in writing by Executive; (iii) the failure of Executive to be appointed initially to the positions set forth in Section 1.2(a); (iv) the relocation of Executive's principal place of employment to a location more than thirty (30) miles from Princeton, New Jersey; (v) the failure of any successor in interest of Company to be bound by the terms of this Agreement in accordance with Section 6.5 hereof; (vi) The financial Bonus Goals established by the Company in the Senior Management Compensation Plan for any fiscal year are more than 125% of the financial Bonus Goals for the preceding fiscal year and are not approved in writing by the Chief Executive Officer or, if Albert Angrisani is not then serving as Chief Executive Officer, approved by a majority of the participants in the Compensation Plan; or (vii) Executive's termination of the Agreement after Company notice of nonrenewal under Section 2.1. Executive must provide notice to Company that Executive is intending to terminate Executive's employment for Good Reason within one hundred and twenty (120) days after Executive has actual knowledge of the occurrence of an event he believes constitutes Good Reason. Executive's right to terminate Executive's employment hereunder for Good Reason shall not be affected by Executive's Disability. Subject to compliance by Executive with the notice provisions of Section 4.4(c)(i), Executive's continued employment prior to terminating employment for Good Reason shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason. In the event Executive delivers to the Company a Notice of Termination for Good Reason, Executive agrees to appear before a meeting of the Board called and held for such purpose (after reasonable notice) and specify to the Board the particulars as to why Executive believes adequate grounds for termination for Good Reason exist. No action by the Board, other than the remedy of the circumstances within the time periods specified in Section 4.4(c)(i), shall be binding on Executive. 4.5 CHANGE IN CONTROL. (a) If, during the Term, there should be a Change of Control (as defined herein), and within one year thereafter either (i) Executive's employment should be terminated for any reason other than for Cause or (ii) Executive terminates Executive's employment for Good Reason (other than under Section 4.4(c)(vi)), Company shall, on or before Executive's last day of full-time employment hereunder, pay to Executive, the amounts set forth in Section 4.4 above, provided that it is the intention of the parties that the payments under this Section 4.5 shall not constitute "excess parachute payments" within the meaning of Section 280G of the Internal 6 Revenue Code of 1986, as amended. Accordingly, notwithstanding anything in this Agreement to the contrary, if any of the amounts otherwise payable under this Section would constitute "excess parachute payments," or if the independent accountants acting as auditors for Company on the date of the Change in Control determine that such payments may constitute "excess parachute payments," then the amounts otherwise payable under this Agreement shall be reduced to the maximum amounts that may be paid without any such payments constituting, or potentially constituting, "excess parachute payments." (b) Upon the occurrence of a Change in Control, any stock options previously granted to Executive that are not then exercisable, ie. unvested, shall immediately vest and become exercisable by Executive . The Company shall execute all necessary amendments to the applicable stock option plans and agreements provided such amendments are permitted by law and will not adversely affect the tax status or qualification of the plan as an Incentive Stock Option Plan or Non-qualified Stock Option Plan. (c) Upon making the payments described in this Section 4.5, Company shall have no further obligation to Executive hereunder. (d) A "Change in Control" of Company shall be deemed to have occurred if (1) at any time after the date hereof, there shall occur (i) any consolidation or merger of Company in which Company is not the continuing or surviving corporation or pursuant to which the shares of common stock of Company ("Common Stock") would be converted into cash, securities or other property, or (ii) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of assets accounting for 50% or more of total assets or 50% or more of the total revenues of Company, other than, in case of either (i) or (ii) a consolidation or merger with, or transfer to, a corporation or other entity of which, or of the parent entity of which, immediately following such consolidation, merger or transfer, (x) more than 50% of the combined voting power of the then outstanding voting securities of such entity entitled to vote generally in the election of directors (or other determination of governing body) is then beneficially owned (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934) by all or substantially all of the individuals and entities who were such owners of Common Stock immediately prior to such consolidation, merger or transfer in substantially the same proportion, as among themselves, as their ownership of Common Stock immediately prior to such sale consolidation, merger or transfer, or (y) a majority of the directors (or other governing body) consists of members of the Board of Directors of Company in office on the date hereof for purposes of (2) below or approved as provided in (2) below; (2) at any time after the date hereof, (x) members of the Board of Directors of Company in office on the date hereof (including any designated as contemplated by Section 4.2 of the Stock Purchase Agreement made as of April 16, 1998 between Company and David Brodsky) plus (y) any new director (excluding a director designated by a person or group who has entered into an agreement with Company to effect a transaction described in Section 4.5(d)(1)) whose election by the Board of Directors of Company or nomination for election by Company's stockholders was approved by (i) Executive (if a director) or (ii) a vote of at least a majority of the directors then still in office who either were directors on the date hereof or whose 7 election or nomination for election was previously so approved, shall cease for any reason to constitute a majority of the Board; or (3) at any time after the date hereof, the stockholders of Company approve a complete liquidation or dissolution of Company, except in connection with a recapitalization or other transaction which does not otherwise constitute a Change of Control for purposes of Section 4.5(a)(1) above. 4.6 TERMINATION BY EXECUTIVE WITHOUT GOOD REASON. In the event Executive's employment is voluntarily terminated by Executive without Good Reason, Company shall not be obligated to make any further payments to Executive hereunder other than Accrued Obligations through the date of such termination. 4.7 FAILURE TO EXTEND. A failure by Company to extend this Agreement pursuant to Section 2.1 shall not be treated as a termination of Executive's employment for purposes of this Agreement. 4.8 MITIGATION. Executive shall not be required to mitigate amounts payable under this Section 4 by seeking other employment or otherwise, and there shall be no offset against amounts due Executive under this Agreement on account of subsequent employment except as specifically provided herein. SECTION 5. NON-COMPETITION AND CONFIDENTIALITY 5.1 NON-COMPETITION. (a) During the Term and for a period of one year thereafter (the "Non-Competition Period"), Executive shall not, directly or indirectly, own, manage, operate, join, control, participate in, invest in or otherwise be connected or associated with, in any manner, including, without limitation, as an officer, director, employee, distributor, independent contractor, independent representative, partner, consultant, advisor, agent, proprietor, trustee or investor, any Competing Business located in any state or region (including foreign jurisdictions) where Company conducts business; provided, however, that ownership of 1% or less of the stock or other securities of a corporation, the stock of which is listed on a national securities exchange or is quoted on the NASDAQ Stock Market's National market, shall not constitute a breach of this Section 5, so long as the Executive does not in fact have the power to control, or direct the management of, or is not otherwise engaged in activities with, such corporation. (b) For purposes hereof, the term "Competing Business" shall mean any business or venture which is substantially similar to the whole or any significant part of the business conducted by Company. (c) Notwithstanding the above, the Non-Competition Period shall be limited to the period for which a Severance Payment is received under Section 4.4(a) above if Executive's employment is terminated (i) by Company without Cause, (ii) by Executive for Good Reason or (iii) as a result of nonrenewal of the Agreement by Company. 8 (d) If the Executive's employment is terminated for any reason other than the reasons specified in Section 5.1(c) above and Executive is not entitled to a Severance Payment under Section 4.4(a) as a result of such termination, the Non-Competition Period shall continue for one (1) year after termination of employment. 5.2 NO SOLICITATION. During the Term, including any unexpired portion thereof, and for a period of one year thereafter, the Executive shall not, directly or indirectly, including on behalf of, for the benefit of, or in conjunction with, any other person or entity, (i) solicit, assist, advise, influence, induce or otherwise encourage in any way, any employee of Company to terminate Executive's relationship with Company for any reason, or assist any person or entity in doing so, or employ, engage or otherwise contract with any employee or former employee of Company in a Competing Business or any other business unless such former employee shall not have been employed by Company for a period of at least one year, (ii) interfere in any manner with the relationship between any employee and Company or (iii) contact, service or solicit any existing clients, customers or accounts of Company on behalf of a Competing Business, either as an individual on Executive's own account, as an investor, or as an officer, director, partner, joint venturer, consultant, employee, agent or sales man of any other person or entity. 5.3 CONFIDENTIAL INFORMATION (a) "Confidential Information" shall mean confidential records and information, including, but not limited to, development, marketing, purchasing, organizational, strategic, financial, managerial, administrative, manufacturing, production, distribution and sales information, distribution methods, data, specifications and processes (including the Transferred Property as hereinafter defined) presently owned or at any time hereafter developed by Company or its agents or consultants or used presently or at any time hereafter in the course of the business of Company, that are not otherwise part of the public domain. (b) Executive hereby sells, transfers and assigns to Company, or to any person or entity designated by Company, all of Executive's entire right, title and interest in and to all inventions, ideas, methods, developments, disclosures and improvements (the "Inventions"), whether patented or unpatented, and copyrightable material, and all trademarks, trade names, all goodwill associated therewith and all federal and state registrations or applications thereof, made, adopted or conceived by solely or jointly, in whole or in part (collectively, the "Transferred Property"), prior to or during the Term which (i) relate to methods, apparatus, designs, products, processes or devices sold, leased, used or under construction or development by Company or (ii) otherwise relate to or pertain to the business, products, services, functions or operations of the Company. Executive shall make adequate written records of all Inventions, which records shall be Company's property and shall communicate promptly and disclose Company, in such forms Company requests, all information, details and data pertaining to the aforementioned Inventions. Whether during the Term or thereafter, Executive shall execute and deliver to Company such formal transfers and assignments and such other papers and documents as may be required of Executive to permit Company, or any person or entity designated by Company, to file and prosecute patent applications (including, but not limited to, records, memoranda or instruments deemed necessary by Company for the prosecution of the patent application or the acquisition of 9 letters patent in the United states, foreign counties or otherwise) and, as to copyrightable material, to obtain copyrights thereon, and as to trademarks, to record the transfer of ownership of any federal or state registrations or applications. (c) All such Confidential Information is considered secret and will be disclosed to the Executive in confidence, and Executive acknowledges that, as a consequence of Executive's employment and position with Company, Executive may have access to and become acquainted with Confidential Information. Except in the performance of Executive's duties as an employee of Company, Executive shall not, during the term and at all times thereafter, directly or indirectly for any reason whatsoever, disclosure or use any such Confidential Information. All records, files, drawings, documents, equipment and other tangible items, wherever located, relating in any way to or containing Confidential Information, which Executive has prepared, used or encountered or shall in the future prepare, use or encounter, shall be and remain Company's sole and exclusive property and shall be included in the Confidential Information. Upon termination of Executive's agreement, or whenever requested by Company, Executive shall promptly deliver to Company any and all of the Confidential Information and copies thereof, not previously delivered to Company, that may be in the possession or under the control of the Executive. The foregoing restrictions shall not apply to the use, divulgence, disclosure or grant of access to Confidential Information to the extent, but only to the extent, (i) expressly permitted or required pursuant to any other written agreement between Executive and Company, (ii) such Confidential Information has been publicly disclosed (not due to a breach by the Executive of Executive's obligations hereunder, or by breach of any other person, of a fiduciary or confidential obligation to Company or (iii) the Executive is required to disclose Confidential Information by or to any court of competent jurisdiction or any governmental or quasi-governmental agency, authority or instrumentality of competent jurisdiction, provided, however, that the Executive shall, prior to any such disclosure, immediately notify Company of such requirements and provided further, however, that the Company shall have the right, at its expense, to object to such disclosures and to seek confidential treatment of any Confidential Information to be so disclosed on such terms as it shall determine. 5.4 ACKNOWLEDGEMENT; REMEDIES; SURVIVAL OF THIS AGREEMENT. (a) Executive acknowledges that violation of any of the covenants and provisions set forth in this Agreement would cause Company irreparable damage and agrees that Company's remedies at law for a breach or threatened breach of any of the provisions of this Agreement would be inadequate and, in recognition of this fact, in the event of a breach or threatened breach by Executive of any of the provisions of this Agreement, it is agreed that, in addition to the remedies at law or in equity, Company shall be entitled, without the posting of a bond, to equitable relief in the form of specific performance, a temporary restraining order, temporary or permanent injunction, or any other equitable remedy which may then be available for the purposes of restraining Executive from any actual or threatened breach of such covenants. Without limiting the generality of the foregoing, if Executive breaches or threatens to breach this Section 5 hereof, such breach or threatened breach will entitle Company to enjoin Executive from disclosing any Confidential Information to any Competing 10 Business, to enjoin any Competing Business from retaining Executive or using any such Confidential Information, to enjoin Employee form rendering personal services to or in connection with any Competing Business. The rights and remedies of the parties hereto are cumulative and shall not be exclusive, and each such party shall be entitled to pursue all legal and equitable rights and remedies and to secure performance of the obligations and duties of the other under this Agreement, and the enforcement of one or more of such rights and remedies by a party shall in no way preclude such party from pursuing, at the same time or subsequently, any and all other rights and remedies available to it. (b) The provisions of this Agreement shall survive the termination of Executive's employment with Company. SECTION 6. MISCELLANEOUS 6.1 CANCELLATION OF ORIGINAL EMPLOYMENT AGREEMENT With the exception of the obligation to pay salary, benefits and performance bonus for the period through December 31, 1998, the Original Employment Agreement is hereby cancelled; provided, however, that this Section 6.1 shall not be construed to limit or terminate Executive's entitlement under the Original Employment Agreement to amounts accrued for periods through the date of this Agreement, including, without limitation, the 250,000 stock options granted thereunder. 6.2 ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Princeton, New Jersey, in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. The parties consent to the authority of the arbitrator, if the arbitrator so determines, to award fees and expenses (including legal fees) to the prevailing party in the arbitration. Notwithstanding the foregoing, Company shall be entitled to enforce the provisions of Section 5 hereof through proceedings brought in a court of competent jurisdiction as contemplated by Section 6.9 hereof. 6.3 SEVERABILITY; Reasonableness of Agreement. If any term, provision or covenant of this Agreement or part thereof, or the application thereof to any person, place or circumstance shall be held to be invalid, unenforceable or void by a court of competent jurisdiction, the remainder of this Agreement and such term, provision or covenant shall remain in full force and effect, and any such invalid, unenforceable or void term, provision or covenant shall be deemed, without further action on the part of the parties hereto, modified, amended and limited, and the court shall have the power to modify, amend and limit any such term, provision or covenant, to the extent necessary to render the same and the remainder of the Agreement valid, enforceable and lawful. In this regard, the Executive understands that the provisions of Section 5 may limit Executive's ability to earn a livelihood in a business similar or related to the business of Company, but nevertheless agrees and acknowledges that (i) the provisions of Section 5 are reasonable and necessary for the protection of Company, and do not impose a greater restraint than necessary to protect the goodwill or other business interest of Company and (ii) such provisions contain reasonable limitations as to the time and the scope of activity to be restrained. In consideration of the foregoing and in light of Executive's education, skills and abilities, Executive agrees that all defenses by Executive to the strict enforcement of such provisions are hereby waived by Executive. 11 6.4 KEY EMPLOYEE INSURANCE. Company shall have the right at its expense to purchase insurance on the life of Executive, in such amounts as it shall from time to time determine, of which Company shall be the beneficiary. Executive shall submit to such physical examinations as may reasonably be required and shall otherwise cooperate with Company in obtaining such insurance. 6.5 ASSIGNMENT; BENEFIT. This Agreement shall not be assignable by Executive, other than Executive's rights to payments or benefits hereunder, which may be transferred only by will or the laws of descent and distribution. Upon Executive's death, this Agreement and all rights of Executive hereunder shall inure to the benefit of and be enforceable by Executive's beneficiary or beneficiaries, personal or legal representatives, or estate, to the extent any such person succeeds to Executive's interests under this Agreement. No rights or obligations of Company under this Agreement may be assigned or transferred except that Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean Company as herein before defined and any successor to its business and/or assets (by merger, purchase or otherwise) which executes and delivers the agreement provided for in this Section 5.4 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. 6.6 NOTICES. All notices hereunder shall be in writing and shall be sufficiently given if hand-delivered, sent by documented overnight delivery service or registered or certified mail, postage prepaid, return receipt requested or by telegram or telefax (confirmed by U.S. mail), receipt acknowledged, addressed as set forth below or at such other address for either party as may be specified in a notice given as provided herein by such party to the other. Any such notice shall be deemed to have been given as of the date received, in the case of personal delivery, or on the date shown on the receipt or confirmation therefor, in all other cases. Any and all service of process and any other notice in any such action, suit or proceeding shall be effective against any party if given as provided in this Agreement; provided that nothing herein shall be deemed to affect the right of any party to serve process in any other manner permitted by law. (a) If to Company: Total Research Corporation Princeton Corporate Center 5 Independence Way Princeton, NJ 08540 With copies to: Thomas A. Belton, Esq. Drinker Biddle & Reath LLP 105 College Road East Princeton, NJ 08540 12 Peter G. Smith, Esq. Kramer, Levin, Naftalis & Frankel 919 Third Avenue New York, NY 10022-3903 (b) If to Executive: 6.7 TERMINATION PROCEDURES. Any termination of Executive's employment by the Company or by Executive during the Term (other than termination pursuant to death) shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 5.5. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated. 6.8 ENTIRE AGREEMENT AND MODIFICATION. This Agreement constitutes the entire agreement between the parties hereto with respect to the matters contemplated herein and supersedes all prior agreements and understandings with respect thereto. No amendment, modification, or waiver of this Agreement shall be effective unless in writing. Neither the failure nor any delay on the part of any party to exercise any right, remedy, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power, or privilege with respect to such occurrence or with respect to any other occurrence. 6.9 GOVERNING LAW. This Agreement is made pursuant to, and shall be construed and enforced in accordance with, the laws of the State of New Jersey and the federal laws of the United States of America, to the extent applicable, without giving effect to otherwise applicable principles of conflicts of law. The parties hereto expressly consent to the jurisdiction of any state or federal court located in New Jersey, and to venue therein, and consent to the service of process in any such action or proceeding by certified or registered mailing of the summons and complaint therein directed to Executive or Company, as the case may be, at its address as provided in Section 6.6 hereof. 6.10 WITHHOLDING. All payments hereunder shall be subject to any required withholding of Federal, state and local taxes pursuant to any applicable law or regulation. 6.11 HEADINGS; COUNTERPARTS. The headings of paragraphs in this Agreement are for convenience only and shall not affect its interpretation. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original and all of which, when taken together, shall be deemed to constitute the same Agreement. 13 6.12 FURTHER ASSURANCES. Each of the parties hereto shall execute such further instruments and take such other actions as the other party shall reasonably request in order to effectuate the purposes of this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. TOTAL RESEARCH CORPORATION By/s/ALBERT ANGRISANI --------------------------------- Title: President and CEO /s/ERIC ZISSMAN -------------------------------- Executive 14 Exhibit A SENIOR MANAGEMENT COMPENSATION PLAN TERM SHEET FISCAL YEAR 1999 Name: Eric Zissman Title: Chief Financial Officer and Director of Corporate Development A. COMPENSATION/SHORT-TERM I. Base Salary Base salary for the second half of fiscal year 1999 will be $150,000. Salary increases beyond year one, will be set by the CEO and approved by the Executive Committee and will be based on individual performance and contribution. The amount of the increase awarded will be based on a salary increase range of 0-10%. II. Bonus: Entitled to a bonus of $10,000 based on performance in the area of corporate development as evaluated by the Executive Committee. An additional bonus compensates the Executive if established performance measures are achieved. The performance measures listed below are based on goals established for core business only against the performance plans for fiscal year 1999. This additional compensation would be in cash, and represents a bonus opportunity at 20% of the base salary if the goals listed below are met. Should the results fall slightly below plan, i.e., ninety-five (95) percent of goal, the Executive will be entitled to a reduced bonus. The reduced bonus will pay the Executive ten (10) percent of the Base Salary if ninety-five (95) to ninety-nine and nine tenths (99.9) percent of the goal is achieved. No bonus will be paid if results fall below 95% of goal. Goal Reward 1. * General and Administrative 40% of 20% cash opportunity Expense Management of 18.3% of corporate annual revenue (includes Administration, Corporate and Data Processing expenses) * If revenue is below plan and the Income Before Tax is on plan, this goal will be waived. 2. Tax Expense Reduction 20% of 20% cash opportunity less than 40% of taxable earnings A-1 3. Cash Flow from Operations 20% of 20% cash opportunity $1,200,000 annually 4. Non Financial 20% of 20% cash opportunity a. MIS with Monthly Reporting b. Audit c. Pricing/Estimating d. Merger/Acquisition Support Performance goals for subsequent fiscal years shall be established on a quarterly or semi-annual basis by the CEO since the term of any renewal will expire on December 31. IBT shall be as defined in the Senior Management Compensation Plan ( Fiscal Years 1999-2001) for the CEO. B. EXCESS PERFORMANCE BONUS OPPORTUNITY: Payment under this portion of the compensation plan is for performance in excess of established goals. The bonus opportunity under this portion of the compensation plan, provides a bonus based on the following formula: If the Corporation's IBT performance is 10% greater than plan, this Executive will receive the monetary equivalent of the average of all excess bonuses paid Division Presidents. C. LONG TERM PERFORMANCE REWARD The primary goal of Total Research's Long Term Performance Reward is to enhance senior management performance through equity ownership opportunities. The granting of stock options that a participant may receive in each year is based on an assessment by the Chief Executive Officer and the Executive Committee of the Board of Directors. Any option grant is totally discretionary. EX-10.8 7 MARK NISSENFELD EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT -------------------- EMPLOYMENT AGREEMENT dated as of January 1, 1999 between Total Research Corporation, a Delaware corporation ("Company"), and Mark Nissenfeld ("Executive"). BACKGROUND ---------- Executive is presently serving as the President Global Health Care Division of the Company under an Employment Agreement with Company effective January 2, 1997 (the "Original Employment Agreement"). Company desires to have Executive continue in the employment of the Company beyond the June 30, 1999 termination date in the Original Employment Agreement, and Executive wishes to remain in the employment of the Company beyond such date, on the terms and conditions contained in this Agreement. NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein and intending to be legally bound hereby, the parties hereto agree as follows: TERMS ----- SECTION 1. CAPACITY AND DUTIES 1.1 EMPLOYMENT; ACCEPTANCE OF EMPLOYMENT. Company hereby employs Executive and Executive hereby accepts employment by Company for the period and upon the terms and conditions hereinafter set forth. 1.2 CAPACITY AND DUTIES. (a) Executive shall initially serve as President of the Customer Loyalty Division of Company. Executive shall perform the duties and have the responsibilities of a Division President as described in the "Position Description" previously delivered to Executive, as such "Position Description" may be revised by Company from time to time. Executive shall perform such other duties and shall have such authority consistent with his position as may from time to time be specified by the Chief Executive Officer of Company. Executive may be appointed by the Chief Executive Officer to another senior level position, provided such appointment does not result in a reduction in Executive's compensation and benefits under this Agreement. Executive shall report directly to the Chief Executive Officer, and shall perform Executive's duties for Company principally at Company's principal executive offices, presently in Princeton, New Jersey , except for periodic travel that may be necessary or appropriate in connection with the performance of Executive's duties hereunder. (b) Executive shall devote Executive's full working time, energy, skill and best efforts to the performance of Executive's duties hereunder, in a manner that will faithfully and diligently further the business and interests of Company, and shall not be employed by, or participate or engage in or in any manner be a part of the management or operation of, any business enterprise other than Company without the prior written consent of the Board of Directors of Company (the 1 "Board"). Notwithstanding the above, Executive shall be permitted, to the extent such activities do not interfere or conflict with the performance by Executive of Executive's duties and responsibilities hereunder, (i) to manage Executive's personal, financial and legal affairs, and (ii) to serve on civic, charitable or professional boards or committees (it being expressly understood and agreed that Executive's continuing to serve on any such board and/or committees on which Executive is serving, or with which Executive is otherwise associated (each of which has been disclosed to Company in writing prior to the execution of Executive's Agreement), as of the Commencement Date (as defined below), shall be deemed not to interfere with the performance by Executive of Executive's duties and responsibilities under this Agreement). (c) Executive represents and warrants to Company that Executive is under no contractual or other restriction or obligation which conflicts with, violates or is inconsistent with the execution of this Agreement, the performance of Executive's duties hereunder, or the other rights of Company hereunder. (d) During the Term, Executive shall be entitled to participate as a member of the Company's Management Council. The Management Council shall consist of Executive and certain other senior officers of the Company and shall serve as an advisory and consultative body on such significant strategic and operating issues as the Chairman or President of the Company determine to present to the Management Council prior to decisions on such issues being made by the President, the Executive Committee or the Board of Directors. SECTION 2. TERM OF EMPLOYMENT 2.1 TERM. The term of Executive's employment hereunder shall commence on the date hereof (the "Commencement Date") and continue until June 30, 2000, as further extended or unless sooner terminated in accordance with the other provisions hereof (the "Term"). Except as hereinafter provided, on expiration of the initial Term, the Term shall be automatically extended for one additional year unless either party shall have given to the other party written notice of nonrenewal of this Agreement at least six months prior to such expiration date. After the initial Term, the Term shall be automatically extended for successive one year Terms unless written notice of nonrenewal is given by either party to the other at least six (6) months prior to the expiration of the then current Term. If written notice of termination is given as provided above, Executive's employment under this Agreement shall terminate on the last day of the then-current Term. SECTION 3. COMPENSATION 3.1 BASIC COMPENSATION. As compensation for Executive's services during the Term, Company shall pay to Executive a salary effective January 1, 1999 in the amount specified on Exhibit A, attached hereto and made a part hereof. The Executive shall continue to receive Executive's salary at the rate presently in effect under the Original Employment Agreement through December 31, 1998. The salary shall be payable in periodic installments in accordance with Company's regular payroll practices for its executive personnel at the time of payment, but in no event less frequently than monthly. Executive's annual salary, as determined in accordance with this Section 3.1, is hereinafter referred to as Executive's "Base Salary." 2 3.2 PERFORMANCE BONUS. As additional compensation for the services rendered by Executive to Company pursuant to this Agreement for fiscal periods commencing July 1, 1998, the Executive shall be entitled to participate in the Senior Management Compensation Plan, attached hereto and incorporated hereby as Exhibit A (the "Compensation Plan"). 3.3 EMPLOYEE BENEFITS. During the Term, Executive shall be entitled to participate in such of Company's employee benefit plans and benefit programs, including medical, hospitalization, dental, disability, accidental death and dismemberment and travel accident plans and programs, as may from time to time be provided by Company for its senior executives generally. In addition, during the Term Executive shall be eligible to participate in all pension, retirement, savings and other employee benefit plans and programs maintained from time to time by Company for the benefit of its senior executives generally. Company shall have no obligation, however, to maintain any particular program or level of benefits referred to in this Section 3.3. 3.4 OTHER BENEFITS. During the Term, the Company shall provide Executive with an automobile allowance of $500.00 per month for the use of an automobile owned or leased by Executive in accordance with the policies and procedures established by the Company from time to time for executive employees. 3.5 VACATION. Executive shall be entitled to the normal and customary amount of paid vacation provided to senior executives of the Company generally, but in no event less than 20 days during each 12 month period, beginning on July 1, 1998. Any vacation days that are not taken in a given 12 month period shall accrue and carry over from year to year up to a maximum of 20 days. The Executive may be granted leaves of absence with or without pay for such valid and legitimate reasons as the Board in its sole and absolute discretion may determine, and is entitled to the same sick leave and holidays provided to other senior executive officers of Company. 3.6 EXPENSE REIMBURSEMENT. Company shall reimburse Executive for all reasonable and documented expenses incurred by him in connection with the performance of Executive's duties hereunder in accordance with its regular reimbursement policies as in effect from time to time. 3.7 STOCK OPTION AGREEMENT. Company acknowledges the prior grant to Executive of 250,000 stock options (the "Option Shares") made pursuant to the Original Employment Agreement under which, subject to the terms thereof, the Option Shares are scheduled to vest on June 30, 1999. SECTION 4. TERMINATION OF EMPLOYMENT 4.1 DEATH OF EXECUTIVE. If Executive dies during the Term, Company shall not thereafter be obligated to make any further payments hereunder other than amounts (including Base Salary, bonuses, expense reimbursement, etc.) accrued as of the date of Executive's death in accordance with generally accepted accounting principles (the "Accrued Obligations", which, for purposes of this Agreement in situations other than death, shall reference the date of termination). 3 4.2 DISABILITY OF EXECUTIVE. If Executive is permanently disabled (as defined in Company's long-term disability insurance policy then in effect), then the Board shall have the right to terminate Executive's employment upon 30 days' prior written notice to Executive at any time during the continuation of such disability. In the event Executive's employment is terminated for disability in accordance with this Section 4.2, Company shall not thereafter be obligated to make any further payments hereunder other than (i) Accrued Obligations through the date of such termination and (ii) continued Base Salary and benefits, until the earlier of (x) such time as payments to Executive commence under Company's long-term disability insurance policy then in effect, or (y) the expiration of the then current Term. 4.3 TERMINATION FOR CAUSE. Executive's employment hereunder shall terminate immediately upon notice that the Board is terminating Executive for Cause (as defined herein), in which event Company shall not thereafter be obligated to make any further payments of Base Salary, bonus or other payments. "Cause" shall be limited to the following: (i) willful failure to substantially perform Executive's duties as described in Section 1.2 (other than such failure resulting from Executive's physical or mental illness, or the failure of Executive to perform such duties during the remedy period set forth in Section 4.4 hereof following the issuance of a Notice of Termination (as herein defined) by Executive for Good Reason, unless an arbitrator acting pursuant to Section 6.2 hereof finds Executive to have acted in bad faith in issuing such Notice of Termination), after (x) demand for substantial performance is delivered by Company in writing that identifies the manner in which Company believes Executive has not substantially performed Executive's duties and (y) Executives' failure to cure such nonperformance within ten days after receipt of such written demand. (ii) willful misconduct that is materially and demonstrably injurious to Company or any of its subsidiaries; (iii) conviction or plea of guilty or nolo contendere to a felony or to any other crime which involves moral turpitude or, if not involving moral turpitude, the act giving rise to such conviction or plea is materially and demonstrably injurious to the Company or any of its subsidiaries; (iv) material violation of (x) Company's policies relating to sexual harassment, substance or alcohol abuse or the disclosure or misuse of Confidential Information (as hereinafter defined), or (y) other Company polices set forth in Company manuals or written statements of policy provided in the case of this clause (y) that such violation is materially and demonstrably injurious to Company and continues for more than three (3) days after written notice thereof is given to Executive by the Board; and (v) material breach of any provision of this Agreement by Executive, which breach continues for more then ten days after written notice thereof is given by the Board to Executive. Cause shall not exist under this Section 4.3 unless and until Company has delivered to Executive a copy of a resolution duly adopted by a majority of the Board at a meeting of the Board called and held for such purpose (or by unanimous written consent of the Board), finding 4 that such Cause exists in the good faith opinion of the Board. This Section 4.3 shall not prevent Executive from challenging in any arbitration proceeding or court of competent jurisdiction the Board's determination that Cause exists or that Executive has failed to cure any act (or failure to act), to the extent permitted by this Agreement, that purportedly formed the basis for the Board's determination. Company must provide notice to Executive that it is intending to terminate Executive's employment for Cause within one hundred and twenty (120) days after the Board has actual knowledge of the occurrence of the event it believes constitutes Cause. 4.4 TERMINATION WITHOUT CAUSE OR BY EXECUTIVE FOR GOOD REASON. (a) If (i) Executive's employment is terminated by Company for any reason (other than (x) Cause or (y) disability of Executive) or (ii) Executive's employment is terminated by Executive for Good Reason, then Company shall within thirty (30) days of termination of employment pay to Executive a lump sum cash payment equal to Executive's Base Salary for a period equal to the greater of (x) the date of termination of employment through the date that is one (1) year after the date of delivery of a proper notice of termination of employment or nonrenewal of the Agreement or (y) the then remaining Term (the "Severance Payment"). Further, in the event of termination by Company under such circumstances Company shall maintain in full force and effect, for the continued benefit of Executive, Executive's spouse and Executive's dependents for the remaining balance of the unexpired Term as of the date of termination, the medical, hospitalization, dental and life insurance programs in which Executive, Executive's spouse and Executive's dependents were participating immediately prior to the date of such termination at substantially the level in effect and upon substantially the same terms and conditions (including without limitation contributions required by Executive for such benefits) as existed immediately prior to the date of termination (except to the extent thereafter reduced for senior executives of Company generally); provided, that if Executive, Executive's spouse or Executive's dependents cannot continue to participate in the Company programs providing such benefits, the Company shall arrange to provide Executive, Executive's spouse and Executive's dependents with the economic equivalent of such benefits which they otherwise would have been entitled to receive under such plans and programs, provided that such benefits shall terminate upon the date or dates Executive receives coverage and benefits which are substantially similar, taken as a whole, without waiting period or pre-existing condition limitations, under the plans and programs of a subsequent employer . Upon making the payments described in this Section 4.4, Company shall have no further obligation to Executive hereunder. (b) Notwithstanding the foregoing, if Executive's employment is terminated (i) by Company without Cause but due to Executive's failure for four consecutive calendar quarters to attain all the performance goals as outlined in the Compensation Plan or (ii) by Executive for Good Reason under Section 4.4(c)(vi) provided Executive terminates employment under Section 4.4(c)(vi) within ten (10) days of the Company's delivery of the revised performance goals to Executive, the Severance Payment shall be reduced by fifty percent (50%). (c) "Good Reason" shall mean the following: (i) material breach of Company's obligations hereunder, provided that Executive shall have given reasonably specific written notice thereof to Company, and Company shall have failed to remedy the circumstances within 60 days thereafter; 5 (ii) any decrease in Executive's salary below the amount set forth in the Compensation Plan (except for decreases that are in conjunction with decreases in salaries generally) or any material reduction in the general nature of Executive's duties or authority to a level inconsistent with a senior executive position, unless previously agreed to in writing by Executive; (iii) the failure of Executive to be appointed initially to the positions set forth in Section 1.2(a); (iv) the relocation of Executive's principal place of employment to a location more than thirty (30) miles from Princeton, New Jersey; (v) the failure of any successor in interest of Company to be bound by the terms of this Agreement in accordance with Section 6.5 hereof; (vi) The financial Bonus Goals established by the Company in the Senior Management Compensation Plan for any fiscal year are more than 125% of the financial Bonus Goals for the preceding fiscal year and are not approved in writing by the Chief Executive Officer or, if Albert Angrisani is not then serving as Chief Executive Officer, approved by a majority of the participants in the Compensation Plan; or (vii) Executive's termination of the Agreement after Company notice of nonrenewal under Section 2.1. Executive must provide notice to Company that Executive is intending to terminate Executive's employment for Good Reason within one hundred and twenty (120) days after Executive has actual knowledge of the occurrence of an event he believes constitutes Good Reason. Executive's right to terminate Executive's employment hereunder for Good Reason shall not be affected by Executive's Disability. Subject to compliance by Executive with the notice provisions of Section 4.4(c)(i), Executive's continued employment prior to terminating employment for Good Reason shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason. In the event Executive delivers to the Company a Notice of Termination for Good Reason, Executive agrees to appear before a meeting of the Board called and held for such purpose (after reasonable notice) and specify to the Board the particulars as to why Executive believes adequate grounds for termination for Good Reason exist. No action by the Board, other than the remedy of the circumstances within the time periods specified in Section 4.4(c)(i), shall be binding on Executive. 4.5 CHANGE IN CONTROL. (a) If, during the Term, there should be a Change of Control (as defined herein), and within one year thereafter either (i) Executive's employment should be terminated for any reason other than for Cause or (ii) Executive terminates Executive's employment for Good Reason (other than under Section 4.4(c)(vi)), Company shall, on or before Executive's last day of full-time employment hereunder, pay to Executive, the amounts set forth in Section 4.4 above, provided that it is the intention of the parties that the payments under this Section 4.5 shall not constitute "excess parachute payments" within the meaning of Section 280G of the Internal 6 Revenue Code of 1986, as amended. Accordingly, notwithstanding anything in this Agreement to the contrary, if any of the amounts otherwise payable under this Section would constitute "excess parachute payments," or if the independent accountants acting as auditors for Company on the date of the Change in Control determine that such payments may constitute "excess parachute payments," then the amounts otherwise payable under this Agreement shall be reduced to the maximum amounts that may be paid without any such payments constituting, or potentially constituting, "excess parachute payments." (b) Upon the occurrence of a Change in Control, any stock options previously granted to Executive that are not then exercisable, ie. unvested, shall immediately vest and become exercisable by Executive . The Company shall execute all necessary amendments to the applicable stock option plans and agreements provided such amendments are permitted by law and will not adversely affect the tax status or qualification of the plan as an Incentive Stock Option Plan or Non-qualified Stock Option Plan. (c) Upon making the payments described in this Section 4.5, Company shall have no further obligation to Executive hereunder. (d) A "Change in Control" of Company shall be deemed to have occurred if (1) at any time after the date hereof, there shall occur (i) any consolidation or merger of Company in which Company is not the continuing or surviving corporation or pursuant to which the shares of common stock of Company ("Common Stock") would be converted into cash, securities or other property, or (ii) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of assets accounting for 50% or more of total assets or 50% or more of the total revenues of Company, other than, in case of either (i) or (ii) a consolidation or merger with, or transfer to, a corporation or other entity of which, or of the parent entity of which, immediately following such consolidation, merger or transfer, (x) more than 50% of the combined voting power of the then outstanding voting securities of such entity entitled to vote generally in the election of directors (or other determination of governing body) is then beneficially owned (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934) by all or substantially all of the individuals and entities who were such owners of Common Stock immediately prior to such consolidation, merger or transfer in substantially the same proportion, as among themselves, as their ownership of Common Stock immediately prior to such sale consolidation, merger or transfer, or (y) a majority of the directors (or other governing body) consists of members of the Board of Directors of Company in office on the date hereof for purposes of (2) below or approved as provided in (2) below; (2) at any time after the date hereof, (x) members of the Board of Directors of Company in office on the date hereof (including any designated as contemplated by Section 4.2 of the Stock Purchase Agreement made as of April 16, 1998 between Company and David Brodsky) plus (y) any new director (excluding a director designated by a person or group who has entered into an agreement with Company to effect a transaction described in Section 4.5(d)(1)) whose election by the Board of Directors of Company or nomination for election by Company's stockholders was approved by (i) Executive (if a director) or (ii) a vote of at least a majority of the directors then still in office who either were directors on the date hereof or whose 7 election or nomination for election was previously so approved, shall cease for any reason to constitute a majority of the Board; or (3) at any time after the date hereof, the stockholders of Company approve a complete liquidation or dissolution of Company, except in connection with a recapitalization or other transaction which does not otherwise constitute a Change of Control for purposes of Section 4.5(a)(1) above. 4.6 TERMINATION BY EXECUTIVE WITHOUT GOOD REASON. In the event Executive's employment is voluntarily terminated by Executive without Good Reason, Company shall not be obligated to make any further payments to Executive hereunder other than Accrued Obligations through the date of such termination. 4.7 FAILURE TO EXTEND. A failure by Company to extend this Agreement pursuant to Section 2.1 shall not be treated as a termination of Executive's employment for purposes of this Agreement. 4.8 MITIGATION. Executive shall not be required to mitigate amounts payable under this Section 4 by seeking other employment or otherwise, and there shall be no offset against amounts due Executive under this Agreement on account of subsequent employment except as specifically provided herein. SECTION 5. NON-COMPETITION AND CONFIDENTIALITY 5.1 NON-COMPETITION. (a) During the Term and for a period of one year thereafter (the "Non-Competition Period"), Executive shall not, directly or indirectly, own, manage, operate, join, control, participate in, invest in or otherwise be connected or associated with, in any manner, including, without limitation, as an officer, director, employee, distributor, independent contractor, independent representative, partner, consultant, advisor, agent, proprietor, trustee or investor, any Competing Business located in any state or region (including foreign jurisdictions) where Company conducts business; provided, however, that ownership of 1% or less of the stock or other securities of a corporation, the stock of which is listed on a national securities exchange or is quoted on the NASDAQ Stock Market's National market, shall not constitute a breach of this Section 5, so long as the Executive does not in fact have the power to control, or direct the management of, or is not otherwise engaged in activities with, such corporation. (b) For purposes hereof, the term "Competing Business" shall mean any business or venture which is substantially similar to the whole or any significant part of the business conducted by Company. (c) Notwithstanding the above, the Non-Competition Period shall be limited to the period for which a Severance Payment is received under Section 4.4(a) above if Executive's employment is terminated (i) by Company without Cause, (ii) by Executive for Good Reason or (iii) as a result of nonrenewal of the Agreement by Company. 8 (d) If the Executive's employment is terminated for any reason other than the reasons specified in Section 5.1(c) above and Executive is not entitled to a Severance Payment under Section 4.4(a) as a result of such termination, the Non-Competition Period shall continue for one (1) year after termination of employment. 5.2 NO SOLICITATION. During the Term, including any unexpired portion thereof, and for a period of one year thereafter, the Executive shall not, directly or indirectly, including on behalf of, for the benefit of, or in conjunction with, any other person or entity, (i) solicit, assist, advise, influence, induce or otherwise encourage in any way, any employee of Company to terminate Executive's relationship with Company for any reason, or assist any person or entity in doing so, or employ, engage or otherwise contract with any employee or former employee of Company in a Competing Business or any other business unless such former employee shall not have been employed by Company for a period of at least one year, (ii) interfere in any manner with the relationship between any employee and Company or (iii) contact, service or solicit any existing clients, customers or accounts of Company on behalf of a Competing Business, either as an individual on Executive's own account, as an investor, or as an officer, director, partner, joint venturer, consultant, employee, agent or sales man of any other person or entity. 5.3 CONFIDENTIAL INFORMATION (a) "Confidential Information" shall mean confidential records and information, including, but not limited to, development, marketing, purchasing, organizational, strategic, financial, managerial, administrative, manufacturing, production, distribution and sales information, distribution methods, data, specifications and processes (including the Transferred Property as hereinafter defined) presently owned or at any time hereafter developed by Company or its agents or consultants or used presently or at any time hereafter in the course of the business of Company, that are not otherwise part of the public domain. (b) Executive hereby sells, transfers and assigns to Company, or to any person or entity designated by Company, all of Executive's entire right, title and interest in and to all inventions, ideas, methods, developments, disclosures and improvements (the "Inventions"), whether patented or unpatented, and copyrightable material, and all trademarks, trade names, all goodwill associated therewith and all federal and state registrations or applications thereof, made, adopted or conceived by solely or jointly, in whole or in part (collectively, the "Transferred Property"), prior to or during the Term which (i) relate to methods, apparatus, designs, products, processes or devices sold, leased, used or under construction or development by Company or (ii) otherwise relate to or pertain to the business, products, services, functions or operations of the Company. Executive shall make adequate written records of all Inventions, which records shall be Company's property and shall communicate promptly and disclose Company, in such forms Company requests, all information, details and data pertaining to the aforementioned Inventions. Whether during the Term or thereafter, Executive shall execute and deliver to Company such formal transfers and assignments and such other papers and documents as may be required of Executive to permit Company, or any person or entity designated by Company, to file and prosecute patent applications (including, but not limited to, records, memoranda or instruments deemed necessary by Company for the prosecution of the patent application or the acquisition of 9 letters patent in the United states, foreign counties or otherwise) and, as to copyrightable material, to obtain copyrights thereon, and as to trademarks, to record the transfer of ownership of any federal or state registrations or applications. (c) All such Confidential Information is considered secret and will be disclosed to the Executive in confidence, and Executive acknowledges that, as a consequence of Executive's employment and position with Company, Executive may have access to and become acquainted with Confidential Information. Except in the performance of Executive's duties as an employee of Company, Executive shall not, during the term and at all times thereafter, directly or indirectly for any reason whatsoever, disclosure or use any such Confidential Information. All records, files, drawings, documents, equipment and other tangible items, wherever located, relating in any way to or containing Confidential Information, which Executive has prepared, used or encountered or shall in the future prepare, use or encounter, shall be and remain Company's sole and exclusive property and shall be included in the Confidential Information. Upon termination of Executive's agreement, or whenever requested by Company, Executive shall promptly deliver to Company any and all of the Confidential Information and copies thereof, not previously delivered to Company, that may be in the possession or under the control of the Executive. The foregoing restrictions shall not apply to the use, divulgence, disclosure or grant of access to Confidential Information to the extent, but only to the extent, (i) expressly permitted or required pursuant to any other written agreement between Executive and Company, (ii) such Confidential Information has been publicly disclosed (not due to a breach by the Executive of Executive's obligations hereunder, or by breach of any other person, of a fiduciary or confidential obligation to Company or (iii) the Executive is required to disclose Confidential Information by or to any court of competent jurisdiction or any governmental or quasi-governmental agency, authority or instrumentality of competent jurisdiction, provided, however, that the Executive shall, prior to any such disclosure, immediately notify Company of such requirements and provided further, however, that the Company shall have the right, at its expense, to object to such disclosures and to seek confidential treatment of any Confidential Information to be so disclosed on such terms as it shall determine. 5.4 ACKNOWLEDGEMENT; REMEDIES; SURVIVAL OF THIS AGREEMENT. (a) Executive acknowledges that violation of any of the covenants and provisions set forth in this Agreement would cause Company irreparable damage and agrees that Company's remedies at law for a breach or threatened breach of any of the provisions of this Agreement would be inadequate and, in recognition of this fact, in the event of a breach or threatened breach by Executive of any of the provisions of this Agreement, it is agreed that, in addition to the remedies at law or in equity, Company shall be entitled, without the posting of a bond, to equitable relief in the form of specific performance, a temporary restraining order, temporary or permanent injunction, or any other equitable remedy which may then be available for the purposes of restraining Executive from any actual or threatened breach of such covenants. Without limiting the generality of the foregoing, if Executive breaches or threatens to breach this Section 5 hereof, such breach or threatened breach will entitle Company to enjoin Executive from disclosing any Confidential Information to any Competing 10 Business, to enjoin any Competing Business from retaining Executive or using any such Confidential Information, to enjoin Employee form rendering personal services to or in connection with any Competing Business. The rights and remedies of the parties hereto are cumulative and shall not be exclusive, and each such party shall be entitled to pursue all legal and equitable rights and remedies and to secure performance of the obligations and duties of the other under this Agreement, and the enforcement of one or more of such rights and remedies by a party shall in no way preclude such party from pursuing, at the same time or subsequently, any and all other rights and remedies available to it. (b) The provisions of this Agreement shall survive the termination of Executive's employment with Company. SECTION 6. MISCELLANEOUS 6.1 CANCELLATION OF ORIGINAL EMPLOYMENT AGREEMENT With the exception of the obligation to pay salary, benefits and performance bonus for the period through December 31, 1998, the Original Employment Agreement is hereby cancelled; provided, however, that this Section 6.1 shall not be construed to limit or terminate Executive's entitlement under the Original Employment Agreement to amounts accrued for periods through the date of this Agreement, including, without limitation, the 250,000 stock options granted thereunder. 6.2 ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Princeton, New Jersey, in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. The parties consent to the authority of the arbitrator, if the arbitrator so determines, to award fees and expenses (including legal fees) to the prevailing party in the arbitration. Notwithstanding the foregoing, Company shall be entitled to enforce the provisions of Section 5 hereof through proceedings brought in a court of competent jurisdiction as contemplated by Section 6.9 hereof. 6.3 SEVERABILITY; Reasonableness of Agreement. If any term, provision or covenant of this Agreement or part thereof, or the application thereof to any person, place or circumstance shall be held to be invalid, unenforceable or void by a court of competent jurisdiction, the remainder of this Agreement and such term, provision or covenant shall remain in full force and effect, and any such invalid, unenforceable or void term, provision or covenant shall be deemed, without further action on the part of the parties hereto, modified, amended and limited, and the court shall have the power to modify, amend and limit any such term, provision or covenant, to the extent necessary to render the same and the remainder of the Agreement valid, enforceable and lawful. In this regard, the Executive understands that the provisions of Section 5 may limit Executive's ability to earn a livelihood in a business similar or related to the business of Company, but nevertheless agrees and acknowledges that (i) the provisions of Section 5 are reasonable and necessary for the protection of Company, and do not impose a greater restraint than necessary to protect the goodwill or other business interest of Company and (ii) such provisions contain reasonable limitations as to the time and the scope of activity to be restrained. In consideration of the foregoing and in light of Executive's education, skills and abilities, Executive agrees that all defenses by Executive to the strict enforcement of such provisions are hereby waived by Executive. 11 6.4 KEY EMPLOYEE INSURANCE. Company shall have the right at its expense to purchase insurance on the life of Executive, in such amounts as it shall from time to time determine, of which Company shall be the beneficiary. Executive shall submit to such physical examinations as may reasonably be required and shall otherwise cooperate with Company in obtaining such insurance. 6.5 ASSIGNMENT; BENEFIT. This Agreement shall not be assignable by Executive, other than Executive's rights to payments or benefits hereunder, which may be transferred only by will or the laws of descent and distribution. Upon Executive's death, this Agreement and all rights of Executive hereunder shall inure to the benefit of and be enforceable by Executive's beneficiary or beneficiaries, personal or legal representatives, or estate, to the extent any such person succeeds to Executive's interests under this Agreement. No rights or obligations of Company under this Agreement may be assigned or transferred except that Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean Company as herein before defined and any successor to its business and/or assets (by merger, purchase or otherwise) which executes and delivers the agreement provided for in this Section 5.4 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. 6.6 NOTICES. All notices hereunder shall be in writing and shall be sufficiently given if hand-delivered, sent by documented overnight delivery service or registered or certified mail, postage prepaid, return receipt requested or by telegram or telefax (confirmed by U.S. mail), receipt acknowledged, addressed as set forth below or at such other address for either party as may be specified in a notice given as provided herein by such party to the other. Any such notice shall be deemed to have been given as of the date received, in the case of personal delivery, or on the date shown on the receipt or confirmation therefor, in all other cases. Any and all service of process and any other notice in any such action, suit or proceeding shall be effective against any party if given as provided in this Agreement; provided that nothing herein shall be deemed to affect the right of any party to serve process in any other manner permitted by law. (a) If to Company: Total Research Corporation Princeton Corporate Center 5 Independence Way Princeton, NJ 08540 With copies to: Thomas A. Belton, Esq. Drinker Biddle & Reath LLP 105 College Road East Princeton, NJ 08540 12 Peter G. Smith, Esq. Kramer, Levin, Naftalis & Frankel 919 Third Avenue New York, NY 10022-3903 (b) If to Executive: 6.7 TERMINATION PROCEDURES. Any termination of Executive's employment by the Company or by Executive during the Term (other than termination pursuant to death) shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 5.5. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated. 6.8 ENTIRE AGREEMENT AND MODIFICATION. This Agreement constitutes the entire agreement between the parties hereto with respect to the matters contemplated herein and supersedes all prior agreements and understandings with respect thereto. No amendment, modification, or waiver of this Agreement shall be effective unless in writing. Neither the failure nor any delay on the part of any party to exercise any right, remedy, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power, or privilege with respect to such occurrence or with respect to any other occurrence. 6.9 GOVERNING LAW. This Agreement is made pursuant to, and shall be construed and enforced in accordance with, the laws of the State of New Jersey and the federal laws of the United States of America, to the extent applicable, without giving effect to otherwise applicable principles of conflicts of law. The parties hereto expressly consent to the jurisdiction of any state or federal court located in New Jersey, and to venue therein, and consent to the service of process in any such action or proceeding by certified or registered mailing of the summons and complaint therein directed to Executive or Company, as the case may be, at its address as provided in Section 6.6 hereof. 6.10 WITHHOLDING. All payments hereunder shall be subject to any required withholding of Federal, state and local taxes pursuant to any applicable law or regulation. 6.11 HEADINGS; COUNTERPARTS. The headings of paragraphs in this Agreement are for convenience only and shall not affect its interpretation. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original and all of which, when taken together, shall be deemed to constitute the same Agreement. 13 6.12 FURTHER ASSURANCES. Each of the parties hereto shall execute such further instruments and take such other actions as the other party shall reasonably request in order to effectuate the purposes of this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. TOTAL RESEARCH CORPORATION By/s/ALBERT ANGRISANI --------------------------------- Title: /s/ MARK NISSENFELD -------------------------------- Executive 14 Exhibit A SENIOR MANAGEMENT COMPENSATION PLAN TERM SHEET FISCAL YEAR 1999 THROUGH FISCAL YEAR 2000 Name: Mark Nissenfeld Title: President Global Health Care Division A. COMPENSATION/SHORT-TERM I. Base Salary Base salary for the second half of fiscal year 1999 will be $170,000. Salary increases beyond year one, will be set by the CEO and approved by the Executive Committee and will be based on individual performance and contribution. The amount of the increase awarded will be based on a salary increase range of 0-10%. II. Bonus: Compensates the Executive if established performance measures are achieved. The performance measures listed below are based on goals established for core business only against the performance plans for fiscal year 1999. This additional compensation would be in cash, and represents a bonus opportunity at 20% of the base salary if the goals listed below are met. Should the results fall slightly below plan, i.e., ninety-five (95) percent of goal, the Executive will be entitled to a reduced bonus. The reduced bonus will pay the Executive ten (10) percent of the Base Salary ninety-five (95) to ninety-nine and nine tenths (99.9) percent of the goal is achieved. No bonus will be paid if results fall below 95% of goal. Goal Reward 1. Revenue of $9,100,000 30% of 20% cash opportunity 2. Gross Profit greater than 52% 30% of 20% cash opportunity Income Before Tax of $995,000 3. Money Management 20% of 20% cash opportunity a. Invoicing at 95% or plan or greater b. Cash Received at 95% of plan or greater c. Receivables + 45 days no greater than 30% of monthly receivables 9 out of 12 months A-1 4. Non Financial (as set by CEO) 20% of 20% cash opportunity a. Sales Infrastructure Expansion b. Product Development c. Process Improvement d. Other Performance goals for subsequent fiscal years shall be established by the CEO. IBT shall be as defined in the Senior Management Compensation Plan ( Fiscal Years 1999-2001) for the CEO. B. EXCESS PERFORMANCE BONUS OPPORTUNITY: Payment under this portion of the compensation plan is for performance in excess of established goals. The bonus opportunity under this portion of the compensation plan, provides a bonus based on the following formula: The Executive will receive 15% of the entire excess division's IBT if the division's IBT is 10% or more greater than plan; provided that, regardless of division performance, the Company overall IBT goal must be achieved before the Executive is eligible to receive any excess bonus payments. C. LONG TERM PERFORMANCE REWARD The primary goal of Total Research's Long Term Performance Reward is to enhance senior management performance through equity ownership opportunities. The granting of stock options that a participant may receive in each year is based on an assessment by the Chief Executive Officer and the Executive Committee of the Board of Directors. Any option grant is totally discretionary. A-2 EX-10.9 8 SUMMIT BANK LOAN AGREEMENT SIXTH AMENDMENT TO CREDIT AGREEMENT ----------------------------------- THIS SIXTH AMENDMENT, dated this day of January, 1999, is between TOTAL RESEARCH CORPORATION, a Delaware corporation (the "Borrower"); and SUMMIT BANK, a New Jersey bank formerly known as United Jersey Bank (the "Bank"). PRELIMINARY STATEMENT --------------------- A. The parties hereto entered into the Amended and Restated Credit Agreement dated as of December 28, 1995 (the "Original Agreement"), as the same has heretofore been amended by the Amendment to Amended and Restated Credit Agreement dated as of October 10, 1996 (the "First Amendment") and the Second Amendment to Amended and Restated Credit Agreement dated as of February 10, 1998 (the "Second Amendment") and the Third Amendment to Amended and Restated Credit Agreement dated as of July 17, 1998 (the "Third Amendment"), and the Fourth Amendment dated as of August 18, 1998 (the "Fourth Amendment"), and the Fifth Amendment dated as of September 18, 1998 (the "Fifth Amendment"). The Original Agreement, as amended by the First, Second, Third, Fourth and Fifth Amendments, shall hereinafter be called the "Credit Agreement". B. The Borrower and the Bank wish to extend the termination dates of both the revolving line of credit and the equipment line of credit under the Credit Agreement from December 29, 1998 to September 30, 1999, and make certain other modifications to the terms and conditions of the Credit Agreement. NOW, THEREFORE, in consideration of the premises, and of the mutual promises and covenants set forth herein, the parties hereto agree as follows: 1 1. Definitions. ------------ (A) All capitalized terms used but not defined herein shall have the meanings ascribed to them in the Credit Agreement. (B) As used herein, the following terms shall have the respective meanings set forth below: "Agreement" means the Credit Agreement, as modified hereby, and as the same may hereafter be amended from time to time. "Facility B Expiration Date" is defined in Section 2 below. "Facility C Commitment Amount" means the sum of $2,500,000. "Facility C Maturity Date" is defined in Section 3 below. "Facility C Note" means the Facility C Note dated the date hereof from the Borrower to the Bank in the maximum principal amount of $2,500,000, as the same may hereafter be amended, modified or replaced from time to time. 2. Extension and Modification of Facility B Loan. (a) In order to extend the expiration of the equipment loan facility known as the Facility B Loan under the Credit Agreement, Section 2.02(A) of the Credit Agreement is hereby modified and amended such that the term "Facility B Expiration Date" shall hereafter mean September 30, 1999. (b) In order to conform the Floating Rates and LIBOR Option terms and conditions applicable to the Facility B Loans, Section 2.02(C) of the Credit Agreement is modified and amended such that the same Floating Rate Margin and LIBOR Margin tables set forth below in Sections (3)(c) and (d) of this Sixth Amendment shall hereafter apply to the interest rate provisions of any Facility B Loan made hereafter. 2 3. Extension of Maturity and Modification of Facility C Loan. (a) In order to extend the maturity date of the revolving line of credit known as the Facility C Loan under the Credit Agreement, Section 2.03(A) of the Credit Agreement is hereby modified and amended such that the term "Facility C Maturity Date" shall hereafter mean September 30, 1999. (b) In order to eliminate the borrowing base limitation heretofore applicable to the Facility C Commitment Amount, Section 2.03(A) of the Credit Agreement is hereby modified to delete therefrom the clause reading " the lesser of:(i) sixty percent (60%) of Eligible Accounts; or (ii). . ." Any and all provisions of the Credit Agreement requiring the Borrower to furnish borrowing base certificates to the Bank are hereby deleted. (c) In order to modify the Floating Rate Margin adjustment provisions on the Facility C Loan, Section 2.03(D) of the Credit Agreement is hereby amended to replace the Floating Rate Margin table therein with the following: Ratio of Total Liabilities to Tangible Net Worth Margin --------------------- ------ 2 to 1 or greater 0% Between 1.5 to 1 and 2 to 1 (-1/4%) Below 1.5 to 1 (-1/2%) (d) In order to modify the LIBOR Margin adjustment provisions on the Facility C Loan, Section 2.03(E)(vi) of the Credit Agreement is hereby amended to replace the LIBOR Margin table therein with the following: 3 Ratio of Total Liabilities to Tangible Net Worth Margin --------------------- ------ 2 to 1 or greater 2.50% Between 1.5 to 1 and 2 to 1 2.25% Between 1 to 1 and 1.5 to 1 2.00% Below 1.00 to 1 1.75% 4. Modification of Letter of Credit Fees. Section 2.07 of the Credit Agreement is hereby amended to reduce the fee payable with respect to standby letters of credit which may be issued from time to time in the future from 2% of the stated amount to 1% of the stated amount of each such letter of credit. 5. Modification of Certain Reporting Requirements. (a) Section 5.03(e) of the Credit Agreement, which required quarterly work-in-process reports, is hereby deleted and such reports are no longer required. (b) Section 5.03(f) of the Credit Agreement, which required that the Borrower furnish monthly account receivable aging reports and job status reports to the Bank, is hereby deleted and such reports are no longer required. (c) Section 6(c) of the Second Amendment, which permitted annual audits by the Bank of the Company's books and records, is hereby deleted and no audits hereafter shall be required. 6. Modification of Financial Covenants. The following subsections of Section 5.03 of the Credit Agreement are hereby amended to read as follows: 4 "(j) Maintenance of Tangible Net Worth. Permit consolidated Tangible Net Worth of the Borrower to be less than $1,500,000 as of the end of any fiscal quarter beginning with the fiscal quarter ended December 31, 1998. (k) Maintenance of Ratio of Total Liabilities to Tangible Net Worth. Permit the ratio of consolidated Total Liabilities to consolidated Tangible Net Worth of the Borrower to be more than 6.0 to 1 as of the end of any fiscal quarter, beginning with the fiscal quarter ended December 31, 1998. (l) Debt Service Coverage Ratio. Permit the ratio of (i) the sum of net income after taxes, plus depreciation, amortization and interest expense for any fiscal year, to (ii) the sum of current maturities of long-term Indebtedness as of the end of such fiscal year plus interest expense for such fiscal year to be less than 1.50 to 1 on a consolidated basis. (m)Current Ratio. Permit the ratio of consolidated Current Assets to consolidated Current Liabilities as of the end of any fiscal quarter, beginning with the fiscal quarter ended December 31, 1998, to be less than .80 to 1. (n) Quick Ratio. Permit the ratio of: (i) the sum of consolidated cash and equivalents plus consolidated accounts receivable, to (ii) consolidated Current Liabilities, as of the end of any fiscal quarter, beginning with the fiscal quarter ended December 31, 1998, to be less than .60 to 1." 7. Estoppel. The Borrower represents, warrants and agrees to and with the Bank as follows: (i) there is currently no outstanding principal balance of the Facility C Note; 5 (ii) that each of the Loan Documents is in full force and effect; (iii) that this Amendment and the Facility C Note have been duly authorized, executed and delivered by the Borrower, and constitutes legal, valid and binding obligations of each of the Borrower, enforceable against it in accordance with their respective terms; and (iv) that the Borrower has no offset, defense or counterclaim with respect to any of its obligations under any of the Loan Documents (any such offset, defense or counterclaim as may now exist being hereby irrevocably waived by the Borrower). 8. Continuing Effect; Entire Agreement. Except to the extent expressly modified hereby, all the terms and conditions of the Loan Documents shall continue in full force and effect. This Sixth Amendment and all other instruments, agreements and certificates executed and delivered by the parties in connection herewith and therewith, constitutes the entire agreement and understanding of the parties hereto with respect to the modification contemplated hereby of any and all of the Loan Documents, and this Sixth Amendment supersedes all prior and contemporaneous discussions, agreements and understandings, whether written or oral, with respect to the subject matter hereof. 9. Continuing Priority. This Agreement is not intended to, and shall not, adversely affect or impair in any way the continuing priority of the lien of the security interests heretofore granted to the Bank as security for the Obligations. 6 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. WITNESS OR ATTEST: SUMMIT BANK By:/s/ Craig Z. Pasko By:/s/Anthony W. LaMarca - ------------------------ ------------------------ CRAIG Z. PASKO ANTHONY W. LAMARCA ATTEST: TOTAL RESEARCH CORPORATION By:/s/Richard J. Morrow, Jr. By:/s/ Eric Zissman - ---------------------------- ------------------------- RICHARD J. MORROW, JR. ERIC ZISSMAN EX-23.1 9 CONSENT OF INDEPENDENT AUDITORS Consent of Independent Auditors We consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 333-74635 and 333-74631) pertaining to the Total Research Corporation 1995 and 1986 Stock Incentive Plans and in the related Prospectus of our report dated August 27, 1999, with respect to the consolidated financial statements and schedule of Total Research Corporation included in the Annual Report (Form 10-K) for the year ended June 30, 1999. MetroPark, NJ September 28, 1999 /s/ ERNST & YOUNG LLP ---------------------- ERNST & YOUNG LLP EX-23.2 10 CONSENT OF INDEPENDENT AUDITORS Consent of Independent Auditors We consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 333-74635 and 333-74631) pertaining to the Total Research Corporation 1995 Stock Incentive Plan and the 1986 Employee Stock Option Plan and in the related Prospectus of our report dated September 21, 1998 with respect to the consolidated financial statements of Total Research Corporation included in the Annual Report (Form 10-K) for the years ended June 30, 1998 and 1997. September 27, 1999 Edison, New Jersey /s/ AMPER, POLITZINER & MATTIA, PC ----------------------------------- AMPER, POLITZINER & MATTIA, PC EX-27 11 FINANCIAL DATA SCHEDULE 10-K 6/30/99
5 (Replace this text with the legend) 0000803058 TOTAL RESEARCH CORPORATION 1 U.S. Dollars YEAR JUN-30-1999 JUL-01-1998 JUN-30-1999 1 5,203,383 0 7,178,199 110,000 0 16,435,114 7,162,881 4,553,729 21,716,729 11,921,255 0 0 0 11,762 9,067,107 21,716,729 41,561,835 41,561,835 20,450,287 38,571,740 0 0 (230,462) 3,220,557 1,244,820 1,975,737 0 0 0 1,975,737 .17 .16
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