Exhibit 10.1

 

Notice:  You should consult with an attorney before signing this Agreement.  You
have 21 days from the date that you receive this Agreement to consider whether
to sign it.  If you sign this Agreement, you will then have 7 days following the
date that you sign this Agreement to revoke it, and this Agreement shall not
become effective or enforceable until the expiration of the 7-day revocation
period.

 

SEPARATION AGREEMENT

 

This Separation Agreement (“Agreement”) is between Innovative Solutions &
Support, Inc. (the “Company”) and James Reilly (the “Employee”).  Intending to
be legally bound, the Company and Employee agree as follows:

 

SECTION 1.        Termination; Impact on Current Benefits

 

Employee’s employment with the Company will terminate on February 29, 2008
(“Separation Date”), and the Company’s records will reflect that Employee’s
separation was based on his retirement from the Company.  Except as provided in
this Agreement, all wages, benefits, and other compensation will cease as of the
Separation Date.  Employee’s final paycheck will be issued on the next regularly
scheduled payday following the Separation Date and mailed to Employee.

 

SECTION 2.          Severance Pay and Other Benefits

 

a.             Severance Pay

 

Subject to the conditions set forth in Section 4 of this Agreement, the Company
shall deliver the amount of $200,000.00 (the “Payment”) as described as follows,
within 14 days following the Company’s receipt of a signed original of this
Agreement.

 

(i)            The Company will deliver a check made payable to “James Reilly”
in the amount of $50,000.00, less all applicable withholdings and deductions to
the law office of Raynes, McCarty, attorney for Employee.  This sum is being
allocated as wages, and the Company will report the payment on a Form W-2 at the
appropriate time.

 

(ii)           The Company will deliver a check made payable to “James Reilly”
in the amount of $100,000.00, without any withholdings or deductions to the law
office of Raynes, McCarty.  This sum is being allocated to Employee’s claim for
physical injury and emotional distress, and the Company will report the payment
on a Form 1099-Misc at the appropriate time.

 

(iii)          The Company will deliver a check made payable to “Raynes,
McCarty” in the amount of $50,000.00, without any withholdings or deductions to
the law office of Raynes, McCarty.  This sum is being allocated as attorney’s
fees, and the Company will report the payment on a Form 1099-Misc at the
appropriate time.

 

Employee acknowledges that the Payment, as well as the additional consideration
described below in the remainder of Section 2, constitutes a complete and final
settlement of all of Employee’s claims, and that this settlement includes
without limitation any and all claims for costs or attorneys’ fees.  Employee
agrees to pay all federal, state and local taxes for which he may be liable
based on his receipt of the Payment.  Employee shall indemnify and hold the
Company harmless (including reasonable attorney’s fees

 

--------------------------------------------------------------------------------

 

incurred) from any liability in connection with the above allocation and/or his
failure to pay any required taxes.

 

b.             Additional Payment to Raynes, McCarty

 

The Company will pay the amount of $45,000.00 without any withholdings or
deductions to “Raynes, McCarty.”  This payment will be made together with the
payment described in Section 2(a)(iii), and will be delivered to the law office
of Raynes, McCarty.  This sum is being allocated as attorney’s fees, and the
Company will report this payment on a Form 1099-Misc at the appropriate time.

 

c.             Stock Options

 

Employee currently holds vested and unvested stock options granted pursuant to
the Company’s 1998 Stock Option Plan, as amended (“Plan”), by the committee
appointed by the Company to administer the Plan (“Committee”).  Pursuant to the
Committee’s authority to amend any option document under Section 8(j) of the
Plan, the Committee hereby amends the relevant option documents to accelerate
the vesting of Employee’s unvested options, such that Employee’s unvested
options shall vest in full on the day following the expiration of
above-referenced 7-day revocation period.  In addition, pursuant to
Section 8(e)(ii) of the Plan, the Committee hereby extends the period during
which Employee may exercise his vested options (including options previously
vested and options vested by operation of this Agreement) to February 28, 2010,
or the expiration of the option term set forth in the applicable option
agreement pursuant to Section 8(e)(i) of the Plan (e.g., 10 years from the date
of grant of the applicable option), whichever is earlier.

 

d.             Medical Benefits Continuation

 

Should Employee elect medical benefits continuation under COBRA, the Company
will continue to pay its regular employer contributions toward Employee’s
medical insurance through August 31, 2009.  Employee will be responsible for
paying his regular share of the medical care premium.  All COBRA benefits are
available only during the time that Employee is not eligible for comparable
health coverage through another employer.  Should Employee obtain such coverage,
it is Employee’s obligation to immediately notify the Company.

 

SECTION 3.          Consulting Services

 

For a 12-month period beginning March 1, 2008, Employee will serve as a
consultant to the Company.  Employee agrees that he shall make and hold himself
available to the Company, and the Company shall engage the consulting services
of Employee upon reasonable notice to Employee and during normal business hours,
to perform such duties as are assigned to him by the Company.

 

a.             In consideration of Employee’s consulting services, the Company
shall pay him a fee of $50,000.00, to be paid in 12 equal monthly payments
beginning March 31, 2008.

 

b.             Upon presentation by Employee of an invoice accompanied by
supporting documents reasonably satisfactory to the Company, the Company shall
reimburse him for reasonable expenses incurred by him and approved in advance by
the Company in connection with Employee’s performance of consulting services.

 

2

--------------------------------------------------------------------------------

 

c.             Employee hereby agrees that in performing consulting services for
the Company, he shall act in the capacity of an independent contractor with
respect to the Company and not as an employee or agent of the Company.  Employee
shall not represent to any person or entity that he is an employee or agent of
the Company and shall have no authority to bind the Company in any respect. 
Employee shall pay all federal, state and local taxes that shall become due on
any money paid to Employee by the Company for consulting services under the
Agreement.  Employee hereby acknowledges and agrees that, except as set forth in
Section 2(d) hereof, he is not entitled or eligible to participate in or receive
coverage under any of the Company’s employee benefit plans, fringe benefit
programs, group insurance arrangements or similar programs.  As an independent
contractor, Employee shall accept any directions issued by the Company
pertaining to the goals to be attained and the results to be achieved, but shall
be solely responsible for the manner and hours in which the services under this
Agreement are performed.

 

d.             This Section 3 shall terminate at the end of the 12-month
consulting term.  If Employee dies or becomes disabled (as determined by the
Company in good faith) during the consulting term, Section 3 of this Agreement
shall automatically be terminated, and the Company’s sole obligation under this
Agreement shall be to pay Employee (or his beneficiaries) for any services
previously provided.

 

e.             The services to be provided by Employee under Section 3 of this
Agreement shall be provided personally by Employee.  Employee may not assign any
rights or performance obligations under this Agreement to any other party
without the prior express written consent of the Company.  Any attempt to make
such an assignment without the prior express written consent of the Company
shall be void and of no effect. of this Agreement

 

SECTION 4.          Conditions on Receipt of Benefits

 

Employee will not receive (or, as the case may be, continue to receive) the
benefits described in Section 2 or the consulting arrangement described in
Section 3 above unless Employee signs, and does not revoke, this Agreement.

 

SECTION 5.          General Release of Legal Claims and Promise Not to Sue

 

a.             Release of All Legal Claims

 

In exchange for the benefits described in Section 2 of this Agreement, Employee
hereby releases (on behalf of Employee and Employee’s heirs, beneficiaries,
estate, legal representatives, and otherwise) the Company and the other
“Released Parties” (as defined below) from all legal claims and causes of action
that Employee has, may have, or may claim to have against the Company or any of
the other Released Parties (whether known or unknown; accrued or unaccrued;
federal, state, local, or otherwise) arising at any time up to and including the
date that Employee signs this Agreement (collectively “Claims”).  This general
release covers and includes, and therefore releases, all Claims arising from or
relating to Employee’s employment with the Company, the termination of
Employee’s employment with the Company, and any act or omission provided for or
authorized by this Agreement.  Among the specific Claims that Employee is
releasing by signing this Agreement are (without limitation) the following: all
Claims arising under

 

(i)            any law prohibiting discrimination on the basis of any protected
characteristic (such as age, race, sex, national origin, religion, and
disability status), including

 

3

--------------------------------------------------------------------------------

 

(but not limited to) all claims arising under the Age Discrimination in
Employment Act (“ADEA”), Title VII of the Civil Rights Act of 1964, the
Americans with Disabilities Act, and any similar state and local laws, including
(but not limited to) the Pennsylvania Human Relations Act;

 

(ii)           any law governing the payment of wages or the provision of
employee benefits, including (but not limited to) Employee Retirement Income
Security Act;

 

(iii)          the common law of any jurisdiction, including (but not limited
to) all Claims for breach of contract, wrongful termination or discharge,
infliction of emotional distress, fraud, negligence, and defamation; and

 

(iv)          any other law (or cause of action), whether federal, state, or
local, governing the employment relationship, including (without limitation) the
Family and Medical Leave Act.

 

b.             Definition of Released Parties

 

“Released Parties” means:  (i) the Company; (ii) the Company’s past, present,
and future parents, subsidiaries, and affiliates; (iii) each of the foregoing
entities’/persons’ successors and assigns; (iv) each of the foregoing
entities’/persons’ owners, shareholders, officers, directors, managers,
employees, agents, insurers, representatives, and benefit plans (including such
plan’s fiduciaries, administrators, insurers, trustees, and the like); and
(v) all persons/entities claimed to be jointly or severally liable with any of
the foregoing entities/persons or through/by which any such entities/persons
have acted with respect to Employee.

 

c.             No Pending Charges/Complaints; Promise Not to Sue

 

Employee represents and warrants that he has not filed any complaints or charges
against any of the Released Parties with any state or federal court or agency. 
Employee promises not to file, cause to be filed, join, or accept any relief in,
any lawsuit against the Company or any of the other Released Parties pleading,
raising, or asserting any claims released by this Agreement.  If Employee
breaches this promise, Employee will reimburse the Company (and the other
applicable Released Parties) for all attorneys’ fees and costs (or the
applicable portion thereof) incurred in defending against any such released
claims.  While this Agreement will serve to release any ADEA claims referenced
in Section 4(a) above, the attorneys’ fees/cost shifting provision set forth in
this Section 4(c) will not apply to any claims challenging the validity of this
Agreement under the ADEA.  Employee further agrees not to seek re-employment
from the Company and he releases any Claims based on the denial of
re-employment.

 

d.             Adequacy of Benefits

 

Employee agrees that (i) the benefits described in Section 2 of this Agreement
are adequate consideration for Employee’s promises in this Agreement, and
(ii) the benefits described in Section 2 of this Agreement are benefits to which
Employee would not be entitled if Employee did not sign this Agreement.

 

4

--------------------------------------------------------------------------------

 

SECTION 6.           Confidentiality

 

a.             Employee will keep the terms of this Agreement strictly
confidential.  Employee will not discuss with, or disclose to, any person or
entity (including any current or former Company employee) the terms of this
Agreement, unless required by law, as discussed more fully in Section 6(b). 
However, Employee may discuss the terms of this Agreement with Employee’s
spouse, and for purposes of obtaining professional advice only, Employee’s
lawyer or tax advisor, if Employee’s spouse, lawyer or tax advisor first agrees
to keep the terms confidential as a condition of receipt.

 

b.             Employee may disclose the terms of this Agreement under valid
order of any court or administrative agency of competent jurisdiction, provided,
however, that:

 

(i)            Employee shall not seek such an order or encourage or aid any
other person or entity in seeking such an order;

 

(ii)           in the event Employee receives a request, inquiry, subpoena or
order seeking such disclosure, within three business days of such receipt (or
within such shorter time period as necessary to allow adequate time to protect
the confidentiality agreed to in this Agreement) Employee shall notify the
Company by written notice delivered by hand or by telecopy and shall deliver a
copy of such request, inquiry, subpoena or order to the Company; and

 

(iii)          if the Company so requests, Employee shall cooperate, at the
Company’s expense, to oppose any effort to require disclosure of the terms of
this Agreement.

 

SECTION 7.           Non-Disparagement

 

Employee agrees not to engage in any conduct, or make any statements or
representations, that disparage, demean or impugn the Company or any of its
officers, directors, or management employees.  The Company agrees not to engage
in any conduct, or make any statements or representations, that disparage,
demean, or impugn Employee.

 

SECTION 8.           Confidential Information

 

a.             Employee agrees not to, at any time, use or disclose (on
Employee’s, or anyone else’s, behalf) Company’s “Confidential Information” (as
defined below), through any medium of communication, to any person or entity. 
As used herein, Confidential Information shall mean all confidential,
proprietary, or non-public information (in whatever form) in any way relating to
the business of Company, including, but not limited to business techniques,
know-how, designs, methods, processes, Intellectual Property (as defined below),
strategies, and the like relating to or concerning Company’s financial matters,
marketing, investments, budgets, business plans, marketing plans, development
activities, personnel matters, contracts/agreements, prospective
contracts/agreements, business contacts, clients/customers, prospective
clients/customers, products, and the like, irrespective of whether any of the
foregoing items constitutes a trade secret under any applicable law.  This
Section 8 shall apply to Confidential Information obtained, learned, or
discovered by Employee both during the time period of his employment and the
time period during which he provides consulting services to the Company.

 

5

--------------------------------------------------------------------------------

 

b.             Employee represents that Employee has not retained any
Confidential Information in any form.

 

SECTION 9.          No Admission of Liability

 

Employee and the Company agree that this Agreement is made in compromise of
disputed claims and to avoid the expense and inconvenience of litigation and is
not, and is not to be construed as, a finding or admission of fault or
wrongdoing by either party.

 

SECTION 10.        Miscellaneous

 

a.             Severability

 

If any provision of this Agreement is found to be invalid, it will be severed,
and it will not affect the validity of any other provision of this Agreement.

 

b.             Enforcement; Assignability

 

Each of the Released Parties may enforce this Agreement.  The Company may assign
freely its rights under this Agreement.

 

c.             Amendment

 

No amendment, modification or waiver of any provision of this Agreement shall be
valid, binding or enforceable, unless it is in writing and signed by the party
against whom it is to be charged.  No waiver by either party hereto of any
breach by the other party of any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of a similar or
dissimilar condition or provision at the same or any prior or subsequent time.

 

d.             Complete Agreement

 

This is the complete agreement between Employee and the Company with respect to
its subject matter.  All prior agreements between the Company and Employee are
terminated, without regard to their subject matter.

 

e.             Choice of Law

 

This Agreement will be governed by the substantive laws of the Commonwealth of
Pennsylvania, without regard to any contrary conflict of laws principles, unless
federal law applies.

 

f.              No Additional Compensation

 

Employee agrees that Employee is not entitled to receive (and releases under
Section 5 of this Agreement any Claims relating to) any wages, payments,
benefits, or other compensation from the Company other than:  (i) the benefits
described in Section 2 of this Agreement; (ii) the consulting arrangement
described in Section 3; (iii) Employee’s salary earned through the Separation
Date; and (iv) any 401(k) benefits.

 

Employee acknowledges that he has carefully read and understands this
Agreement.  This Agreement releases all legal claims that Employee may have
against the Company (and the other

 

6

--------------------------------------------------------------------------------

 

Released Parties) as more fully described above.  Employee agrees that he signs
this Agreement freely, knowingly, and voluntarily.  Employee is not relying upon
any promises not set forth above in entering into this Agreement.

 

Intending to be legally bound, Employee signs below.

 

/s/ James Reilly

 

March 25,2008

James Reilly

 

DATE

 

 

 

 

 

 

Innovative Solutions & Support, Inc.

 

 

 

 

 

/s/ Raymond J. Wilson

 

April 2, 2008

By: Raymond J. Wilson

 

DATE

 

7

--------------------------------------------------------------------------------