EXHIBIT 10.39

 

March 18, 2003

 

Elizabeth A. Fetter

2888 Sacramento Street

San Francisco, California 94115

 

Dear Liz,

 

It is a pleasure for me to provide you with this letter agreement setting forth
the terms of your continuing employment with QRS Corporation (“QRS” or the
“Company”). This letter supersedes and replaces all prior agreements between you
and QRS regarding the terms of your continuing employment with the Company. This
letter does not affect the terms of the written Indemnification Agreement
between you and QRS or the stock options previously granted to you.

 

POSITION

 

President, Chief Executive Officer and Member of the Board of Directors

 

REPORTING TO

 

The Board of Directors

 

LOCATION

 

Richmond, California

 

ANNUAL COMPENSATION

 

Your annual compensation, incentive compensation and performance evaluation will
be administered by the Compensation Committee and reviewed by the Board of
Directors. Effective as of January 1, 2003, your annual compensation shall be as
follows:

 

  1.   Your annual base compensation will be $450,000 or $37,500 per month. QRS
employees are paid semi-monthly (i.e., on the fifteenth and last working day of
each month).

 

  2.   In addition, your annual target incentive compensation shall be 75 % of
your base compensation or $337,500. The actual incentive compensation that you
receive shall be based upon the performance of the Company as a whole and your
individual performance during the calendar year as described below under annual
incentive compensation components. Your total annual target compensation is the
sum of your base compensation and your target incentive compensation. Your
compensation, including incentives, will be reviewed in the fourth quarter of
2003 and each year thereafter in conjunction with the Compensation Committee’s
evaluation of your performance. If there is a material change in the nature of
your responsibilities, your compensation will be reviewed at that time.

 

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REIMBURSEMENT OF REASONABLE BUSINESS EXPENSES

 

QRS will reimburse you for all business expenses reasonably incurred by you in
the performance of your duties hereunder. You will adhere to QRS’ travel and
entertainment polices and procedures, submit expense reports with appropriate
vouchers, receipts, and other substantiation of such expenses within thirty (30)
days after they are incurred. You should expect prompt reimbursement.

 

ANNUAL INCENTIVE COMPENSATION COMPONENTS

 

  1.   General Corporate Financial Objectives—Eighty percent (80%) of your
incentive compensation shall be based upon the extent to which QRS achieves its
overall financial objectives as defined by the applicable annual operating plan
approved by the Board of Directors. Should the Company not achieve the financial
objectives set forth in the operating plan, your incentive compensation will be
subjectively determined based upon your performance against your objectives and
the Company’s determination as to available incentive compensation funding. The
timing of any payouts for the corporate component of your incentive compensation
shall be consistent with the incentive compensation program adopted by the
Compensation Committee for the Executive Leadership Team as a whole.

 

  2.   Personal Strategies and Objectives—Twenty percent (20%) of your incentive
compensation is subject to fulfillment of your specific objectives as CEO as
identified from time to time by the Compensation Committee. Such factors may
include the overall performance of you and your direct reporting organization in
meeting Company and individual responsibilities, developing and executing
appropriate Company strategies, achieving a high degree of customer service and
loyalty, ensuring employee satisfaction and retention, and supporting overall
Company objectives.

 

LONG TERM INCENTIVES

 

It will be recommended that you receive a grant of 25,000 restricted share
rights for the Company’s common stock under the Company’s 1993 Stock Option Plan
(the “Plan”), a copy of which is available for your review. This recommendation
will be presented to the Compensation Committee of the Board of Directors at its
first meeting subsequent to your acceptance of this letter. The shares shall
vest and become payable on January 1, 2006 provided that you remain employed by
the Company at that time.

 

In addition, the Compensation Committee has approved a stock option grant of
60,000 shares in accordance with the Plan. These shares shall be subject to
performance vesting in accordance with the terms approved by the Compensation
Committee. These terms shall be reflected in the option agreement that will be
provided to you. The Compensation Committee also has approved an additional
stock option grant of 30,000 shares that shall become fully vested upon the
earlier of: (1) when the Company establishes and maintains a stock price of more
than $12 for 15 consecutive trading days or (2) the sixth anniversary of the
grant date. At the sole discretion of the Compensation Committee, you will also
have the opportunity to be considered for an additional stock option grant in
the amount of 60,000 shares during the third quarter of 2003. If your employment
terminates for any reason (whether or not in connection with a change in control
of the Company), the options that have

 

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vested as of your termination date shall remain exercisable for twelve (12)
months after the termination of your service with the Company or such longer
period as the Plan or Plan Administrator may specify, provided that no option
may be exercised after the specified expiration date of the option term.

 

BENEFITS

 

In addition to the benefits available to all QRS associates as defined in the
Employee Handbook; as the Chief Executive Officer you are provided with
additional benefits as follows:

 

Life Insurance—The Company shall purchase and maintain in effect term life
insurance sufficient to provide a benefit equal to two times your annual base
salary.

 

Disability Insurance—The Company shall purchase and maintain in effect
disability insurance sufficient to provide you with an income equal to 66% of
your base compensation while you are disabled and unable to perform the duties
of your current employment with QRS. You will have the option of continuing this
additional disability insurance coverage at your own expense in the event of the
termination of your employment. This additional insurance benefit is taxable and
will be reported for tax purposes as additional income to you. The Company shall
adjust your base compensation to include an amount sufficient to compensate you
for the federal and state taxes for which you will be responsible on account of
the additional income reported on account of this disability insurance benefit.

 

Liability Insurance—The Company shall purchase and maintain in effect sufficient
Director’s and Officer’s liability insurance to provide you with reasonable
coverage, including the provision of legal counsel and/or reimbursement of
appropriate legal fees you pay personally, against all liability claims and
judgments arising from your legal exercise of your duties as a Director or
Officer of QRS, including any actions filed after you cease your duties as a
Director or Officer or in the event of the termination of your employment. The
Company shall also provide in its bylaws, a full indemnification for you as a
QRS officer, to the maximum extent permissible under Delaware law. The Company
shall retain the sole discretion to determine the amount and form of Director’s
and Officer’s liability insurance that is sufficient to provide you with
reasonable coverage.

 

PTO—You will be entitled to 10 holidays per calendar year and 25 PTO (Personal
Time Off) days per year. A prorated portion of PTO is accrued each pay period.
PTO may be used for vacation, illness, or other purposes at your discretion. A
maximum of 50 days of unused PTO may be carried over from year to year.

 

TERMINATION AND SEVERANCE

 

This position is for no set period or term and just as you have the right to
resign your position at any time, for any reason, QRS reserves the right to
terminate your employment at any time, with or without good cause, with or
without advance notice.

 

If the Company terminates your employment without cause under circumstances not
entitling you to severance and accelerated vesting under “Change of Control”
below, you will become entitled to severance pay equal in the aggregate to your
total annual targeted compensation at the level in effect at the time of your
termination. Such severance pay will be made in four equal installments with the

 

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first payment occurring within ten days following the termination of your
employment and the remaining three payments to be made three, six and nine
months following the date that the Company terminates your employment. In
addition, you shall be entitled to receive at the time of your termination the
pro-rata amount (based upon the length of your employment during the fiscal
year) of your annual target incentive compensation calculated at 100% of your
target incentive for the period of your service during the fiscal year. All such
payments will be subject to applicable deductions and withholding taxes. The
Company will also make COBRA payments on your behalf for 12 months following
your termination. You shall receive no severance benefits under this paragraph
if the Company terminates your employment for cause or you voluntarily resign
your position. As a condition of receiving the severance benefits set forth in
this paragraph, the Company may require you to sign a written release in a form
acceptable to the Company of any known and unknown claims by you against the
Company arising out of your employment, excluding any claims for indemnification
against claims made by third parties, in which case no payment will be made to
you under this paragraph until you have executed such release and any time
period during which you may revoke such release has lapsed.

 

For purposes of this agreement, termination “for cause” shall mean the Company’s
termination of your employment for any of the following reasons: (1) your
failure to perform in a diligent or competent fashion consistent with your
position as CEO, President or member of the Board of Directors the material
duties of your job after a written demand for such performance is delivered to
you by the Company that identifies the manner in which you have not
substantially performed those duties and that provides a reasonable period for
you to cure those deficiencies; (2) a material breach by you of your obligations
under any confidential or proprietary information agreements with the Company or
of any of your fiduciary or legal obligations as a director or officer of the
Company, (3) your failure to follow in a material respect Company policies or
directives applicable to your position, (4) any willful misconduct on your part
or (5) any unauthorized activity on your part that creates a material conflict
of interest between you and the Company after you have been provided a
reasonable opportunity to refrain from that activity.

 

CHANGE OF CONTROL BENEFITS

 

  1.   Should there occur a Corporate Transaction or a Change in Control (as
those terms are defined in the Company’s 1993 Stock Option/Stock Issuance Plan)
and either (i) your employment is subsequently involuntarily terminated other
than for “Misconduct” (as defined below) within twelve (12) months or (ii) you
subsequently resign within twelve (12) months by reason of a material reduction
in your base compensation, your annual total target compensation, or your
benefits (for this purpose, 15% will be deemed a material reduction of base
compensation, total target compensation and benefits), a material reduction in
your duties or responsibilities, or a change in your principal place of
employment that increases your commute by more than 25 miles, then you will be
entitled to severance pay equal in the aggregate to two times your targeted
total annual compensation at the level in effect at the time of your termination
or resignation or (if greater) at the level in effect immediately prior to the
Corporate Transaction or Change in Control. The payments set forth in this
paragraph shall be made in four equal installments with the first payment
occurring within ten days following the termination of your employment and the
remaining three payments to be made three, six and nine months following the
date that the Company terminates your employment.

 

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         In addition, you shall be entitled to receive at the time of your
termination the pro-rata amount (based upon the length of your employment during
the fiscal year) of your annual incentive compensation calculated at 100% of
your target incentive compensation for the period of your service during the
fiscal year. The Company shall also make COBRA payments on your behalf for a
period of 18 months from the date you resign or are terminated.

 

  2.   Except to the extent otherwise provided in paragraph 3 below, should a
Corporate Transaction or Change in Control occur during your period of
employment with the Company, then (i) all of your outstanding options will,
immediately prior to the specified effective date for the Corporate Transaction
or Change in Control, become exercisable for all the shares at the time subject
to those options, whether or not those options are to be assumed or replaced
with a cash incentive program, and those accelerated options may be exercised
for all or any portion of the option shares as fully vested shares; and (ii) all
of your unvested restricted share rights for QRS stock will immediately vest at
the time of such Corporate Transaction or Change in Control.

 

  3.   However, the following limitation will be in effect for (i) all of your
unvested restricted share rights for QRS stock and (ii) any unvested options
that are to be assumed by the successor entity (or parent company) or otherwise
continued in effect or which are to be replaced with a cash incentive program
that preserves the spread existing at the time of such Corporate Transaction or
Change in Control on any shares for which your options are not otherwise at that
time exercisable (the excess of the fair market value of those shares over the
exercise price): The accelerated vesting of those unvested restricted share
rights and options will be limited to the extent and only to the extent
necessary to assure that the parachute payment attributable to the accelerated
vesting of those shares and options, when aggregated with any other compensation
that constitutes a parachute payment, would not constitute an excess parachute
payment under Internal Revenue Code Section 280G(b).

 

         To the extent one of more of your options or unvested restricted share
rights do not vest on an accelerated basis upon a Corporate Transaction or
Change in Control by reason of such limitation, those options will continue to
become exercisable in accordance with the exercise schedule indicated in the
respective grant notices for those options, and those unvested restricted share
rights will continue to vest in accordance with the vesting schedule set forth
in the applicable Restricted Share Right Agreements. However, following a
Corporate Transaction or Change in Control should either (i) your employment be
involuntarily terminated other than for Misconduct or (ii) you resign by reason
of a material reduction in your base compensation, your annual total target
compensation, or your benefits (for this purpose, 15% will be deemed a material
reduction), a material reduction in your duties or responsibilities, or a change
in your principal place of employment that increases your commute by more than
25 miles, at the time of such Corporate Transaction or Change in Control or
within twenty four (24) months thereafter, then each of your outstanding
options, to the extent not otherwise fully exercisable at that time, shall
automatically accelerate and become immediately exercisable for all the option
shares and may be exercised for any or all of those shares as fully vested
shares at any time prior to the expiration or sooner termination of the option
term. In addition, all of your unvested restricted share rights will immediately
vest upon such a termination of employment or your resignation.

 

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  4.   If acceleration of vesting of your options and restricted share rights
upon such a termination of your employment, alone or when aggregated with other
compensation payable to you, constitute an “excess parachute payment” within the
meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “
Code”) and would subject you to an excise tax under Section 4999 of the Code (or
successor or similar provisions), the Company shall pay you an additional
amount, which, when reduced by all taxes thereon (including any additional tax
owed under Section 4999 of the Code (or successor or similar provision))
provides you with sufficient cash to pay the amount of excise tax owed by you on
all amounts payable hereunder (computed disregarding than such additional
payment). If the Internal Revenue Service asserts such an excise tax and the
Company does not believe such excise tax is due, you agree to assist the Company
in contesting such assertion; provided the Company advances you funds to pay the
amount of excise tax when asserted by the IRS and indemnifies you for any
penalties or interest resulting from such contest.

 

  5.   Any of your options or restricted share rights that are assumed by the
successor entity (or parent company) in the Corporate Transaction or are
otherwise continued in effect following the Change in Control transaction shall
be appropriately adjusted to apply and pertain to the number and class of
securities that would have been issued to you in the consummation of such
Corporate Transaction or Change in Control had the options been exercised or the
restricted share rights settled immediately prior to such event. Appropriate
adjustments shall also be made to the option prices payable per share under the
options, provided the aggregate option prices payable shall remain the same.

 

  6.   For purposes of this Agreement, Misconduct means (i) your willful
engagement in gross misconduct injurious to the Company or your commission of
any act of gross negligence or malfeasance with respect to your duties incident
to your employment; (ii) your willful failure to attend to the material duties
assigned to you by the Board of Directors; (iii) your commission of any act of
fraud, embezzlement or dishonesty against the Company or any affiliate thereof,
or (iv) your conviction for any criminal offense involving fraud or dishonesty
or any similar conduct that is injurious to the reputation of the Company. For
purposes of this Agreement, a Corporate Transaction shall not include any
merger, whether forward or reverse, if, immediately after the merger, securities
possessing 50% or more of the total combined voting power of the surviving
entity or parent thereof are beneficially owned, directly or indirectly, by
those persons who were the Company’s stockholders immediately before the merger
in substantially the same proportion as their stockholdings immediately before
the merger.

 

EMPLOYMENT AT WILL

 

Your employment in the position of President and Chief Executive Officer will
remain an Employment At Will. This means that your position is for no set period
or term and just as you have the right to resign your position at any time, for
any reason, QRS reserves the right to terminate your employment at any time,
with or without cause and with or without advance notice. If any contrary
representation has been made to you, this letter supersedes it. Neither
subsequent agreement contrary to this nor any amendment to this term can be made
unless it is in writing and signed by both of us and copied to the Chairman of
the Compensation Committee.

 

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I trust the above meets your approval. However, should you have any questions or
concerns, you should not hesitate to contact either Phil Schlein or myself. For
our part we look forward, with tremendous enthusiasm, to your continuing
employment with QRS and our ongoing relationship.

 

Sincerely,

 

/s/    GARTH SALONER

 

Garth Saloner, Chairman of the Board

 

cc: Philip Schlein—Chairman of the Compensation Committee

 

I accept this ongoing position with QRS Corporation on the terms and conditions
above and understand and agree that it supersedes any other agreement, written
or oral, I may have with QRS with respect to employment or compensation by QRS,
including salary, incentive, options, termination and severance.

 

             

/s/    ELIZABETH A. FETTER

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March 18, 2003

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Elizabeth A. Fetter

         

Date