Vice President - Marketing Employment Agreement - John F. Phillips

EMPLOYMENT AGREEMENT


AGREEMENT dated as of the 1st day of January, 2001 by and between Netsmart Technologies, Inc., a Delaware corporation with its principal office at 146 Nassau Avenue, Islip, New York 11751 (the "Company"), and John F. Phillips, residing at Five Neustadt Lane, Chappaqua, New York 10514 (the "Executive").


WITNESSETH:


WHEREAS, the Company has engaged Executive as the president of its subsidiary, Creative Socio-Medics Corp. ("CSM"), and as an officer of the Company and desires to continue to obtain the benefits of Executive's knowledge, skill and ability in connection with managing the operations of the Company and to continue to employ Executive on the terms and conditions hereinafter set forth; and


WHEREAS, Executive desires to provide his services to the Company and to accept employment by the Company on the terms and conditions hereinafter set forth;


NOW, THEREFORE, in consideration of the mutual promises set forth in this Agreement, the parties agree as follows:


1. Employment and Duties.
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(a) Subject to the terms and conditions hereinafter set forth, the Company hereby employs the Executive as a senior executive officer. During the Employment Term, as hereinafter defined, the Executive shall report to the Company's chief executive officer. The Executive's initial position shall be as Vice President - Marketing of the Company, and he shall also continue to serve as President of CSM. The Executive shall also perform such other duties and responsibilities as may be determined by the Company's board of directors (the "Board") or chief executive officer as long as such duties and responsibilities are consistent with those of the senior executive officer.


(b) The Executive shall serve as a director of the Company or any of its subsidiaries, if elected, and in such executive capacity or capacities with respect to any affiliate of the Company to which he may be elected or appointed, provided that such duties are consistent with those of a senior


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executive officer of the Company. During the Employment Term, the Executive shall receive no additional compensation for services rendered pursuant to this Paragraph 1(b).


(c) Unless terminated earlier as provided for in Paragraph 1(d) or 5 of this Agreement, this Agreement shall have an initial term (the "Initial Term") commencing as of the date of this Agreement and expiring on December 31, 2002. The Executive shall have the right, on notice given not later than sixty (60) days prior to the end of the Initial Term, to extend the term for a period of one (1) year. The Initial Term and the one-year extension are collectively referred to as the "Employment Term."


(d) Notwithstanding the provisions of Paragraph 1(c) of this Agreement, as long as this Agreement shall not have been terminated pursuant to Paragraph 5(a), (b) or (c) of this Agreement, the Executive, on ninety (90) days written notice to the Board, shall have the right to terminate the Employment Term, in which event the Employment Term shall end on the date set forth in such notice with the same effect as if such date were the last day of the Employment Term set forth in Paragraph 1(c) of this Agreement.


(e) Immediately following the Employment Term, whether the Employment Term shall have expired pursuant to Paragraph 1(c) of this Agreement or terminated by the Executive pursuant to Paragraph 1(d) of this Agreement, but excluding any termination by the Company pursuant to Paragraph 5(a), (b) or (c) of this Agreement, the Executive shall serve as a consultant to the Company during the Consulting Term. The Consulting Term shall mean the five (5) year period immediately following the expiration or termination of the Employment Term. The Employment Term and the Consulting Term are collectively referred to as the Term.


(f) During the Consulting Term the Executive shall serve as a consultant to the Company and shall report to such executive officer as shall be designated by the Company's chief executive officer. The nature of the Executive's services during the Consulting Term shall be as mutually agreed upon by the Company's chief executive officer and the Executive. The Executive shall


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be required to devote such time to his services for the Company as he may determine, it being understood that the services being rendered during the Consulting Term shall not be the Executive's principal activity and that the Executive may engage in such business, charitable and personal activities as he may determine, subject to the provisions of Paragraphs 6, 7 and 8 of this Agreement. In rendering services during the Consulting Term, the Company shall not require the Executive to perform services which would interfere with his other business, charitable and personal activities or which would require him to return from or change his plans for any vacations, and, if he so elects, the Executive may perform such services from his residence.


2. Executive's Performance. Executive hereby accepts the employment
----------------------- contemplated by this Agreement. During the Employment Term, Executive shall devote substantially all of his business time to the performance of his duties under this Agreement, and shall perform such duties diligently, in good faith and in a manner consistent with the best interests of the Company.


3. Compensation and Other Benefits.
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(a) (i) For his services to the Company during the Employment Term, the Company shall pay the Executive an annual salary ("Salary") for the year 2001 at the rate of $148,959.00 to be increased on January 1, 2002 and on each January 1st thereafter by a percentage equal to the greater of five percent (5%) or the cost of living increase. All Salary payments shall be payable in such installments as the Company regularly pays its executive officers, but not less frequently than semi-monthly.


(ii) The cost of living increase shall be computed as follows:


(A) The cost of living index, as hereinafter defined, for each January, commencing January 2002, shall be compared with the cost of living index for January of the previous year. The cost of living increase shall mean the percentage increase in the cost of living index from the previous January to the January as of which the computation is made. Such determination shall be made as soon as possible after release of the cost of living index for which the computation is being made, and the Company shall, on


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the next payroll date, pay to the Executive as additional Salary, any back Salary not paid pending determination of the cost of living increase.


(B) The cost of living index shall mean the "Consumers Price Index for Urban Wage Earners and Clerical Workers (Revised Series) - New York Metropolitan Area," published by the Bureau of Labor Statistics of the United States Department of Labor. If the cost of living index in its form as of the date of this Agreement or the calculation basis thereof shall be revised therefrom or discontinued, the parties shall make an appropriate adjustment in the provisions of this Paragraph 3(a).


(C) As used in this Agreement, the term "Salary" shall mean the salary in effect at the time of the relevant event after giving effect to any adjustments made pursuant to this Paragraph 3(a).


(b) If the Compensation Committee of the Board establishes a bonus pool for the Company's key management employees, which plan may be based on a percentage of the Company's net income or such other formula as the Compensation Committee may determine, the Executive shall participate in the bonus pool. The size of the bonus pool and the extent of Executive's participation in the bonus pool will be determined by the Compensation Committee, whose determination shall be final, binding and conclusive on the Company and Executive. If for any year no bonus pool is established, the Executive shall be eligible for a discretionary bonus by the Compensation Committee or the Board. Any bonus payments made to the Executive shall hereinafter be referred to as a "Bonus."


(c) During the Consulting Term, the Executive shall receive compensation at the annual rate of $75,000, payable in regular monthly installments payable the first day of each month. In addition, if the Executive is elected as a director of the Company during the Consulting Term, he shall be entitled to such compensation and other benefits as are provided to other independent directors.


(d) In addition to Salary and Bonus, the Executive shall receive the following benefits during the Term:


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(i) Major medical health insurance for the Executive and members of his immediate family.


(ii) Accident and life insurance and officer's life insurance to the extent such benefits are provided to the Company's executive officers and long-time disability insurance which is presently in effect for the Executive; provided that during the Consulting Term such insurance shall only be provided to Executive and members of his immediate family to the extent permitted by the Company's insurers.


(iii) Long-term medical care insurance to the extent that the Company is able, by using reasonable efforts, to obtain such coverage for an annual premium which does not exceed $3,000. To the extent that the annual premium for such coverage exceeds $3,000, if the Executive desires such overage, he shall be responsible for the additional premiums.


(iv) An automobile allowance of $1,000 per month payable monthly.


(v) Vacation in accordance with Company policy.


(e) Subsequent to the Term, and for the balance of the Executive's life, the Company will obtain major medical health insurance for the Executive and his spouse which, to the extent practical, is comparable with the major medical health insurance provided from time to time by the Company to its employees; provided, that to the extent that such insurance costs the Company more than $400 per month, any excess shall be paid by the Executive. In the event that the Executive is or can be covered by major medical insurance by another company during the Consulting Term or thereafter, the Company shall not be required to provide such benefits to the Executive.


(f) In the event of a termination of Executive's employment as a result of his death or Disability, as hereinafter defined, the Company shall continue to pay to Executive or his beneficiary, his Salary at the annual rate in effect at the date of death or termination resulting from a Disability, until the earlier of (i) six (6) months from the date of death or such termination or (ii) the expiration of the Term.


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(g) Any payments ("disability insurance payments") received by Executive pursuant to a disability policy obtained through the Company (whether paid for by the Company or Executive) shall be applied on a dollar-for-dollar basis to reduce the Salary or disability payments payable by the Company pursuant to this Agreement during the period when such disability insurance payments are being made.


(h) As used in this Agreement, the term "Cash Compensation" shall include Salary, Bonus, automobile expenses and vacation pay. One month's Cash Compensation shall mean one twelfth (1/12) of the sum of (i) the annual Salary, (ii) the Bonus for previous year, (iii) the annual automobile allowance plus (iv) the annual vacation pay. During the Consulting Term, references to "Salary" shall mean the annual compensation payable pursuant to Paragraph 3(c) of this Agreement.


(i) In the event that, during the Fee Payment Period, the Company consummates a Covered Transaction, the Company shall (x) issue to the Executive the Warrants in respect of the Equity Consideration paid by Company in the Covered Transaction and (y) pay to the Executive the Cash Fee with respect to Other Consideration in the Covered Transaction which is either paid by or received by the Company, its stockholders or any other party to the Covered Transaction or the stockholders of any other party to the Covered Transaction. As used in this Paragraph 3(i), the following terms shall have the meanings set forth below:


(i) The Fee Payment Period shall mean the period commencing on the date of this Agreement and ending on the first to occur of (A) December 31, 2003, (B) the date on which the Executive resigns from the Company other than (x) pursuant to Paragraph l(d) or 5(e) of this Agreement or (y) upon expiration of the Term, or (C) the date of termination of employment if this Agreement is terminated pursuant to Paragraph 5(c).


(ii) A Covered Transaction shall mean a Transaction (other than an Excluded Transaction) with another party who is introduced to the Company directly or indirectly by the Executive during the Fee Payment Period if


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the Transaction is closed during the Fee Payment Period. If the Transaction involves more than one closing or the issuance of securities or other consideration on more than one occasion, the Transaction shall be a Covered Transaction if the initial closing or the initial payment or issuance of consideration occurs during the Fee Payment Period.


(iii) A Transaction shall mean any of the following:


(A) Any merger, consolidation, sale by the Company of all or substantially all of its business or assets or the sale of the stock, business or assets of any subsidiary; regardless of whether the consideration is paid to the Company or its stockholders.


(B) The acquisition by the Company of any the stock or assets of any other corporation, partnership, limited liability company, regardless of whether the consideration is paid to the other entity or its stockholders, partners, members or other holders of beneficial interests therein, other than the purchase of capital assets or other assets by the Company in the normal course of business.


(C) Any joint venture or similar transaction pursuant to which the Company and one or more other parties contribute funds or assets, including intellectual property rights, to a third party.


(D) Any licensing, distribution or similar transaction in which the Company pays or receives consideration for the grant or receipt of licensing, distribution, marketing or similar rights.


(E) Any other transaction which results in a business combination.


(iv) An Excluded Transaction shall mean a Transaction with respect to which either (x) the Executive introduced the Company to an investment banker or finder or other third party who receives a commission, fee or other compensation with respect to the Transaction or (y) a Transaction which is brought to the attention of the Executive in the Executive's position of chief executive officer or a director of or a consultant to the Company. With respect to Excluded Transaction, the Board or the Compensation Committee shall


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have the right to issue to the Executive Warrants or pay a Cash Fee which is less than the amount provided for in this Paragraph 3(i).


(v) The Equity Consideration shall mean the shares of the Company's common stock or Convertible Securities issued by the Company in a Covered Transaction.
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