EXHIBIT 10.1
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of November 15, 1996, by and between
Wilshire Financial Services Group Inc. (the "Company"), with its principal
office at 0000 XX Xxxxxxx Xxxxxx, Xxxxxxxx, Xxxxxx 00000 and Xxxxxx X.
Xxxxxxxxxx, residing at 0000 XX Xxxxxxxxx Xxxxx, Xxxxxxxx, Xxxxxx 00000 (the
"Executive").
W I T N E S S E T H:
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WHEREAS, Executive is currently employed as the Chief Executive Officer of
the Company and is also a director of the Company; and
WHEREAS, the Company and Executive desire to enter into this agreement (the
"Agreement") to set forth terms of Executive's employment by the Company.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the parties
agree as follows:
1. Term of Employment. Except for earlier termination as provided in
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Section 7 hereof, Executive's employment under this Agreement shall be for a
three (3) year term (the "Employment Term") commencing on the closing date for
the Company's initial public offering (the "Commencement Date"). Subject to
Section 7 hereof, the Employment Term shall be automatically extended for
additional terms of successive two (2) year periods unless the Company or
Executive gives written notice of the termination of Executive's employment
hereunder at least ninety (90) days prior to the expiration of the then current
Employment Term.
2. Positions. (a) Executive shall serve as Chief Executive Officer of
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the Company. It is the intention of the parties that during the Employment Term,
Executive shall also serve on the Board of Directors of the Company (the
"Board") as Chairman without additional compensation. During the term of this
Agreement, the Company shall recommend the Executive for election as a director.
(b) Executive shall report directly to the Board or other managing body of
the Company and shall have such duties and authority, consistent with his
position as Chief Executive Officer of the Company, as shall be determined from
time to time by the Board, provided that Executive shall have authority
comparable to that of chief executive officers of United States public companies
that are similar in size and business to the Company.
(c) During the Employment Term, Executive shall devote substantially all
of his business time, energy, skill and efforts to the performance of his duties
and responsibilities
hereunder; provided, however, that Executive shall be allowed to (i) serve as a
director and an employee or consultant of privately held companies (including,
but not limited to, Wilshire Credit Corporation and its privately held
affiliates); (ii) serve as a director of other companies; (iii) engage in
charitable activities; and (iv) manage his personal financial and legal affairs.
3. Base Salary. During the Employment Term, the Company shall pay
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Executive a base salary at the annual rate of not less than $300,000. Base
salary shall be payable in accordance with the usual payroll practices of the
Company. Executive's Base Salary shall be subject to annual review by the Board
in February of each year and may be increased, but not decreased, from time to
time upon recommendation of the Compensation Committee of the Board (the
"Committee"). The base salary determined as aforesaid from time to time shall
constitute "Base Salary" for purposes of this Agreement.
4. Incentive Compensation. (a) Bonus. For each fiscal year or portion
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thereof during the Employment Term, Executive shall be entitled to receive an
annual bonus (the "Bonus") as determined by the Committee from time to time;
provided that such annual bonus together with the annual bonus payable to
Xxxxxxxx Xxxxxxxxxx, will not exceed 20% of the Company's pre-tax income (as
determined in accordance with generally accepted accounting principles and
reflected in the Company's audited financial statements) for the relevant
calender year (the "Bonus Pool"); provided further that such Bonus shall be
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determined prior to subtracting any Bonus payable hereunder, or to Xx.
Xxxxxxxxxx. The Executive and Xx. Xxxxxxxxxx shall share equally in the first
$400,000 of the Bonus Pool and shall thereafter receive two-thirds (2/3rds) and
one-third (1/3rd), respectively, of any amounts remaining in the Bonus Pool.
Such annual bonus shall be payable in January of each year following the year
for which the bonus is payable (based on interim numbers for such year) and, if
necessary, shall be adjusted for any subsequent amendments to the Company's
financial statements following completion of the year end audit. Following any
fiscal quarter, the Company shall, at the request of the Executive, pay an
advance on any such Bonus; provided that any such advance (together with any
prior advances during the relevant calendar year) shall not exceed two-thirds
(2/3rds) of 20% of the Company's pre-tax income from the beginning of the
relevant calendar year through the end of such fiscal quarter (based on the
Company's interim financial statements). In the event that the aggregate amount
of advances made by the Company at the end of the relevant calendar year exceed
the amount of the Bonus as determined by the Committee for such year, the amount
in excess of the Bonus shall be treated as an interest free loan from the
Company, which shall be repaid by the Executive within six (6) months of the
determination by the Committee of such year's Bonus. Following the initial
Employment Term, such Bonus shall be subject to shareholder approval as and to
the extent required by Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code").
(b) Options. The Executive shall also be entitled to participate in the
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Company's Incentive Stock Plan (the "Incentive Stock Plan") and receive
nonqualified, incentive or other options ("Options") to purchase shares of the
Company's common stock (the "Common Stock") under the Incentive Stock Plan as
determined by the Committee from time to time provided that the Incentive Stock
Plan is approved by the shareholders of the Company to the extent required by
Section 162(m) of the Code. Notwithstanding the foregoing, the Company may
recommend to the Committee that the Executive be granted Options under a plan
other than the Incentive Stock Plan provided that such other plan contains terms
and conditions which are substantially similar to the terms and conditions of
the Incentive Stock Plan, and further provided, that such other plan is approved
by the shareholders of the Company to the extent required by Section 162(m) of
the Code.
(c) Other Compensation. The Company may, upon recommendation of the
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Committee, award to the Executive such other bonuses and compensation as it
deems appropriate and reasonable.
5. Employee Benefits and Vacation. (a) During the Employment Term,
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Executive shall be entitled to (i) participate in all pension, retirement,
savings, welfare and other employee benefit plans and arrangements, including,
without limitation, any nonqualified deferred compensation plans, maintained by
the Company from time to time for the benefit of the senior
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executives of the Company in accordance with their respective terms as in effect
from time to time, (ii) a luxury automobile reasonably satisfactory to the
Executive and the Company (including, without limitation, reimbursement by the
Company of the costs of maintaining and operating such automobile), (iii)
reasonable use of Company-provided aircraft transportation for business-related
and personal travel, and (iv) the employment of a daycare provider for
Executive's dependents (with the daycare provider's salary paid by the Company
directly to the daycare provider net of any applicable federal or state
employment tax of which such taxes shall be withheld and remitted by the Company
to the appropriate taxing authorities and which salary shall not exceed
comparable salaries for such services). Executive acknowledges that the
aforementioned items will be includible as compensation for income tax purposes
to the extent required by applicable law. To the extent permitted under
applicable law, the Company shall not treat as compensation to Executive fringes
and perquisites provided to Executive or the items under Section 6 below.
(b) During the Employment Term, Executive shall be entitled to vacation
each year in accordance with the Company's policies in effect from time to time,
but in no event less than five (5) weeks paid vacation per calendar year. The
Executive shall also be entitled to such periods of sick leave as is customarily
provided by the Company for its senior executive employees.
6. Business Expenses. The Company shall also reimburse Executive for the
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travel, entertainment and other business expenses incurred by Executive in the
performance of his duties hereunder, in accordance with the Company's policies
as in effect from time to time.
7. Termination. (a) The employment of Executive under this Agreement
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shall terminate upon the occurrence of any of the following events:
(i) the death of the Executive;
(ii) the termination of the Executive's employment by the
Company due to the Executive's Disability pursuant to Section 7(b)
hereof;
(iii) the termination of the Executive's employment by the
Executive for Good Reason pursuant to Section 7(c) hereof;
(iv) the termination of the Executive's employment by the
Company without Cause;
(v) the termination of employment by the Executive without
Good Reason upon sixty (60) days prior written notice;
(vi) the termination of employment by the Executive for any
reason during the period commencing on the date of a Change in Control
and ending on the day immediately prior to the second anniversary of
the Change in Control (the "Change in Control Protection Period");
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(vii) the termination of the Executive's employment by the
Company for Cause pursuant to Section 7(e); or
(viii) the retirement of the Executive by the Company at or
after his sixty-fifth birthday to the extent such termination is
specifically permitted as a stated exception from applicable federal
and state age discrimination laws based on position and retirement
benefits.
(b) Disability. If, by reason of the same or related physical or
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mental reasons, Executive is unable to carry out Executive's material duties
pursuant to this Agreement for more than six (6) months in any twelve (12)
consecutive month period (a "Disability"), the Company may terminate Executive's
employment for Disability upon thirty (30) days prior written notice, by a
notice of Disability termination, at any time thereafter during such twelve (12)
month period in which Executive is unable to carry out his duties as a result of
the same or related physical or mental illness. Such termination shall not be
effective if Executive returns to the full time performance of his material
duties within such thirty (30) day notice period.
(c) Termination for Good Reason. A Termination for Good Reason means
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a termination by Executive by written notice given within sixty (60) days after
the occurrence of the Good Reason event. For purposes of this Agreement, "Good
Reason" shall mean the occurrence or failure to cause the occurrence, as the
case may be, without Executive's express written consent, of any of the
following circumstances, unless such circumstances are fully corrected prior to
the date of termination specified in the Notice of Termination for Good Reason
(as defined in Section 7(d) hereof): (i) any material diminution of Executive's
positions, duties or responsibilities hereunder (except in each case in
connection with the termination of Executive's employment for Cause or
Disability or as a result of Executive's death, or temporarily as a result of
Executive's illness or other absence), or the assignment to Executive of duties
or responsibilities that are inconsistent with Executive's position as Chief
Executive Officer; (ii) removal of the Executive from, or the non reelection of
the Executive to, the positions with the Company specified herein; (iii) a
relocation of the Company's principal United States executive offices to a
location more than fifty (50) miles from Portland, Oregon, or a relocation of
Executive away from such principal United States executive office; (iv) a
failure by the Company (A) to continue any bonus plan, program or arrangement in
which Executive is entitled to participate (the "Bonus Plans"), provided that
any such Bonus Plans may be modified at the Company's discretion from time to
time but shall be deemed terminated if (x) any such plan does not remain
substantially in the form in effect prior to such modification and (y) if plans
providing Executive with substantially similar benefits are not substituted
therefor ("Substitute Plans"), or (B) to continue Executive as a participant in
the Bonus Plans and Substitute Plans on at least the same basis as to potential
amount of the bonus and substantially the same level of criteria for
achievability thereof as Executive participated in immediately prior to any
change in such plans or awards, in accordance with the Bonus Plans and the
Substitute Plans; (v) any material breach by the Company of any material
provision of this Agreement; (vi) executive's removal from or failure to be
reelected to the Board; (vii) a failure of any successor to the Company to
assume in a writing delivered to Executive upon the assignee becoming such, the
obligations of the Company hereunder; or (viii) a failure of the Committee
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to grant the Executive an award of Options in accordance with Sections 4(b)
hereof, unless the applicable circumstances under (i) through (vii) are fully
corrected prior to the date of termination specified in the notice of
termination for Good Reason.
(d) Notice of Termination for Good Reason. A notice of termination
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for Good Reason shall mean a notice that shall indicate the specific termination
provision in Section 7(c) relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination for Good
Reason. The failure by Executive to set forth in the notice of termination for
Good Reason any facts or circumstances which contribute to the showing of Good
Reason shall not waive any right of Executive hereunder or preclude Executive
from asserting such fact or circumstance in enforcing his rights hereunder. The
notice of termination for Good Reason shall provide for a date of termination
not less than fifteen (15) nor more than sixty (60) days after the date such
notice of termination for Good Reason is given.
(e) Cause. Subject to the notification provisions of Section 7(f)
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below, Executive's employment hereunder may be terminated by the Company for
Cause. For purposes of this Agreement, the term "Cause" shall be limited to (i)
willful misconduct by Executive with regard to the Company or its business which
has a material adverse effect on the Company; (ii) the refusal of Executive to
follow the proper written direction of the Board, provided that the foregoing
refusal shall not be "Cause" if Executive in good faith believes that such
direction is illegal, unethical or immoral and promptly so notifies the Board;
(iii) the Executive being convicted of a felony (other than a felony involving a
traffic offense); (iv) the breach by Executive of any fiduciary duty owed by
Executive to the Company which has a material adverse effect on the Company; or
(v) Executive's material fraud with regard to the Company.
(f) Notice of Termination for Cause. A notice of termination for
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Cause shall mean a notice that shall indicate the specific termination provision
in Section 7(e) relied upon and shall set forth in reasonable detail the facts
and circumstances which provide a basis for termination for Cause. Further, a
notice of termination for Cause shall be required to include a copy of a
resolution duly adopted by at least two-thirds of the entire membership of the
Board at a meeting of the Board which was called for the purpose of considering
such termination and which Executive and his representative had the right to
attend and address the Board, finding that, in the good faith opinion of the
Board, Executive engaged in conduct set forth in the definition of Cause herein
and specifying the particulars thereof in reasonable detail. The date of
termination for a termination for Cause shall be the date indicated in the
notice of termination. Any purported termination for Cause which is held by a
court not to have been based on the grounds set forth in this Agreement or not
to have followed the procedures set forth in this Agreement shall be deemed a
termination by the Company without Cause.
8. Consequences of Termination of Employment. (a) Death. If
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Executive's employment is terminated during the Employment Term by reason of
Executive's death, the employment period under this Agreement shall terminate
without further obligations to the Executive's legal representatives under this
Agreement except for: (i) any compensation earned but not yet paid, including
without limitation, any declared but unpaid bonus, any amount of Base Salary or
deferred compensation accrued or earned but unpaid, any accrued vacation pay
payable
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pursuant to the Company's policies and any unreimbursed business expenses
payable pursuant to Section 6 which amounts shall be promptly paid in a lump sum
to Executive's estate; (ii) the product of (x) the target annual bonus for the
fiscal year of the Executive's death, multiplied by (y) a fraction, the
numerator of which is the number of days of the current fiscal year during which
the Executive was employed by the Company, and the denominator of which is 365,
which bonus shall be paid when bonuses for such period are paid to the other
executives; (iii) subject to Section 4(b) hereof, full accelerated vesting under
all outstanding equity-based and long-term incentive plans (with options
remaining outstanding as provided under the applicable stock option plan and a
pro rata payment under any long term incentive plans based on actual coverage
under such plans at the time payments normally would be made under such plans);
(iv) subject to Section 10 hereof, any other amounts or benefits owing to
Executive under the then applicable employee benefit plans or policies of the
Company, which shall be paid in accordance with such plans or policies; (v)
payment on a monthly basis of six (6) months of Executive's Base Salary on the
date of death, which shall be paid to Executive's spouse, or if she shall
predecease him, then to Executive's children (or their guardian if one is
appointed) in equal shares; and (vi) payment of the Executive's spouse's and
dependents' COBRA coverage premiums to the extent, and so long as, they remain
eligible for COBRA coverage, but in no event more than three (3) years. Section
12 hereof shall also continue to apply.
(b) Disability. If Executive's employment is terminated by reason of
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Executive's Disability, Executive shall be entitled to receive the payments and
benefits to which his representatives would be entitled in the event of a
termination of employment by reason of his death, provided that the payment of
Base Salary shall be reduced by the projected amount Executive would receive
under any long-term disability policy or program maintained by the Company
during the twelve (12) month period during which Base Salary is being paid.
Section 12 hereof shall also continue to apply.
(c) Termination by Executive for Good Reason or for any reason during
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the Change in Control Protection Period or Termination by the Company without
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Cause or Nonextension of the Term by the Company. If (i) outside of the Change
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in Control Protection Period, Executive terminates his employment hereunder for
Good Reason during the Employment Term, (ii) a Change in Control occurs and
during the Change in Control Protection Period Executive terminates his
employment for any reason, (iii) Executive's employment with the Company is
terminated by the Company without Cause, or (iv) Executive's employment with the
Company terminates as a result of the Company giving notice of nonextension of
the Employment Term pursuant to Section 1 hereof, Executive shall be entitled to
receive: (A) in a lump sum within ten (10) business days after such termination
(i) three (3) times Executive's Base Salary in effect of the date of
termination, (ii) three (3) times the highest annual bonus paid or payable to
Executive for any of the previous three (3) completed fiscal years by the
Company and its predecessors, (iii) any unreimbursed business expenses payable
pursuant to Section 6, and (iv) any Base Salary, Bonus, vacation pay or other
deferred compensation accrued or earned under law or in accordance with the
Company's policies but not yet paid at the date of termination; (B) subject to
Section 4(b) hereof, accelerated full vesting under all outstanding equity-based
and long-term incentive plans with Options remaining outstanding as provided
under the applicable stock option plan and a pro rata payment under any long
term incentive plans
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based on actual coverage under such plans payment being made at the time
payments would normally be made under such plans; (C) subject to Section 10
hereof, any other amounts or benefits due Executive under the then applicable
employee benefit plans of the Company as shall be determined and paid in
accordance with such plans, policies and practices; (D) three (3) years of
additional service and compensation credit (at his then compensation level) for
pension purposes under any defined benefit type qualified or nonqualified
pension plan or arrangement of the Company, measured from the date of
termination of employment and not credited to the extent that Executive is
otherwise entitled to such credit during such three (3) year period, which
payments shall be made through and in accordance with the terms of the
nonqualified defined benefit pension arrangement if any then exists, or, if not,
in an actuarially equivalent lump sum (using the actuarial factors then applying
in the Company's defined benefit plan covering Executive); (E) three (3) years
of the maximum Company contribution (assuming Executive deferred the maximum
amount and continued to earn his then current salary) measured from the date of
termination under any type of qualified or nonqualified 401(k) plan (payable at
the end of each such year); and (F) payment by the Company of the premiums for
the Executive (except in the case of death) and his spouse's and dependents'
health coverage for three (3) years under the Company's health plans which cover
the senior executives of the Company or materially similar benefits. Payments
under (F) above may, at the discretion of the Company, be made by continuing
participation of Executive in the plan as a terminee, by paying the applicable
COBRA premium for Executive and his spouse and dependents, or by covering
Executive and his spouse and dependents under substitute arrangements, provided
that, to the extent Executive incurs tax that he would not have incurred as an
active employee as a result of the aforementioned coverage or the benefits
provided thereunder, Executive shall receive from the Company an additional
payment in the amount necessary so that he will have no additional cost for
receiving such items or any additional payment. In the circumstances described
in each of (i) through (iv) above, Section 12 hereof shall also continue to
apply.
(d) Termination for Cause or Voluntary Resignation without Good Reason
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or Retirement. If Executive's employment hereunder is terminated: (i) by the
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Company for Cause, (ii) by Executive without Good Reason outside of the Change
in Control Protection Period, or (iii) by the Company pursuant to Section
7(a)(viii) hereof, the Executive shall be entitled to receive only his Base
Salary through the date of termination, any earned but unpaid bonus, and any
unreimbursed business expenses payable pursuant to Section 6. Subject to
Section 4(b) hereof, all other benefits (including, without limitation, Options)
due Executive following such termination of employment shall be determined in
accordance with the plans, policies and practices of the Company.
9. Non-Competition. (a) Executive acknowledges that the Company
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will suffer substantial damage, which would be difficult to ascertain, if
Executive shall enter into Competition, as defined below, with the Company and
that it is necessary for the Company to be protected by the prohibition against
Competition set forth herein.
(b) During the period of his actual employment by the Company and for
one (1) year thereafter, Executive will not enter into Competition with the
Company or its affiliated entities. Competition shall mean participating
directly in the day-to-day direct supervision or
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operations of a U.S. business which competes with, or is engaged, in the same
business as currently conducted by the Company; provided that Competition shall
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not include the items referred to in the proviso to Section 2(c).
(c) During Executive's Employment Term with the Company and for one
(1) year thereafter, the Executive shall not, without the express written
authorization of the Company, directly or indirectly (i) recruit, solicit or
induce any nonclerical employees of the Company or its affiliates to terminate
their employment with, or otherwise cease their relationship with, the Company
or its affiliates, or (ii) solicit or assist any third party in soliciting any
clients or customers of the Company or its affiliates.
(d) In the event of a breach or threatened breach of this Section 9,
Executive acknowledges that the Company will be caused irreparable injury and
that money damages may not be an adequate remedy and agree that the Company
shall be entitled to injunctive relief (in addition to its other remedies at
law) to have the provisions of this Section 9 enforced. If any restriction set
forth with regard to Competition is found by any court of competent
jurisdiction, or an arbitrator, to be unenforceable because it extends for too
long a period of time or over too great a range of activities or in too broad a
geographic area, it shall be interpreted to extend over the maximum period of
time, range of activities or geographic area as to which it may be enforceable.
10. No Mitigation; No Set-Off. In the event of any termination
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of employment under Section 8, Executive shall be under no obligation to seek
other employment and there shall be no offset against any amounts due Executive
under this Agreement on account of any remuneration attributable to any
subsequent employment that Executive may obtain. Any amounts due under Section
8 are in the nature of severance payments, or liquidated damages, or both, and
are not in the nature of a penalty. Such amounts are inclusive, and in lieu of,
any amounts payable under any other salary continuation or cash severance
arrangement of the Company and to the extent paid or provided under any other
such arrangement shall be offset from the amount due hereunder.
11. Change in Control. For purposes of this Agreement, the term
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"Change in Control" shall mean (i) any "person" as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934 ("Act") (other than the
Company, any trustee or other fiduciary holding securities under any employee
benefit plan of the Company, or any company owned, directly or indirectly, by
the stockholders of the Company in substantially the same proportions as their
ownership of common stock of the Company), becoming the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing twenty-five percent (25%) or more of the
combined voting power of the Company's then outstanding securities; (ii) during
any period of two (2) consecutive years, individuals who at the beginning of
such period constitute the Board, and any new director (other than a director
designated by a person who has entered into an agreement with the Company to
effect a transaction described in clause (i), (iii), or (iv) of this paragraph
or a director whose initial assumption of office occurs as a result of either an
actual or threatened election contest (as such terms are used in Rule 14a-11
promulgated under the Act) or other actual or threatened
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solicitation of proxies or consents by or on behalf of a person other than a
member of the Board) whose election by the Board or nomination for election by
the Company's shareholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning of the
two (2) year period or whose election or nomination for election was previously
so approved, cease for any reason to constitute at least a majority of the
Board; (iii) the merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than fifty percent (50%) of
the combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation;
provided, however, that a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no person
(other than those covered in the exceptions in (i) above) acquires more than
twenty-five percent (25%) of the combined voting power of the Company's then
outstanding securities shall not constitute a Change in Control; or (iv)
approval by the shareholders of the Company of a plan of complete liquidation of
the Company or the closing of the sale or disposition by the Company of all or
substantially all of the Company's assets other than the sale of all or
substantially all of the assets of the Company to a person or persons who
beneficially own, directly or indirectly, at least fifty percent (50%) or more
of the combined voting power of the outstanding voting securities of the Company
at the time of the sale.
12. Indemnification. (a) The Company agrees that if Executive is
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made a party to or threatened to be made a party to any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"Proceeding"), by reason of the fact that he is or was a director or officer of
the Company, or is or was serving at the request of the Company as a director,
officer, member, employee, fiduciary or agent of another corporation or of a
partnership, joint venture, trust, other enterprise or non-profit organization,
including, without limitation, service with respect to employee benefit plans,
whether or not the basis of such Proceeding is alleged action in an official
capacity as a director, officer, member, employee, fiduciary or agent while
serving as a director, officer, member, employee, fiduciary or agent, he shall
be indemnified and held harmless by the applicable company to the fullest extent
authorized by Delaware law, as the same exists or may hereafter be amended,
against all Expenses incurred or suffered by Executive in connection therewith,
and such indemnification shall continue as to Executive even if Executive has
ceased to be an officer, director, member, fiduciary or agent, or is no longer
employed by the company, and shall inure to the benefit of his heirs, executors
and administrators.
(b) As used in this Agreement, the term "Expenses" shall include,
without limitation, damages, losses, judgments, liabilities, fines, penalties,
excise taxes, settlements and costs, attorneys' fees, accountants' fees, and
disbursements and costs of attachment or similar bonds, investigations, and any
expenses of establishing a right to indemnification under this Agreement.
(c) Expenses incurred by Executive in connection with any Proceeding
shall be paid by the Company in advance upon request of Executive and the giving
by the Executive of any undertakings required by applicable law.
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(d) Executive shall give the Company notice of any claim made against
him for which indemnity will or could be sought under this Agreement. In
addition, Executive shall give the Company such information and cooperation as
it may reasonably require and as shall be within Executive's power and at such
times and places as are reasonably convenient for Executive.
(e) With respect to any Proceeding as to which Executive notifies the
Company of the commencement thereof:
(i) The Company will be entitled to participate therein at its
own expense; and
(ii) Except as otherwise provided below, to the extent that it
may wish, the Company jointly with any other indemnifying party similarly
notified will be entitled to assume the defense thereof, with counsel
reasonably satisfactory to Executive. Executive also shall have the right
to employ his own counsel in such action, suit or proceeding and the fees
and expenses of such counsel shall be at the expense of the Company.
(f) The Company shall not be liable to indemnify Executive under this
Agreement for any amounts paid in settlement of any action or claim effected
without its written consent. The Company shall not settle any action or claim
in any manner which would impose any penalty or limitation on Executive without
Executive's written consent. Neither the company nor Executive will
unreasonably withhold or delay their consent to any proposed settlement.
(g) The right to indemnification and the payment of expenses incurred
in defending a Proceeding in advance of its final disposition conferred in this
Section 12 shall not be exclusive of any other right which Executive may have or
hereafter may acquire under any statute, provision of the certificate of
incorporation or by-laws of the Company, agreement, vote of stockholders or
disinterested directors or otherwise.
(h) The Company hereunder agrees to obtain officer and director
liability insurance policies covering Executive and shall maintain at all times
following the Commencement Date and during the Employment Term coverage under
such policies in the aggregate with regard to all officers and directors,
including Executive, of an amount not less than $10 million.
13. Special Tax Provision. (a) Anything in this Agreement to the
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contrary notwithstanding, in the event that any amount or benefit paid, payable,
or to be paid, or distributed, distributable, or to be distributed to or with
respect to Executive by the Company (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the Company, any
person whose actions result in a change of ownership or effective control
covered by Code Section 280G(b)(2) or any person affiliated with the Company or
such person) as a result of a change in ownership or effective control of the
Company or a direct or indirect parent thereof (or the assets of any of the
foregoing) covered by Code Section 280G(b)(2)
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(collectively, the "Covered Payments") is or becomes subject to the excise tax
imposed by or under Section 4999 of the Code (or any similar tax that may
hereafter be imposed), and/or any interest, penalties or additions to tax, with
respect to such excise tax (such excise tax, together with such interest
penalties and additions to tax, is hereinafter collectively referred to as the
"Excise Tax"), the Company shall pay to Executive an additional amount (the "Tax
Reimbursement Payment") such that after payment by Executive of all taxes
(including, without limitation, any interest or penalties and any Excise Tax
imposed on or attributable to the Tax Reimbursement Payment itself), Executive
retains an amount of the Tax Reimbursement Payment equal to the sum of (i) the
amount of the Excise Tax imposed upon the Covered Payments, and (ii) without
duplication, an amount equal to the product of (A) any deductions disallowed for
federal, state or local income tax purposes because of the inclusion of the Tax
Reimbursement Payment in Executive's adjusted gross income, and (B) the highest
applicable marginal rate of federal, state or local income taxation,
respectively, for the calendar year in which the Tax Reimbursement Payment is
made or is to be made. The intent of this Section 13 is that (a) the Executive,
after paying his federal, state and local income tax and payroll taxes, will be
in the same position as if he was not subject to the Excise Tax under Section
4999 of the Code and did not receive the extra payments pursuant to this Section
13 and this Section 13 shall be interpreted accordingly.
(b) Except as otherwise provided in Section 13(a), for purposes of
determining whether any of the Covered Payments will be subject to the Excise
Tax and the amount of such Excise Tax, (i) such Covered Payments will be treated
as "parachute payments" (within the meaning of Section 280G(b)(2) of the Code)
and such payments in excess of the Code Section 280G(b)(3) "base amount" shall
be treated as subject to the Excise Tax, unless, and except to the extent that,
the Company's independent certified public accountants appointed prior to the
change in ownership covered by Code Section 280G(b)(2) or legal counsel
(reasonably acceptable to Executive) appointed by such public accountants (or,
if the public accountants decline such appointment and decline appointing such
legal counsel, such independent certified public accountants as promptly
mutually agreed on in good faith by the Company and the Executive) (the
"Accountant"), deliver a written opinion to Executive, reasonably satisfactory
to Executive's legal counsel, that Executive has a reasonable basis to claim
that the Covered Payments (in whole or in part) (A) do not constitute "parachute
payments", (B) represent reasonable compensation for services actually rendered
(within the meaning of Section 280G(b)(4) of the Code) in excess of the "base
amount" allocable to such reasonable compensation, or (C) such "parachute
payments" are otherwise not subject to such Excise Tax (with appropriate legal
authority, detailed analysis and explanation provided therein by the
Accountants); and (ii) the value of any Covered Payments which are non-cash
benefits or deferred payments or benefits shall be determined by the Accountant
in accordance with the principles of Section 280G of the Code.
(c) For purposes of determining the amount of the Tax Reimbursement
Payment, Executive shall be deemed: (i) to pay federal, state and/or local
income taxes at the highest applicable marginal rate of income taxation for the
calendar year in which the Tax Reimbursement Payment is made or is to be made,
and (ii) to have otherwise allowable deductions for federal, state and local
income tax purposes at least equal to those disallowed due to the inclusion of
the Tax Reimbursement Payment in Executive's adjusted gross income.
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(d) (i) (A) In the event that prior to the time the Executive has
filed any of his tax returns for the calendar year in which the change in
ownership event covered by Code Section 280G(b)(2) occurred, the Accountant
determines, for any reason whatever, the correct amount of the Tax Reimbursement
Payment to be less than the amount determined at the time the Tax Reimbursement
Payment was made, the Executive shall repay to the Company, at the time that the
amount of such reduction in Tax Reimbursement Payment is determined by the
Accountant, the portion of the prior Tax Reimbursement Payment attributable to
such reduction (including the portion of the Tax Reimbursement Payment
attributable to the Excise Tax and federal, state and local income tax imposed
on the portion of the Tax Reimbursement Payment being repaid by the Executive,
using the assumptions and methodology utilized to calculate the Tax
Reimbursement Payment (unless manifestly erroneous)), plus interest on the
amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the
Code.
(B) In the event that the determination set forth in (A) above is made
by the Accountant after the filing by the Executive of any of his tax returns
for the calendar year in which the change in ownership event covered by Code
Section 280G(b)(2) occurred but prior to one (1) year after the occurrence of
such change in ownership, the Executive shall file at the request of the Company
an amended tax return in accordance with the Accountant's determination, but no
portion of the Tax Reimbursement Payment shall be required to be refunded to the
Company until actual refund or credit of such portion has been made to the
Executive, and interest payable to the Company shall not exceed the interest
received or credited to the Executive by such tax authority for the period it
held such portion (less any tax the Executive must pay on such interest and
which he is unable to deduct as a result of payment of the refund).
(C) In the event the Executive receives a refund pursuant to (B) above
and repays such amount to the Company, the Executive shall thereafter file for
refunds or credits by reason of the repayments to the Company. Executive and
the Company shall mutually agree upon the course of action, if any, to be
pursued (which shall be at the expense of the Company) if Executive's claim for
such refund or credit is denied.
(D) The Executive and the Company shall mutually agree upon the course
of action, if any, to be pursued (which shall be at the expense of the Company)
if the Executive's claim for refund or credit is denied.
(ii) In the event that the Excise Tax is later determined by the
Accountants or the Internal Revenue Service to exceed the amount taken into
account hereunder at the time the Tax Reimbursement Payment is made (including
by reason of any payment the existence or amount of which cannot be determined
at the time of the Tax Reimbursement Payment), the Company shall make an
additional Tax Reimbursement Payment in respect of such excess (plus any
interest, penalties or additions to tax payable with respect to such excess)
once the amount of such excess is finally determined.
(iii) In the event of any controversy with the Internal Revenue
Service (or other taxing authority) under this Section 13, subject to subpart
(i)(D) above, the Executive
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shall permit the Company to control issues related to this Section 13 (at its
expense), provided that such issues do not potentially materially adversely
affect the Executive, but the Executive shall control any other issues. In the
event the issues are interrelated, the Executive and the Company shall in good
faith cooperate so as not to jeopardize resolution of either issue, but if the
parties cannot agree Executive shall make the final determination with regard to
the issues. In the event of any conference with any taxing authority as to the
Excise Tax or associated income taxes, the Executive shall permit the
representative of the Company to accompany him and the Executive and his
representative shall cooperate with the Company and its representative.
(iv) With regard to any initial filing for a refund or any other
action required pursuant to this Section 13 (other than by mutual agreement) or,
if not required, agreed to by the Company and the Executive, the Executive shall
cooperate fully with the Company, provided that the foregoing shall not apply to
actions that are provided herein to be at the sole discretion of the Executive.
(e) The Tax Reimbursement Payment, or any portion thereof, payable by
the Company shall be paid not later than the fifth day following the
determination by the Accountant, and any payment made after such fifth day shall
bear interest at the rate provided in Code Section 1274(b)(2)(B). The Company
shall use its best efforts to cause the Accountant to promptly deliver the
initial determination required hereunder and, if not delivered, within ninety
(90) days after the change in ownership event covered by Section 280G(b)(2) of
the Code, the Company shall pay the Executive the Tax Reimbursement Payment set
forth in an opinion from counsel recognized as knowledgeable in the relevant
areas selected by the Executive, and reasonably acceptable to the Company,
within five (5) days after delivery of such opinion. In accordance with Section
16(g), the Company may withhold from the Tax Reimbursement Payment and deposit
into applicable taxing authorities such amounts as are required to be withheld
by applicable law. To the extent that Executive is required to pay estimated or
other taxes on amounts received by Executive beyond any withheld amounts,
Executive shall promptly make such payments. The amount of such payment shall
be subject to later adjustment in accordance with the determination of the
Accountant as provided herein.
(f) The Company shall be responsible for all charges of the Accountant
and if (e) is applicable the reasonable charges for the opinion given by
Executive's counsel.
(g) The Company and the Executive shall mutually agree on and
promulgate further guidelines in accordance with this Section 13 to the extent,
if any, necessary to effect the reversal of excessive or shortfall Tax
Reimbursement Payments. The foregoing shall not in any way be inconsistent with
Section 13(d)(i)(D) hereof.
14. Legal and Other Fees and Expenses. In the event that a claim for
---------------------------------
payment or benefits under this Agreement is disputed, the Company shall pay all
reasonable attorney, accountant and other professional fees and reasonable
expenses incurred by Executive in pursuing such claim, unless the claim by the
Executive is found to be frivolous by any court or arbitrator.
13
15. Arbitration. Any dispute or controversy arising under or in
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connection with this Agreement shall be settled exclusively by arbitration
conducted in the City of Portland in the State of Oregon under the Commercial
Arbitration Rules then prevailing of the American Arbitration Association and
such submission shall request the American Arbitration Association to: (i)
appoint an arbitrator experienced and knowledgeable concerning the matter then
in dispute; (ii) require the testimony to be transcribed; (iii) require the
award to be accompanied by findings of fact and the statement for reasons for
the decision; and (iv) request the matter to be handled by and in accordance
with the expedited procedures provided for in the Commercial Arbitration Rules.
The determination of the arbitrators, which shall be based upon a de novo
interpretation of this Agreement, shall be final and binding and judgment may be
entered on the arbitrators' award in any court having jurisdiction. All costs
of the American Arbitration Association and the arbitrator shall be borne by the
Company.
16. Miscellaneous.
-------------
(a) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Oregon without reference to
principles of conflicts of laws.
(b) Entire Agreement/Amendments. This Agreement and the instruments
---------------------------
contemplated herein, contain the entire understanding of the parties with
respect to the employment of Executive by the Company from and after the
Commencement Date and supersedes any prior agreements, whether written or
otherwise, between the Company and Executive. There are no restrictions,
agreements, promises, warranties, covenants or undertakings between the parties
with respect to the subject matter herein other than those expressly set forth
herein and therein. This Agreement may not be altered, modified, or amended
except by written instrument signed by the parties hereto.
(c) No Waiver. The failure of a party to insist upon strict adherence
---------
to any term of this Agreement on any occasion shall not be considered a waiver
of such party's rights or deprive such party of the right thereafter to insist
upon strict adherence to that term or any other term of this Agreement. Any
such waiver must be in writing and signed by Executive or an authorized officer
of the Company, as the case may be.
(d) Assignment. This Agreement shall not be assignable by Executive.
----------
This Agreement shall be assignable, with the consent of the Executive, by the
Company only to an acquiror of all or substantially all of the assets of the
Company, provided such acquiror promptly assumes all of the obligations
hereunder of the Company in a writing delivered to the Executive and otherwise
complies with the provisions hereof with regard to such assumption.
(e) Successors; Binding Agreement; Third Party Beneficiaries. This
--------------------------------------------------------
Agreement shall inure to the benefit of and be binding upon parties hereto and
their personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees legatees and permitted assignees of the parties
hereto. If the Executive dies while any amount would still be payable hereunder
if the Executive had continued to live, all such amounts, unless otherwise
14
provided herein, shall be paid in accordance with the terms of the Agreement to
the personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees, legatees and permitted assignees of the parties
hereto.
(f) Communications. For the purpose of this Agreement, notices and
--------------
all other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given (i) when faxed or delivered, and (ii)
two business days after being mailed by United States registered or certified
mail, return receipt requested, postage prepaid, addressed to the respective
addresses set forth on the initial page of this Agreement, provided that all
notices to the Company shall be directed to the attention of Xxxxxxxx Xxxxxxxxxx
of the Company, or to such other address as any party may have furnished to the
other in writing in accordance herewith. Notice of change of address shall be
effective only upon receipt.
(g) Withholding Taxes. The Company may withhold from any and all
-----------------
amounts payable under this Agreement such federal, state and local taxes as may
be required to be withheld pursuant to any applicable law or regulation.
(h) Survivorship. The respective rights and obligations of the
------------
parties hereunder shall survive any termination of Executive's employment.
(i) Counterparts. This Agreement may be signed in counterparts, each
------------
of which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
(j) Headings. The headings of the sections contained in this
--------
Agreement are for convenience only and shall not be deemed to control or affect
the meaning or construction of any provision of this Agreement.
15
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
WILSHIRE FINANCIAL SERVICES GROUP INC.
By:
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Name:
Title:
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Xxxxxx X. Xxxxxxxxxx
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