EMPLOYMENT AGREEMENT
This employment agreement (the "Agreement"), dated as of September 30,
1997 is made by and between American Family Holdings, Inc., a Delaware
corporation, having its principal offices at 0000 Xxx Xxxxxx, Xxxxx 000,
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000 (the "Company"), and Xxxxx X. Xxxx (the
"Employee").
In consideration of the mutual promises and agreements set forth herein,
the parties agree as follows:
1. EMPLOYMENT. The Company will employ Employee, and Employee will
serve, as Chief Executive Officer (CEO) and Secretary pursuant to this
Agreement. Employee will report to the Board of Directors of the Company,
and will, subject to his election or appointment as such, serve as a member
of the Board of Directors and any committee of the Board of Directors. In
addition, the Company will cause Employee to be elected a director of
American Family Communities, Inc., a to-be-formed wholly-owned subsidiary of
the Company ("AFC") and Vice President as well as a director of the following
to-be-formed companies which will be wholly-owned subsidiaries of AFC: Delta
Greens Homes, Inc., Yosemite Xxxxx Family Resort, Inc., Oceanside Homes,
Inc., and Mori Point Destinations, Inc. Subject to availability, the Company
will cause such subsidiaries to transfer to the Company such funds as may be
necessary for the Company to honor its obligations under this Agreement.
2. TERM OF EMPLOYMENT. The term of employment under this Agreement
will commence on the Effective Date of the Acquisition described in the
Company's registration statement on Form S-4, filed with the Securities and
Exchange Commission (File No. 333-37161) on October 3, 1997, and continue
through December 31, 2002 (the "Initial Term"), provided that the Agreement
shall automatically be extended for one year at the end of 2002 and each year
thereafter (the "Extended Term") unless the Agreement is earlier terminated
pursuant to its terms or the Company provides Employee with a written notice
not less than 90 days before the end of any given calendar year of its
election not to have the automatic extension provisions of this Agreement
apply as specified in said notice.
3. COMPENSATION AND OTHER BENEFITS.
3.1 BASE SALARY. As compensation for his employment under this
Agreement, commencing as of the Effective Date of the Acquisition, the
Company will pay to Employee a signing bonus of $25,000 and a base salary of
$180,000 per year which, commencing January 1, 1999, shall increase by the
greater of either (i) $18,000 per year during the Initial Term, or (ii) by
the percentage change increase in the Consumer Price Index ("CPI") applicable
to Orange County that occurred in the year last past. If the CPI is
discontinued or revised, the government index replacing the CPI shall be used
for such calculations. Subject to normal withholding, any base salary will
be payable twice monthly in as equal installments as possible. It is
understood that the Company may, at the discretion of its Board of Directors,
increase such base salary in amount that may be in excess of either i) or ii)
above.
1
3.2 BONUS COMPENSATION. Employee shall be eligible for
performance bonus compensation equal to two percent of the Company's annual
pre-tax stated taxable income as determined under the Internal Revenue Code
of 1986, as amended, except as expressly modified herein (excluding from the
calculation of such pre-tax income net operating loss carryovers (forward or
back) and depreciation in excess of income on real properties held for
rental)("Two Percent Performance Bonus"). The Company's pre-tax income will
be computed on a consolidated basis and shall include the income of any
subsidiary, partnership or entity to the extent of the Company's percentage
ownership in such entity, regardless of the number of tiers of entities that
may be involved and regardless of whether currently distributable or
distributed. Such bonus will be paid on or before the 90th day after the end
of the Company's applicable tax year ("Two Percent Performance Bonus Pay
Date:). This bonus will be paid only when the Company has sufficient working
capital to fully and timely pay all of its foreseeable operating debts as
they become due. If the Company does not have such sufficient reserves, the
Company may delay payment of the Two Percent Performance Bonus for two
one-year periods; however, such amounts shall bear interest at ten percent
per annum from April 1 of the year in which the payment was due until paid.
Notwithstanding the foregoing to the contrary, the Two Percent Performance
Bonus will become absolutely payable no later than two years after the Two
Percent Performance Bonus Pay Date regardless of any other condition
including, but not limited to, the sufficiency of the Company's working
capital reserves. At the Board's discretion, the Company shall grant Employee
a separate bonus of 10-50% of Employee's then existing base salary ("Base
Salary Performance Bonus"). Said bonus shall be paid on or before the 90th
day after the end of the Company's applicable tax year.
3.3 OTHER BENEFITS.
3.3.1 During the term of Employee's employment hereunder,
Employee (and his dependents where applicable) will be entitled to
participate and will be included in any employee benefit plans including but
not limited to any group health and life insurance, pension, profit sharing,
retirement, stock incentive or similar plans of the Company now existing or
established hereafter. Employee will also be covered by the Company's
directors and officers errors and omissions insurance.
3.3.2 During the term of Employee's employment hereunder,
Employee will be authorized to incur and will be reimbursed by Company for
all reasonable business-related expenses, travel expenses (as if the Company
was headquartered in Orange County) and entertainment expenses incurred by
Employee to promote the business of the Company. Club dues and expenses will
be covered as agreed upon between Employee and the Company. In addition, the
Company will pay for, or reimburse Employee for, all mandatory continuing
education required to maintain professional licenses necessary to the
Company's business, and the costs of membership in all professional
associations reasonably applicable to the Company's business. The Company
will also pay for the equivalent or current insurance policies from Xxxx
Xxxxxx, Xxxxxx and North American unless premiums are paid for by another
affiliate of Employee. Employee shall be the owner of said policies.
2
3.3.3 During the term of Employee's employment hereunder,
Employee will be entitled to 20 business days of vacation and ten business
days for illness during each contract year of employment, determined on a
pro-rata basis for and partial contract year of employment, during which time
Employee is not partially or fully disabled, provided that such vacation will
be arranged so that the Company may function at reasonable operating levels
during such vacation periods. Any vacation and/or sick days taken in excess
of that stated above in any given calendar year shall require Board approval.
Any vacation and/or sick days not taken shall accrue, carry over to the next
contract year; provided that, at the end of any calendar year in which this
Agreement is in effect, Employee may not have accrued any unused vacation or
sick days aggregating in excess of 30 days. Any such days if not used, upon
termination shall be paid at the rate of Employee's then existing base salary
under Section 3.1 hereunder.
3.3.4 If at any time during which Employee is a director,
executive officer or employee of the Company or any of its subsidiaries, the
Company proposes to file a registration statement under the Securities Act of
1933, as amended, relating to an underwritten or "best efforts" public
offering of Common Stock of the company, other than an offering by the
Company in which no selling stockholders participate, at least 30 days before
filing that registration statement, the Company will notify Employee of the
Company's intention to file the registration statement and the Company will
include in the registration statement any shares of the Company's Common
Stock then owned by Employee or an entity with which Employee is affiliated
which Employee requests be included in the registration statement on the same
terms and conditions as the other shares being sold, up to such number of
Employee's shares as the managing underwriter or selling agent, if any, of
the proposed public offering states in writing to Employee to be the maximum
number of Employees' shares which the managing underwriter or selling agent,
if any, has determined can be included in the public offering without
adversely affecting the sale of the other shares to which the registration
statement relates..
3.4 SALARY AND BENEFIT CONTINUATION. The Company will continue to
pay to Employee compensation as provided in Section 3.1 hereunder at the full
rate for a period of six months after Employee is declared permanently and
totally disabled and unable to perform the duties of Chief Executive Officer or
Secretary of the Company. Thereafter, the Company will pay to Employee 25% of
Employee's annual salary as provided in Section 3.1 hereunder for an additional
12 consecutive months or until the regular expiration (without regard to any
automatic extension) of this Agreement, whichever is earlier. Furthermore, in
the event of such permanent and total disability, the benefits described in
Section 3.3.1 will continue as if Employee had continued to render services
pursuant to this Agreement throughout its term, and the benefits described in
Section 3.3.4 will continue in accordance with the terms of this Agreement.
For purposes of this Section, the determination of whether or
not Employee is declared permanently and totally disabled shall be made by
Employee's physician, by written notice to the Board of Directors. In the
event the Board of Directors disagrees with the determination by Employees'
physician, the Board of Directors will appoint, at the Company's expense,
another physician to make such determination. If the physician so appointed
by the Board of Directors disagrees with the determination made by Employee's
physician, then the two physicians shall appoint a mutually acceptable third
physician, at the
3
Company's expense, to make the final determination of whether Employee is
permanently and totally disabled, which determination will be binding upon
all parties hereto.
3.5 CHANGE OF CONTROL COMPENSATION. If, pursuant to Section 5.2
hereof, Employee terminates this Agreement within six months of a Change of
Control (as defined in Section 6.1 hereof), as severance pay and in lieu of
any further salary for periods subsequent to the date of termination,
Employee shall receive 2.99 times the sum of all amounts (collectively,
"Change of Control Compensation") paid to Employee pursuant only to Sections
3.1 and 3.2 hereof during the five complete calendar years preceding the
calendar year during which the Change of Control occurs (or such lesser
number of calendar years in the event Employee has been employed by the
Company for fewer than five such calendar years) divided by five (or such
lesser number in the event Employee has been employed by the Company for
fewer than five such calendar years). The following provisions shall apply
for purposes of this Section 3.5:
(a) The Change of Control Compensation paid to Employee
during any partial calendar years of employment shall be annualized, and such
annualized year shall be treated as a full calendar year.
(b) Amounts payable to Employee pursuant to this Section 3.5
shall be paid without interest in 18 equal monthly installments (less
applicable withholding) commencing on the first day of the first month after
Employee's termination occurring after a Change of Control.
(c) The amounts payable pursuant to this Section 3.5 shall
not be reduced, offset or subject to recovery by the Company by reason of any
amounts earned by Employee as the result of employment by another employer
after the date of termination, or otherwise.
(d) Any Change of Control Compensation due to Employee from
the Company shall also include any stock options not yet granted pursuant to
Section 3.8 hereunder.
3.6 LIMITATION ON CHANGE OF CONTROL COMPENSATION. Notwithstanding
Section 3.5 hereof, if any portion of the Change of Control Compensation
provided for in this Agreement would constitute a "parachute payment" (as
defined in Section 280G(b)(2) of the Internal Revenue Code), the payments and
benefits due to the Employee shall be reduced, in such order of priority and
amount as the Employee shall elect, to the largest amount as will result in
no portion of such payments being subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code. Notwithstanding anything in the
foregoing to the contrary, any dispute or controversy regarding whether any
payments under this Agreement must be reduced pursuant to this Section 3.6
shall be settled by an independent accounting firm acceptable to each of the
parties hereto, or, if no such firm is acceptable to each party, each of the
Employee and the Company shall select an accounting firm acceptable to it,
and such accounting firms shall together designate an independent accounting
firm to settle such dispute or controversy, and such settlement shall be
binding upon both parties. The Company may withhold from any benefits
payable under this Agreement all federal, state, city or other taxes as shall
be required pursuant to any law or governmental regulation or ruling.
4
3.7 AUTO AND CELL PHONE EXPENSES. The Company shall be
responsible for any automobile expenses for Employee and shall reimburse
Employee for the costs of service, maintenance, insurance, licensing and
fueling such automobile. In addition, the Company shall provide cellular
telephones and reimburse Employee for any charges for such usage.
3.8 STOCK OPTIONS. As of the Effective Date of the Acquisition,
and on the first and second anniversaries thereof, in addition to any options
granted to Employee pursuant to the Company's 1997 Stock Option and Incentive
Plan, the Employee shall be granted the following options to purchase the
Company's common stock:
Date of Grant Number of shares Exercise Price/Share
------------- ---------------- --------------------
Acquisition Effective Date 10,000 $10.00
First Anniversary of 10,000 Fair Market Value
Acquisition Effective Date
Second Anniversary of 10,000 Fair Market Value
Acquisition Effective Date
"Fair Market Value" shall be the closing price of the
Company's common stock on the national exchange on which it is traded on the
trading day before the options are granted. If the Company's common stock is
not traded on a national exchange, Fair Market Value shall be determined in
good faith by the Board of Directors.
Each group of options will be exercisable as follows: 3,333
shares immediately, 3,333 shares on the first anniversary of grant; and 3,334
shares on the second anniversary of grant. To the extent not exercised,
options granted pursuant to this Section 3.8 shall expire ten years from the
date of grant.
The options granted hereby shall not be transferable without
the consent of a majority of the Board of Directors of the Company; provided
that such options may be transferred by will or to a revocable living trust
for estate planning purposes. If any options are so transferred, they will
not be transferred by the transferee without the written consent of the Board
of Directors.
4. NON-COMPETITION/UNFAIR COMPETITION.
4.1 NON-COMPETITION. During the term of Employee's employment
under this Agreement, Employee will not knowingly, directly or indirectly,
engage or participate in any business that is in competition with the
business of the Company. The foregoing obligation of Employee not to compete
with the Company shall not prohibit (i) Employee from owning or purchasing
any corporate securities of any corporation or other entity that are
regularly traded on a recognized stock exchange or over-the-counter market so
long as Employee does not own, in the aggregate, five percent or more of the
voting equity securities of any such corporation or other entity, or (ii)
Employee from continuing to own interests in existing real estate projects in
which he has investments, or (iii) Employee from assisting in the financing
for, investing in or managing any real estate projects which are not in
direct competition with those of the Company.
5
4.2 UNFAIR COMPETITION. The Company treats certain information as
confidential information (the "Confidential Information"). Employee
acknowledges and agrees that the sale or unauthorized use or disclosure of
any Confidential Information obtained by Employee during his employment with
the Company constitute unfair competition. Employee promises and agrees not
to engage in unfair competition with the Company during the term of this
Agreement and thereafter.
5. TERMINATION PROVISIONS.
5.1 TERMINATION BY COMPANY. This Agreement may be terminated by
the Company only as provided in this Section and for no other cause or reason:
(a) The Company may terminate Employee's employment under
this Agreement upon 90 days' advance written notice by a vote of the Board of
Directors (excluding Employee but including a majority of the non-employee
directors). If such termination is other than for "Cause" (as defined
herein), the Company will pay to Employee (or his estate) the then applicable
base salary Employee would have been entitled to receive under Section 3.1
hereunder for the remaining term of this Agreement, regardless of
re-employment, if any, as if Employee's employment had continued in full
through the termination date then in effect (without giving effect to any
future automatic annual extensions) and Employee had rendered services
through that date, payable in equal monthly installments over a one-year
period beginning on the date of termination, but in any event no less than
one year's salary as of the date of termination. If such termination is for
"Cause" (as defined herein), to the extent permitted by law, Employee's
compensation and benefits shall terminate as of the date the termination
becomes effective. For purposes of this Agreement, "Cause" shall mean and be
limited to the following events: (i) an act of fraud, embezzlement or
similar conduct by Employee involving the Company; (ii) any action by
Employee involving the arrest of Employee for violation of any criminal
statute constituting a felony or misdemeanor involving moral turpitude if the
Board reasonably determines that the continuation of Employee's employment
after such event would have an adverse impact on the operations of the
Company or its reputation in the financial community; (iii) gross misconduct
or habitual negligence in the performance of Employee's duties; (iv) an act
constituting employment discrimination, sexual harassment or a breach of
Employee's fiduciary duty to the Company under the Delaware General
Corporation Law; (v) a continuing, repeated willful failure or refusal by
Employee to perform his duties; provided, however, that termination shall not
be deemed to be for Cause under this subclause (v) unless Employee shall have
first received written notice from the Board advising Employee of the
specific acts or omissions alleged to constitute a failure or refusal to
perform and such failure or refusal to perform continues after Employee shall
have had a reasonable opportunity to correct the acts or omissions cited in
such notice; or (vi) competition by Employee with the Company or its
subsidiaries in violation of Section 4 thereof.
(b) Except to the extent necessary to give effect to Sections
5.1(a) and 5.2, this Agreement will terminate upon the death of Employee.
6
(c) Except as otherwise provided in Section 3.4, this
Agreement will terminate as of the date Employee is declared permanently and
totally disabled and unable to perform the duties assigned to him.
(d) If the Company terminates this Agreement, Employee's
employment relationship with any of the Company's subsidiaries shall be
deemed terminated as of the same time.
5.2 TERMINATION BY EMPLOYEE. This Agreement may be terminated by
Employee upon 30 days' prior written notice as set forth below:
(a) If Employee's termination is voluntary and not for any of
the reasons set forth in Sections 5.2(b) or (c), the Company shall have no
further liability to Employee upon such termination except those liabilities
that might arise with respect to the Company's stock under Section 3.9 hereof.
(b) If Employee's termination occurs within one year from the
Company's breach of this Agreement or occurs within one year of a Change of
Location (as defined in Section 6.2), Employee's compensation shall be
determined under Section 5.1(a) as if such termination was without "Cause."
(c) If Employee's termination arises from a Change of Control
(as defined in Section 6.1), Employee's compensation will be governed by
Section 3.5 hereof.
6. DEFINITIONS.
6.1 CHANGE OF CONTROL. For purposes of this Agreement, a Change
of Control of the Company shall mean any of the following events:
(a) The acquisition by any person or entity, including any
current shareholder of the Company, of securities of the Company resulting in
such person's owning of record or beneficially 40% or more of the voting
securities of the Company;
(b) A merger, consolidation or other combination, or sale of
substantially all of the assets of the Company, the result of which is either
(i) the ownership by shareholders of the Company of less than 51% of the
voting securities of the resulting or acquiring entity having the power to
elect a majority of the Board of such entity and the power to preserve such
power to elect, or (ii) the Company having no substantial operating business;
or
(c) A change in the membership in the Board which, taken in
conjunction with any other prior or concurrent changes, results in 50% or
more of the Board's membership being persons not nominated by management in
the Company's then most recent form of nomination, excluding changes
resulting from substitutions for retirement or death or for removal or
resignation due to demonstrated disability.
Notwithstanding anything in the foregoing to the contrary, no
Change of Control shall be deemed to have occurred for purposes of this
Agreement by virtue of any transaction which results in the Employee, or a
group of persons or entity which includes the
7
Employee, acquiring, directly or indirectly, 40% or more of any class of
voting securities of the Company.
For purposes of Section 6.1, the terms "person" and
"beneficial owner" have the meanings set forth in Regulation 13D under the
Securities Exchange Act of 1934, as such Regulation exists on the date
hereof, and the term "voting security" includes any security that has, or may
have upon an event of default or in respect to any transaction, a right to
vote on any matter upon which the holder of any class of common stock of the
Company would have a right to vote.
For purposes of subsection (a) through ( c) above, such Change
of Control shall include any such applicable lesser standard prescribed by
Section 280(G) of the Internal Revenue Cod or regulations issued or proposed
thereto.
6.2 CHANGE IN LOCATION. For purposes of this Agreement, the term
"Change of Location" means any change of the headquarters operations of the
Company to a place outside of Orange County, California, or the requirement
that Employee spend more than 50% of his business time for the Company at
locations outside of Orange County, California.
7. MISCELLANEOUS PROVISIONS.
7.1 INDEMNIFICATION. As an officer, and if so elected, a
director, of the Company and any of its subsidiaries, Employee shall be
entitled to indemnification to the fullest extent permitted by applicable
law. To the extent necessary and permissible, such indemnification will
protect Employee from prior operations of properties acquired by the Company
or any of its subsidiaries.
7.2 NOTICES. All notices, requests, demands and other
communications required or permitted to be given hereunder will be in writing
and will be deemed to have been duly given if personally delivered or sent by
telecopier or sent by prepaid telegram or first class mail, postage prepaid,
registered or certified, as follows:
If to Employee: Xxxxx X. Xxxx
00 Xxxxxx Xxx
Xxxxxx Xxx Xxx, Xxxxxxxxxx 00000
If to Company: 0000 Xxx Xxxxxx Xxxxxx
Xxxxx 000
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
Attention: President
Either party may change the address to which such communications
are to be delivered by giving written notice to the other party. Any notice
personally given will be deemed received upon delivery to the address
designated, any notice by mail as provided in this paragraph will be deemed
given on the third business day following such mailing, and any notice given
by telecopier or telegram as provided herein will be deemed delivered on the
business day
8
following the transmission by telecopier or the delivery of such notice to
the telegraph company for transmission.
7.3 ATTORNEYS' FEES. In the event of a dispute between any or
all of the parties hereto, or in the event either party seeks to enforce this
Agreement, the prevailing or successful party in a court or arbitration
determination shall be entitled to have its reasonable attorneys' fees and
costs reimbursed by the other party.
7.4 GOVERNING LAW. This Agreement shall be construed in
accordance with, and governed by, the laws of the State of California and
performable in Orange County, California.
7.5 ENTIRE AGREEMENT. This Agreement contains all of the terms
and conditions agreed upon by the parties hereto with reference to the
subject matter hereof and supersedes any and all prior written or verbal
agreements. This Agreement may not be modified except by a written instrument
executed by both parties or their permitted successors in interest, if any.
Each and every term of this Agreement will be valid and enforced to
the fullest extent permitted by law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first above written.
/s/ XXXXX X. XXXX
-------------------------------------
Xxxxx X. Xxxx. (the "Employee")
AMERICAN FAMILY HOLDINGS, INC.
(the "Company")
By /s/ XXXXX X. XXXXXX
-------------------------------------
Xxxxx X. Xxxxxx
President & Co-Chairman
9