EXHIBIT 10.37
[LETTERHEAD OF PAN AMERICAN BANK, FSB]
May 7, 1996
Xx. Xxx X. Thousand
00 Xxxxxx Xxxx Xxxx
Xxxxxxx Xxxxx, XX 00000
Re: Employment Agreement
Dear Mr. Thousand:
This letter agreement and attachments hereto, (collectively the "Agreement") set
forth the terms and conditions of your employment with Pan American Bank, FSB
(the "Bank"). By signing this Agreement, you will be agreeing to these terms. It
is important that you understand clearly both what your benefits are and what is
expected of you by the Bank. The effective date of this Agreement (the
"Effective Date") shall be as of December 7, 1995.
1. Term. This Agreement shall have a term of three (3) years, commencing as of
the Effective Date (the "Term"). Where used herein, "Term" shall refer to the
entire period of your employment by the Bank from and after the Effective
Date, whether for the period provided above or as extended or terminated
earlier as hereinafter provided.
2. Duties. You initially shall hold the office of President of the Bank's
Automobile Finance Division. During the Term thereof and subject to obtaining
necessary corporate and regulatory approvals, the Bank may determine to spin
off the business conducted by the Automobile Finance Division into a newly
organized subsidiary corporation, in which case you would hold the office of
President of the new subsidiary. In either capacity, you shall perform the
duties customarily performed by individuals holding a similar title with
other financial institutions or as otherwise may be agreed upon by the Bank
and you from time to time. During the Term hereof, you shall perform the
services herein contemplated faithfully, diligently and to the best of your
ability in compliance with instructions and policies of the Bank's senior
management, the Board of Directors, the Bank's Federal Charter and Bylaws and
with all applicable laws and regulations.
3. Compensation.
a) Base Salary. For your service rendered to the Bank or any subsidiary
corporation hereunder, during the Term hereof, the Bank shall pay or
cause to be paid a base salary to you at the rate of One Hundred
Thirty Five Thousand Dollars ($135,000) per annum, payable in
conformity with the Bank's normal payroll periods and procedures.
Xxx X. Thousand
May 7, 1996
Page 2
b) Bonus. In addition to the base salary provided for under Section 3(a)
above, you shall be entitled to annual bonus compensation in accordance
with the incentive compensation formula set forth in Exhibit A to this
Agreement. Among other things, the incentive compensation formula
establishes certain performance criteria and sales objectives by which
the amount of your bonus compensation, if any, is to be determined.
c) Automobile Allowance. The Bank shall provide you during the Term of
this Agreement with an automobile allowance of Two Hundred Dollars
($200) per month.
d) Options. See Exhibit B.
4. OTHER BENEFITS. During the Term hereof and unless otherwise agreed to by the
Bank and you:
a) Vacation. You shall be entitled to a total of three (3) weeks paid
vacation, the amount and term of which shall be determined in accordance
with the policies of the Bank as in effect from time to time.
b) Group Medical, Life Insurance and Other Benefits. You will be eligible
for the medical, dental, vision, life insurance and long-term disability
plans that are generally applicable to your employment classification.
You will be issued summary plan descriptions regarding the Bank's
benefit plans when you become a participant in those plans.
5. BUSINESS EXPENSES. You shall be entitled to reimbursement by the Bank for
any and all ordinary and necessary business expenses reasonably incurred by
you in the performance of your duties and in acting for the Bank during the
Term of this Agreement, provided that you furnish to the Bank adequate
records and other documentation as may be required for the substantiation of
such expenditures as a business expense of the Bank.
6. PRIOR EMPLOYMENT. You and the Bank acknowledge and agree that you were
previously employed by one or more other financial institutions in
capacities similar to the capacities proposed herein. In connection with any
such prior employment, you hereby represent and warrant to the Bank as
follows:
a) No Breach of Prior Agreement. Your execution and delivery of this
Agreement and your performance of the obligations contemplated hereunder
will not result in a breach of any prior employment agreement, whether
written or oral, that you may have entered into with any former employer
or other third party.
b) No Use of Confidential or Proprietary Information. While in the employ
of the Bank, whether pursuant to this Agreement or otherwise, you will not make
use of any information, manuals, documents, files, reports, studies or other
materials that may have been used and/or developed while you were in the employ
of any prior employer(s), which information and/or materials are or may be
deemed of a confidential or proprietary nature by such other prior employer(s).
Xxx X. Thousand
May 7, 1996
Page 3
You further acknowledge and agree that any violation by you of this
Section 6 shall constitute grounds for termination of your employment
hereunder and that you may be held liable by the Bank for any losses
or damages suffered by the Bank as a result of any such violation.
7. Termination.
a) Termination for Cause. The Board may for cause terminate your
employment at any time during the Term of this Agreement. In such
event, all of your rights under this Agreement shall terminate and you
shall have no right to receive compensation, and other benefits shall
cease for any period after the effective date of such termination for
cause. Bonus compensation unpaid shall be forfeited. Termination for
cause shall be defined as your personal dishonesty, willful
misconduct, breach of fiduciary or duty of loyalty, continuing
intentional or habitual failure to perform stated duties, violation of
any law (other than minor traffic violations or similar misdemeanor
offenses), rule or regulation adopted by the Office of Thrift
Supervision, Federal Deposit Insurance Corporation or other regulatory
agency with jurisdiction over the Bank, any judgment, ruling or decree
by any court of competent jurisdiction or administrative body that
precludes or impairs your ability to perform the services contemplated
by this Agreement or any material breach by you of any provision of
this Agreement.
b) Termination Without Cause. The Bank may terminate your employment
without cause at any time during the Term of this Agreement. In the
event that the Bank terminates your employment without cause, you
shall be entitled to receive as severance compensation an amount as
provided in Exhibit C. The severance payment under this Section 7(b)
shall be provided in a lump sum or, at your election, in equal monthly
installments for a period not to exceed six (6) months from the date
of termination. This payment shall be in lieu of any and all other
compensation due under the agreement unless previously vested or
earned, except the amount of any bonus compensation payable to you
under Section 3(b) hereof, shall be prorated through the date of
termination.
c) Failure to Meet Performance Objectives. In the event that you fail to
achieve at least the performance objectives set forth in Exhibit D to
this Agreement within any applicable measuring period, the Bank may
terminate your employment under this Agreement. In such event (and
provided that your employment is not otherwise terminated for cause as
provided under Section 7(a)), you shall be entitled to receive as
severance compensation an amount equal to fifteen percent (15%) of the
remaining base salary to be provided to you under Section 3(a)
hereunder from the date of termination until the end of the Term. The
severance payment under this Section 7(c) shall be provided in a lump
sum or, at your election, in equal monthly installments for a period
not to exceed six (6) months from the date of termination. This
payment shall be in lieu of any and all other payments due under the
contract including bonus compensation.
Xxx X. Thousand
May 7, 1996
Page 4
d) Compliance with Law and Regulation. You and the Bank expressly
acknowledge and agree that any payments made to you pursuant to this
Agreement or otherwise are subject to and conditioned upon compliance
with 12 U.S.C. Section 1828(k) and any regulations promulgated
thereunder.
e) Suspension and Removal Orders. If you are suspended and/or temporarily
prohibited from participating in the conduct of the Bank's affairs by
notice served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit
Insurance Act (12 U.S.C. Section 1818 (e)(3) and (g)(1)), the Bank's
obligations under this Agreement shall be suspended as of the date of
service, unless stayed by appropriate proceeding. If the charges in the
notice are dismissed, the Bank may in its discretion: (I) pay you all or
part of the compensation withheld while its obligations under this
Agreement were suspended; and (ii) reinstate (in whole or in part) any
of its obligations which were suspended. If you are removed and/or
permanently prohibited from participating in the conduct of the Bank's
affairs by an order issued under Section 8(e)(4) or 8(g)(1) of the
Federal Deposit Insurance Act (12 U.S.C. Section 1818(e)(4) or (g)(1)),
all obligations of the Bank under this Agreement shall terminate as of
the effective date of the order, but vested rights of the parties shall
not be affected.
f) Termination by Default. If the Bank is in default (as defined in Section
3(x)(1) of the Federal Deposit Insurance Action (12 U.S.C. Section
1813(x)(1)), all obligations under this Agreement shall terminate as of
the date of default, but vested rights of the parties shall not be
affected.
g) Supervisory Assistance or Merger. All obligations under this Agreement
shall be terminated, except to the extent that it is determined that
continuation of the Agreement is necessary for the continued operation
of the Bank: (I) by the Director of the Office of Thrift Supervision
(the "Director") or his or her designee, at the time that the Federal
Deposit Insurance Corporation enters into an agreement to provide
assistance to or on behalf of the Bank under the authority contained in
Section 13(c) of the Federal Deposit Insurance Act (12 U.S.C. Section
1823(c)); or (ii) by the Director or his or her designee, at the time
that the Director or his or her designee approves a supervisory merger
to resolve problems related to the operation of the Bank or when the
Bank is in an unsafe or unsound condition. All rights of the parties
that have already vested, however, shall not be affected by such action.
h) Disability. In the event that you shall fail, because of illness,
incapacity or injury, to render the services contemplated by this
Agreement for three (3) consecutive calendar months, or for shorter
periods aggregating four (4) months in any twelve (12) month period,
your employment hereunder may be terminated by written notice from the
Bank to you. In the event that your employment is terminated under this
Section 7(h), you shall receive the difference between any disability
payments provided through insurance plans offered by the Bank, if any,
provided you have enrolled in such plans and paid the cost thereof, and
your base salary as
set forth in Section 3(a) hereof, for six months after notice from the
Bank, plus the amount of any bonus compensation payable to you under
Section 3(b) hereof, prorated through the date of termination. Such
termination shall not affect any rights which you may have pursuant to
any insurance or other death benefit, or any stock option plans or
options thereunder, which rights shall continue to be governed by the
provisions of such plans and arrangements.
i) Death. If your employment is terminated by reason of your death, this
Agreement shall terminate without further obligations of the Bank to you
(or your heirs or legal representatives) under this Agreement, other
than for payment of (i) your base salary (as set forth in Section 3(a)
hereof) through the date of termination; (ii) the amount of any bonus
compensation payable to you under Section 3(b) above, prorated through
the date of termination; (iii) any compensation previously deferred by
you; (iv) any accrued vacation and/or sick leave pay; and (v) any
amounts due pursuant to the terms of any applicable welfare benefit
plan. All of the foregoing amounts shall be paid to your estate or
beneficiary, as applicable, in a lump sum in cash within thirty (30)
days after the date of termination or earlier as required by applicable
law.
8. Disclosure or Use of the Bank's Trade Secrets. During the Term hereof, you
will have access to and become acquainted with what you and the Bank
acknowledge are trade secrets of the Bank. You shall not use or disclose
any trade secrets or, directly or indirectly, cause them to be used or
disclosed in any manner, except as may be required or requested by the
Bank, by court order or under applicable law or regulation. This paragraph
shall survive the termination of this agreement.
9. Return of Documents. You expressly agree that all manuals, documents, files,
reports, studies or other materials used and/or developed by you for the
Bank during the Term of this Agreement or prior thereto while you were
employed by the Bank are solely the property of the Bank, and that you have
no right, title or interest therein. Upon termination of this Agreement, you
or your representative shall promptly deliver possession of all such
materials (including any copies thereof) to the Bank.
10. Notices. All notices, demands or other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered in person,
or sent by United States mail, certified or registered, with return receipt
requested, if to you, addressed to you at your last residence address as
shown in the records of the Bank, and if to the Bank, addressed to
the President of the Bank at the Bank's principal office.
11. Governing Law and Jurisdiction. This Agreement shall be goverened by and
interpreted in accordance with the laws of the State of California. Each of
the parties hereto consents to the jurisdiction of the California state or
federal courts, as the case may be, for the enforcement of this Agreement
and matters pertaining to the transactions and activities contemplated
hereby.
12. Attorney's Fees. In the event that a dispute arises with respect to this
Agreement, or your employment or severance of your employment from the Bank,
the prevailing party in such dispute shall be entitled to recover all
expenses, including, without limitation, reasonable attorney's fees,
incurred in connection with such dispute.
Xxx X. Thousand
May 7, 1996
Page 6
13. BENEFIT OF AGREEMENT. This Agreement shall be binding upon and shall ensure
to the benefit of the parties hereto and their respective successors and
assigns; provided, however, that you may not assign any interest in this
Agreement without the prior written consent of the Bank.
14. CAPTIONS. Captions and paragraph heading used in this Agreement are for
convenience only and shall not be used in interpreting this Agreement.
15. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties with respect to your employment by the Bank, and it expressly
supersedes any and all other agreements, either oral or written, relating
thereto.
16. SEVERABILITY. Should any provision of this Agreement for any reason be
declared invalid, void or unenforceable by a court of competent
jurisdiction, the validity and binding effect of any remaining portions of
this Agreement shall remain in full force and effect as if this Agreement
had been executed with such invalid, void or unenforceable provisions
eliminated; provided, however, that the remaining provisions still reflect
the intent of the parties to this Agreement.
17. AMENDMENTS. This Agreement may not be amended or modified except by a
written agreement signed by you and the President of the Bank. This
Agreement and any amendment thereof may be executed in counterparts.
We look forward to your continued association with the Bank. In order to
confirm your agreement with and acceptance of the terms and conditions set forth
above, please sign and date one copy of this Agreement where indicated below and
return it to the Bank's Human Resources Department. The other copy is for your
records. If there is any matter in this Agreement that you wish to discuss
further, please do not hesitate to contact me.
Very truly yours,
/s/ Xxxxxxxx X. Grill
Xxxxxxxx X. Grill
President and
Chief Executive Officer
I agree to the terms of employment set forth in this Agreement subject to
approval of the Pan American Bank Board of Directors.
/s/ XXX X. THOUSAND 5/14/96
-------------------------- -----------------
Employee Date
EXHIBIT A
BONUS CALCULATIONS
GOALS
-----
December 31
----------------------------------------
1996 1997 1998
----------------------------------------
Volume for a month $1,500,000 $4,000,000 $7,000,000
Pre-Tax Profit $ (529,000) $1,235,000 $5,283,000
Delinquency (30+ Contractual) 4.0% 4.0% 4.0%
Net Charge-off 3.5% 3.5% 3.5%
These goals assume a cost of funds not to exceed prime +2 based on Wall Street
Journal prime, $1,000,000 in equity capital, and no corporate overhead
allocation.
BONUS
-----
Bonus will be calculated as follows:
YEAR 1
------
25% of base salary if all goals are met.
YEAR 2
------
25% of base salary if pre-tax profit of $750,000 is achieved and all other goals
essentially met.
50% of base salary if pre-tax profit of $1,000,000 is achieved and all other
goals essentially met.
75% of base salary if pre-tax profit of $1,235,000 is achieved and all other
goals essentially met.
100% of base salary if pre-tax profit of $1,500,000 is achieved and all other
goals essentially met.
YEAR 3
------
25% of base salary if pre-tax profit of $3,000,000 is achieved and all other
goals essentially met.
50% of base salary if pre-tax profit of $3,750,000 is achieved and all other
goals essentially met.
75% of base salary if pre-tax profit of $4,500,000 is achieved and all other
goals essentially met.
100% of base salary if pre-tax profit of $5,283,000 is achieved and all other
goals essentially met.
"Pre-tax profit" shall be based upon the amount reflected in the Bank's internal
financial statements without any allocation for Bank Corporate overhead, but
including Cost of Funds charged by the Bank at prime +2.
Attainment of goals/bonus assumes that there are no material changes in policy
by the Bank that might materially affect or limit the Auto Finance Division
Business Plan. If any material changes in policy by the Bank, then goals and
bonus calculation will be adjusted accordingly upon mutual agreement of the
parties.
Employee must be on the payroll at the end of the calendar year to be eligible
for payment of a bonus regardless of length of service or reason for termination
or resignation unless provided for specifically in the Employment Agreement. If
the Employee is discharged by the Company for "Willful Misconduct" or any other
reasons set forth in paragraph 7(a) of the Employment Agreement, any right of
the Employee to a bonus shall be forfeited even if the employee is on the
payroll at the end of the calendar year.
Bonus payments will be made within 60 days after the end of the calendar year
allowing for the review of the results of operations.
EXHIBIT B
Options
Options are to be granted totaling 7.5% of the Bank's Auto Finance Subsidiary
(during the term of this agreement the Auto Finance Division will be spun off
into a newly organized subsidiary corporation the current name of which is
anticipated to be United Auto Credit Corporation). By mutual agreement with
agreement not unreasonably withheld, "phantom stock plan" can be substituted for
an Option Plan provided it provides equivalent financial compensation and rights
as on Option Plan.
The exercise price of the options will be calculated at the end of each fiscal
year as follows:
Contributed Capital for each month will be defined as the additional capital
(over and above the Cumulative Capital Account at the end of the previous month)
needed in order to maintain a 5 to 1 debt to equity ratio at the end of such
month.
Adjusted Shareholder's Equity is defined as the sum of (i) Initial Capital plus
(ii) Contributed Capital plus (iii) Retained Earnings.
Liquidity event is either an Initial Public Offering or a sale of the auto
subsidiary.
Threshold Capital is defined as the sum of all Contributed Capital compounded at
a 30% per annum less the loan rate charged to the time it is computed.
1. The shares vested on each year will have an exercise price equal to the
Adjusted Shareholders' Equity at such time. (B)
2. The options will vest 20% per year based on attainment of 85% of net pre-tax
profit goal (except for year 1) for the Division or Subsidiary.
3. The shares could be exercised at a liquidity event only if the Bank or its
holding company receives consideration equal to or greater than the Threshold
Capital for the cumulative Contributed Capital at such time.
Calendar Percentage of Total Option 85% of Pre-tax Profit Goal, except for year one
-------- -------------------------- ---------------------------------------------------
YEAR 1 20% Start 3 Branches, generate $1.5 million in monthly
1996 volume by calendar year-end
YEAR 2 20% $ 1,050,000
1997
YEAR 3 20% $ 4,500,000
1998
YEAR 4 20% $ 8,000,000 (A)
1999
YEAR 5 20% $12,000,000 (A)
2000
(A) If pre-tax profit growth not attained then the goal will be adjusted to
achieving a 5% ROA.
(B) If growth is faster than Plan, the Plan Adjusted Shareholder Equity as set
forth in Schedule 1 to this Exhibit B will be the maximum exercise price.
Page 1
The "pre-tax profit goal" assumes a cost of funds equivalent prime rate plus 200
basis points (as provided in the business plan 8.5%+2%=10.5%), an initial
equivalent capitalization of $1,000,000 and no corporate overhead allocation
from the Bank. Should any year's goal not be met, the option amount for that
year will carry over to the next year. If the goal is met in the succeeding year
(including the cumulative profit goal for the previous year(s)), then the
previously unearned option(s) amount will vest. Unearned option(s) amounts will
carry over for five years and to the extent not vested will terminate and
therefore be null and void.
Should the Bank sell the Auto Finance Subsidiary to any other unaffiliated
entity, all options will immediately vest or in the case of a "phantom stock
plan" the equivalent will be provided for. If the Auto Finance Subsidiary is
transferred within the affiliated structure, the obligation and benefits of
the option or "phantom stock plan" shall continue in full force or effect.
Attainment of goals/bonus assumes that there are no material changes in policy
by the Bank that might materially affect or limit the Auto Finance Division
Business Plan. If any material changes in policy by the Bank then goals and
bonus calculation will be adjusted accordingly, upon mutual agreement of the
parties.
The terms and conditions for Options or "phantom stock plan" will be more fully
set forth in a Plan Document or the equivalent thereof to be finalized September
30, 1996.
The sale of shares acquired through exercise of options shall be subject to a
shareholders' agreement giving the Bank first right refusal.
Schedule 1
Summary Financials
------------------
1996 1997 1998 1999 2000
------ ------ ------ ------- -------
Net Income (317) 741 3,170 6,160 9,286
Net Loans 10,266 38,555 75,637 119,248 166,918
Total Assets 10,177 37,675 73,727 116,237 162,703
Beginning Shareholders Equity 1,000 683 1,424 4,594 10,754
Retained Earnings (317) 741 3,170 6,160 9,286
Shareholders Equity/(1)/ 683 1,424 4,594 10,754 20,040
Prev. Contributed Capital - 1,370 6,287 10,533 13,096
Capital Contributed in period/(2)/ 1,370 4,917 4,246 2,562 248
Adj. Shareholders Equity 2,053 7,711 15,127 23,850 33,384
Loans/Adj. Shareholders Equity 5.0x 5.0x 5.0x 5.0x 5.0x
Cumulative Capital Contributed 2,370 7,287 11,533 14,096 14,344
1 2 3 4 5
------------------------------------------
Hurdle Rate 30.0% 2,370 2,832 3,385 4,045 4,833
Loan Rate 10.5% 4,917 5,876 7,021 8,390
Extra Yield 19.5% 4,246 5,074 6,064
2,562 3,062
248
Threshold Capital/(3)/ 2,370 7,749 13,507 18,703 22,598
/(1)/ Per management projections
/(2)/ For illustrations purposes the Contributed Capital is computed at year end
versus monthly as agreed
/(3)/ Threshold Capital at the end of period if liquidity event occurs
Page 3
EXHIBIT C
Severance Compensation
Upon Termination Without Cause
Pursuant to 7(b)
If termination occurs during the first two years of the term of this contract
the payment shall be equal to twelve (12) months salary at the then current
base salary.
If termination occurs in the third year, the amount paid shall be the actual
amount of total months base salary remaining to be paid to the end of the term
of the contract.
EXHIBIT D
TERMINATION - FAILURE TO MEET PERFORMANCE OBJECTIVES
PURSUANT TO 7(c)
If Monthly Delinquencies in any year (30+ days past due) and Net Charge-Offs =
15+% - no termination payment.
Failure to meet any 2 of 4 objectives in any year will constitute Failure to
Meet Performance Objective:
1st Year Monthly Volume less than $1 million gross in December 1996
Profit less than ($700,000 Loss) pretax
Delinquency (30 days+) greater than 6%
Net % of Charge-Offs greater than 4%
2nd Year Monthly Volume less than $2 million gross in December 1997
Profit less than $600,000
Delinquency (30 days+) greater than 7%
Net % of Charge-Offs greater than 5%
3rd Year Monthly Volume less than $3.5 million gross in December 1998
Profit less than $2.5 million
Delinquency (30 days+) greater than 7%
Net % of Charge-Offs greater than 6%
