EXHIBIT 10.4
EXECUTIVE RETENTION
AND
EMPLOYMENT AGREEMENT
This Executive Retention and Employment Agreement is entered into as of
the 19th day of January, 2001, by and between SOURCE CAPITAL CORPORATION, a
Washington corporation (the "Company" or "Employer") and D. XXXXXXX XXXXX (the
"Executive").
WHEREAS, Executive is the President and Chief Executive Officer of
Employer; and
WHEREAS, the Employer desires to retain Executive as its President and
Chief Executive Officer and Executive desires to continue his employment with
and to serve the Employer in the capacities and for the term and compensation
and upon and subject to the terms and conditions hereinafter set forth,
NOW, THEREFORE, in consideration of the promises and covenants herein,
Employer and Executive mutually undertake and agree as follows:
1. Employment; Employment Period. Employer hereby agrees to continue to employ
Executive and Executive hereby accepts continued employment from Employer, on
the terms and conditions herein specified. This Agreement will begin on the
Effective Date and, unless earlier terminated in accordance with this Agreement,
will expire on March 31, 2004 (the "Employment Period").
2. Duties of Executive.
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2.1 Principal Duties. Employer hereby employs Executive as its
President and Chief Executive Officer of Employer, to perform such
duties for Employer as may reasonably be requested of Executive by the
Board of Directors of Employer. Executive shall report directly to the
Board of Directors of Employer.
2.1.1 The business of the Employer includes lending
activities, primarily making loans to individuals,
corporations, and other entities for commercial
business and mortgage lending.
2.1.2 The business of the Employer also includes
identifying other companies for acquisition by, or
merger with, Employer, as approved by Employer's
Board of Directors.
2.1.3 It is contemplated that the duties of Executive under
this Agreement will not require his full time and
attention and that it will be necessary for Executive
to only devote approximately one-half of his time to
the performance of his duties hereunder.
During periods of time when Executive's services are
not required by Employer hereunder, Executive will be
free to accept employment and perform services for
another Employer, including, but not limited to,
Xxxxx X. Xxxxx, Inc. or any of its affiliated
companies. If, in the reasonable judgment of
Executive and the existing members of the Employer's
Compensation Committee (Messrs. Barnes, Wolff,
Xxxxxxx and Xxxxxx), the business activities of
Employer require that more time be devoted by
Executive to the Employer's business, Executive
agrees to devote such additional time as may be
required; provided, however, if Executive is required
to devote more than one-half of his time to
Employer's business, the salary amount and
Performance Bonus percentage payable to Executive
under this Agreement shall be increased
proportionately.
3. Compensation.
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3.1 Salary. Employer shall pay Executive a yearly salary of Eighty
Four Thousand Dollars ($84,000.00). Executive may direct
Employer as to the method and manner of payment of
compensation so as to minimize taxation to Executive.
3.2 Cost of Living Increase Adjustment.
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(a) The payment described in Section 3.1 of this
Agreement shall be adjusted to reflect cost-of-living
increases in order to ensure that the real value of
the payments provided under this Agreement are not
impaired by changing economic conditions.
(b) On January 1, 2002, and each January 1st thereafter,
Employer shall compute a cost-of-living increase
adjustment factor by which payments during the
following year are to be multiplied. The payments to
be multiplied are those determined under Section 3.1
without regard to any prior cost-of-living increase
adjustment. The factor shall consist of a fraction,
the numerator of which shall be the most recently
determined cost-of-living index when the calculation
is made, and the denominator of which shall be the
most recently determined cost-of-living index
determined prior to January 1, 2001.
(c) That all items, for the Standard Metropolitan
Statistical Area of Seattle, Washington
cost-of-living index required for this calculation
shall be obtained from the Consumer Price Index
published by the Bureau of Labor Statistics of the
United States Department of Labor. In any year in
which this index is not available Employer shall
ascertain and utilize some similar criterion and
establish retroactively an initial index figure for
the denominator of the fraction consistent with the
intent of this Agreement.
(d) Nothing in this Agreement shall be construed to
diminish the fixed amount payable under this
Agreement as established above, or to diminish the
amount of any particular payment.
3.3 Bonus. By January 15 of each year, beginning January 15, 2002,
Executive shall receive a cash bonus (the "Performance Bonus")
based upon Employer's net earnings for the prior year. Such
Performance Bonus shall be determined in the following manner:
Executive shall receive a bonus of five percent (5%) of
Employer's net earnings. For purposes of this Section, net
earnings shall be defined as before tax earnings computed by
the Employer's Certified Public Accountant using generally
accepted accounting principles consistently applied with the
following adjustments;
(i) No deductions shall be taken for stock
options given to or exercised by Executive,
the Directors, or Key Employees or under any
stock option plan.
(ii) No deductions shall be taken for bonuses
given to Executive.
(iii) No federal, state, and local income taxes
shall be deductible.
Any Performance Bonuses earned herein will be advanced on the
following dates: April 15 based on a computation for the first
quarter of Employer's operations; July 15 based on a
computation for the second quarter of Employer's operations;
October 15 based on a computation for the third quarter of
Employer's operations; and on January 31 based on a
computation for the fourth quarter of Employer's operations.
Notwithstanding the above, if net earnings for the complete
year at
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December 31 indicate Executive has been bonused in excess of
five percent (5%) of net earnings for Employer's fiscal year,
Executive agrees to reimburse Employer such excess amount by
February 15 of the year following. Each complete year shall be
considered separately and not cumulatively for purposes of
this calculation.
3.4 Disability Pay. In the event Executive becomes unable to
perform his duties hereunder by reason of illness or accident,
he shall receive full salary during the first six (6) months
of such incapacity in any elapsed period of twelve (12) months
("Disability Pay"). Disability Pay under this provision shall
be noncumulative. Employer may, in its sole discretion,
maintain a disability insurance policy for the purpose of
funding benefits for Executive while so incapacitated.
3.5 Expenses. Executive shall be entitled to receive reimbursement
for all reasonable expenses incurred by him in connection with
the performance of his duties, provided he submits an itemized
statement for such expenses to Employer and, if required by
Employer, actual receipts of the expenses so incurred.
3.6 Reimbursement of Disallowed Expenses. If any expense allowance
or reimbursement is disallowed in whole or in part as a
deductible expense of Employer for federal income tax
purposes, shall reimburse the Employer, upon notice and
demand, to the full extent of the disallowance. This legally
enforceable obligation is in accordance with the provisions of
Revenue Ruling 69-115 and it is for the purpose of entitling
Executive to a business expense deduction for the taxable year
in which the repayment is made to the Employer. In this manner
the Employer will be protected from having to bear the entire
burden of a disallowed items.
3.7 Fringe Benefits. While he is in the employ of the Employer,
Executive shall be entitled to the following benefits:
(a) Automobile Use. Executive shall receive Five Hundred
dollars ($500.00) per month automobile reimbursement
expense. Executive shall arrange for an "umbrella"
policy in the name of Employer or naming Employer as
an additional insured in the minimum amount of Three
Million Dollars ($3,000,000).
(b) Incentive, Savings and Retirement Plans. During the
Employment Period, Executive will be entitled to
participate in all executive incentive compensation
and bonus programs (including stock option,
performance share and restricted stock grants), and
savings and retirement plans, policies and programs,
applicable generally to officers or executives of
Employer.
(c) Welfare Benefit Plans. During the Employment Period,
Executive will be eligible for participation in and
will receive all benefits under welfare benefit
plans, policies and programs provided by Employer
(including, without limitation, medical,
prescription, dental, disability, employee life,
group life, accidental death and travel accident
insurance plans and programs) to the extent available
generally to other officers or executives of Employer
who are employed on a full-time basis and their
families.
(d) Vacation. Beginning January 19, 2001, Executive shall
be entitled each year to a vacation of eight (8)
weeks during which time his compensation shall be
paid in full; provided however, Executive shall not
take more than two (2) consecutive weeks of vacation,
without prior approval of the Chairman of the Board.
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(e) Other Benefits. Executive shall be entitled to
participate in any pension plans, or anyother health
insurance plans, or other fringe benefit plan which
the Employer may adopt from time to time for the
benefit of its officers or executive employees
employed on a full-time basis.
(f) Retention Bonus. Conditioned upon Executive
remaining continuously in the employment of Employer
or its affiliated entities on March 31, 2004, or
such earlier date as the Board of Directors of
Employer reasonably determine that the liquidation
of the lease portfolio of Source Leasing has been
completed and that there is no further need for
Executive's services with Employer, Employer shall
pay to Executive a retention bonus (the "Retention
Bonus") equal in amount to the lump sum severance
benefit that would be payable to Executive under
Section 5(a) of this Agreement upon a termination of
Executive's employment by Employer without cause;
provided, however, Executive shall not be entitled
to, and shall not, receive any Retention Bonus
payment under this Section 3.7(f) if Executive is
entitled to receive or has received the Lump Sum
Severance Payment or the "Change of Control"
Severance Payment provided for under Sections
5(a)(i) or 6(a)(i) of this Agreement; and provided
further, that upon the payment of the Retention
Bonus to Executive, this Agreement shall be deemed
to be terminated; and provided further that the
payment of the Retention bonus shall be in lieu of
all further compensation under this Agreement,
including, but not limited to, the Lump Sum
Severance Payment provided for by Section 5(a)(i) of
this Agreement and the Change of Control Severance
Payment provided for by Section 6(a)(i) of this
Agreement. The Retention bonus shall be payable to
Executive within ten (10) business days from the
date of the event giving rise to its payment.
3.8 Term. The term of this Agreement shall be the period
beginning on January 19, 2001 (the "Commencement Date") and
terminate on March 31, 2004 (the "Termination Date"),
(a) unless Executive shall sooner die or become disabled,
whereupon this Agreement shall terminate as herein
provided, or
(b) unless this Agreement shall be sooner terminated by
Executive as herein provided for, or
(c) unless this Agreement shall be sooner terminated by
Employer as provided for in Section 4.
4. Termination of Employment.
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(a) Death or Disability. Executive's employment will
terminate automatically upon Executive's death
during the Employment Period. If Employer determines
in good faith that the Disability of Executive has
occurred during the Employment Period (pursuant to
the definition of Disability set forth below), it
may (subject to the Disability Pay provisions of
Section 3.4) give to Executive written notice in
accordance with Section 13 of this Agreement of its
intention to terminate Executive's employment. In
such event, Executive's employment will terminate
effective on the 30th day after receipt by Executive
of such written notice (the "Disability Effective
Date"), provided that, within the 30 days after such
receipt, Executive shall not have returned to
full-time performance of Executive's duties; and
provided further, that Executive will
notwithstanding the termination of this Agreement be
entitled to receive the Disability Pay provided for
under
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Section 3.4 of this Agreement. For purposes of this
Agreement, "Disability" means the existence of any
physical or mental condition of Executive that
results in his receipt of long-term disability
benefits under Source Capital's long term disability
plan.
(b) Termination for Cause. Employer may terminate
Executive's employment during the Employment Period
for Cause. For purposes of this Agreement, "Cause"
means:
(i) the willful and continued failure of
Executive to substantially perform
Executive's duties with Employer (other than
any such failure resulting from incapacity
due to physical or mental illness), after a
written demand for substantial performance
is delivered to Executive by the Board of
Directors (the "Board") of Employer that
specifically identifies the manner in which
the Board of Employer believes that
Executive has not substantially performed
Executive's duties;
(ii) the willful engaging by Executive in illegal
conduct or gross misconduct that is
materially and demonstrably injurious to
Employer;
(iii) personal dishonesty or breach of fiduciary
duty to Employer that results or was
intended to result in personal profit to
Executive at the expense of Employer or any
of its affiliated companies.
(iv) willful violation of any law, rule or
regulation which results in a felony
conviction of Executive, which violation is
materially and demonstrably injurious to
Employer.
For purposes of the preceding clauses, no act or failure to
act, on the part of Executive, shall be considered "willful"
unless it is done, or omitted to be done, by Executive in bad
faith and without reasonable belief that Executive's action or
omission was in the best interests of Employer. Any act, or
failure to act, based upon prior approval given by the Board
of Directors of Employer or upon the instructions or with the
approval of Executive's superior or based upon the advice of
counsel for Employer, shall be conclusively presumed to be
done, or omitted to be done, by Executive in good faith and in
the best interests of Employer. The cessation of employment of
Executive shall not be deemed to be for Cause unless and until
there shall have been delivered to Executive, as part of the
Notice of Termination, a copy of a resolution duly adopted by
the affirmative vote of not less than two-thirds of the entire
membership of Employer's Board at a meeting of Employer's
Board called and held for the purpose of considering such
termination (after reasonable notice is provided to Executive
and Executive is given an opportunity, together with counsel,
to be heard before Employer's Board) finding that, in the good
faith opinion of Employer's Board, Executive is guilty of the
conduct described in clause (i), (ii), (iii), or (iv) above,
and specifying the particulars there of in detail.
(c) Termination for Good Reason. Subsequent to and
conditioned upon a "Change of Control" of Employer as
defined in Section 6(a)(i) hereof, Executive's
employment may be terminated by Executive for Good
Reason. For purposes of this Agreement, "Good Reason"
means the occurrence during the Employment Period
subsequent to a Change of Control of any of the
following events:
(i) Inferior Duties. The assignment of duties to
Executive by Employer which
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(i) are largely inferior to Executive's
duties immediately prior to a Change of
Control; or (ii) result in Executive having
inconsequential authority or responsibility
compared to the authority or responsibility
he had on the date of a Change of Control,
without his express written consent.
(ii) Salary Reduction. A reduction by Employer of
Executive's rate of Base Salary or
Performance Bonus as in effect on the date
of a Change of Control.
(iii) Fringe Benefit Reduction. The failure by
Employer to continue in effect any Plan (as
hereinafter defined) in which Executive is
participating at the time of the change in
control of Employer(or Plans providing
Executive with at least substantially
similar benefits) other than as a result of
the normal expiration of any such Plan in
accordance with its terms as in effect at
the time of the Change in Control, or the
taking of any action, or the failure to act,
by Employer which would adversely affect
Executive's continued participation in any
of such Plans on at least as favorable a
basis to Executive as was the case on the
date of the Change in Control or which would
materially reduce Executive's benefits in
the future under any of such Plans or
deprive Executive of any material benefit
enjoyed by Executive at the time of the
Change in Control.
(iv) Vacation Reduction. The failure by Employer
to provide and credit Executive with the
number of paid vacation days to which
Executive is then entitled in accordance
with this Agreement.
(v) Relocation. Employer requiring Executive to
be based anywhere other than a place within
25 miles of where Executive's office is
located immediately prior to the Change in
Control except for required travel on
business to an extent substantially
consistent with the business travel
obligations which you undertook on behalf of
Employer prior to the Change in Control.
(vi) Failure of Assumption. The failure by
Employer to obtain from any successor the
assent to this Agreement contemplated by
Section 10(c).
(vii) Defective Termination. Any purported
termination by Employer of Executive's
employment which is not effected pursuant to
a Notice of Termination satisfying the
requirements of this Agreement; and for
purposes of this Agreement, no such
purported termination shall be effective.
(viii) Breach. A material breach by Employer of any
provision of this Agreement.
For purposes of this subsection, "Plan" shall mean any
compensation plan such as an incentive or stock option plan or
any employee benefit plan such as a thrift, pension, profit
sharing, medical, disability, accident, life insurance plan,
or a relocation plan or policy or any other plan, program, or
policy of Employer.
(d) Resignation. In the event Executive resigns as an
employee without good reason, prior to a Change of
Control or after a Change of Control, Executive shall
be entitled to his salary under Section 3.1 for a
period of three (3) months, and his Performance Bonus
prorated for such year of termination computed as
described herein. Said sums shall be paid to
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Executive in a manner that minimizes tax liability
for Executive, all at the request of Executive.
Executive also shall retain the right to payment of
all compensation earned to the date of termination
[specifically all compensation, benefits or
securities earned under Sections 3.2, 3.4, 3.5 and
3.7 (a,b,c,d,e and f)]; provided, however, in the
event Executive still has options upon the date of
termination, such Options must be exercised within
three (3) months of termination. If such termination
occurs other than on December 31, the bonus provided
for under Section 3.3 in the year of termination
shall be paid on and prorated to the nearest
following dates, and computed based upon the
Company's performance as follows: payable on April 15
based on a computation for the first quarter of
Employer's operations; payable on July 15 based on a
computation for the first and second quarter of
Employer's operations; payable on October 15 based on
a computation for the first, second and third quarter
of Employer's operations; and payable on February 15
based on a computation for the first, second, third
and fourth quarter of Employer's operations;
provided, however, nothing herein shall be construed
to entitle Executive to a Performance Bonus
attributable to a period of time after termination.
(e) Notice of Termination. Any termination of
Executive's employment for Cause, or by Executive
for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in
accordance with Section 14 of this Agreement. For
purposes of this Agreement, a "Notice of
Termination" means a written notice that (i)
indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the
facts and circumstances claimed to provide a basis
for termination of Executive's employment under the
provision so indicated, and (iii) specifies the
termination date (which date shall be not less than
60 days after the giving of such notice). If a
dispute exists concerning the provisions of this
Agreement that apply to Executive's termination of
employment, the parties shall pursue the resolution
of such dispute with reasonable diligence. Within
five (5) days of such a resolution, any party owing
any payments pursuant to the provisions of this
Agreement shall make all such payments together with
interest accrued thereon at the rate provided in
Section 1274(b)(2)(B) of the Internal Revenue Code
of 1986, as amended (the "Code"). Termination of
Executive's employment shall occur on the specified
Date of Termination even if there is a dispute
between the parties relating to the provisions of
this Agreement that apply to such termination. The
failure by Executive or Employer to set forth in the
Notice of Termination any fact or circumstance that
contributes to a showing of Good Reason or Cause
will not waive any right of Executive or Employer,
respectively, hereunder or preclude Executive or
Employer, respectively, from asserting such fact or
circumstance in enforcing Executive's or Employer's
rights hereunder.
(f) Date of Termination. "Date of Termination" means (i)
if Executive's employment is terminated by Employer
other than by reason of death or Disability, the date
specified in the Notice of Termination, or (ii) if
Executive's employment is terminated by reason of
death or Disability, the Date of Termination will be
the date of death or the Disability Effective Date,
as the case may be.
5. Obligations of Employer.
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(a) Termination Without Cause Prior to Completion of
Employment Period. If, prior to the completion of the
Employment Period, Executive's employment is
terminated by
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Employer without Cause (other than by reason of
Executive's death or Disability), then in
consideration of Executive's services rendered prior
to such termination, Executive shall be entitled to
receive:
(i) Lump-Sum Severance Payment. In lieu of any
further salary payments to Executive for
periods subsequent to the Date of
Termination, Employer shall pay to Executive
a lump sum severance payment, in cash,
without discount, equal to the sum of (A)
two (2) times the sum of the W-2
compensation paid to Executive during the
previous calendar year by Employer, plus (B)
$56,800; provided, however, that Executive
shall not be entitled to, and shall not,
receive any payment under this Section
5(a)(i) if Executive is entitled to receive
or has received, the "Change of Control
Severance Payment" provided for by Section
6(a) of this Agreement; and provided
further, that the amount of the lump sum
severance benefit shall be reduced by the
amount of any payment to Executive during
the Employment Period from or as a result of
cash lease recoveries on leases to Silver
Valley Hospital District and/or Xx. Xxxxxx
Xxxxxxxxx that were written off in the year
2000 by Employer.
(ii) Vesting of Options. Any and all options
granted by Employer to purchase common stock
of Source Capital then held by Executive
will, to the extent not already vested,
become vested and exercisable in full as of
the Date of Termination, and any provision
contained in the agreement(s) under which
such options were granted that is
inconsistent with such acceleration is
hereby modified to the extent necessary to
provide for such acceleration of vesting.
(iii) Medical Benefits. Any health, medical or
dental insurance benefits provided to
Executive immediately prior to the Date of
Termination shall be continued through March
31, 2004.
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(iv) Other Benefits. To the extent not
theretofore paid or provided, Employer shall
timely pay or provide to Executive any other
amounts or benefits required to be paid or
provided or that Executive is eligible to
receive under any plan, program, or policy
of Employer and its affiliated companies
(such other amounts and benefits will be
hereinafter referred to as the "Other
Benefits").
(b) Death. If Executive's employment is terminated by
reason of Executive's death during the Employment
Period, this Agreement will terminate without
further obligations to Executive's legal
representatives under this Agreement, other than for
payment of the sum of Accrued Compensation (as
defined below), the vesting of stock options, and
the timely payment or provision of Other Benefits,
including without limitation any death benefits to
which Executive is then entitled. For purposes of
the Agreement, "Accrued Compensation" means all
amounts of compensation for services rendered by
Executive to Employer or any affiliate that have
been earned or accrued through the Date of
Termination but that have not been paid as of the
Date of Termination, including (i) Base Salary, (ii)
reimbursement (in accordance with Employer's expense
reimbursement policy) for reasonable and necessary
business expenses incurred by Executive on behalf of
Employer during the period ending on the Date of
Termination, (iii) vacation pay, and (iv) bonuses
and incentive compensation. Accrued Compensation
shall be paid to Executive in a lump sum in cash
within 30 days of the Date of Termination or in
accordance with any deferral election theretofore
elected by Executive.
(c) Disability. If Executive's employment is terminated
by reason of Executive's Disability during the
Employment Period, this Agreement will terminate
without further obligations to Executive, other than
for payment of Accrued Compensation, the vesting of
stock options and restricted stock, and the timely
payment or provision of Other Benefits, including
without limitation any disability benefits to which
Executive is then entitled. Accrued Compensation
shall be paid to Executive in a lump sum in cash
within 30 days of the Date of Termination or in
accordance with any deferral election theretofore
elected by Executive.
(d) Cause. If Executive's employment is terminated for
Cause during the Employment Period, this Agreement
will terminate without further obligations to
Executive, other than for payment of Accrued
Compensation and the timely payment or provision of
Other Benefits. In such case, all Accrued
Compensation shall be paid to Executive in a lump sum
in cash within 30 days of the Date of Termination or
in accordance with any deferral election theretofore
elected by Executive.
(e) Resignation. If Executive's employment is terminated
by his resignation prior to a Change of Control or
following a Change of Control without Good Reason,
this Agreement shall terminate without further
obligations to Executive, other than for payment of
the amounts payable to Executive under Section 4(d),
and for payment of Accrued Compensation and the
timely payment of Other Benefits.
6. Termination Following Change of Control.
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(a) In the event of a termination of Executive's
employment by Employer without Cause or termination
of Executive's employment for Good Reason upon or
following a "Change of Control" of Employer (as
defined below) during the Employment Period,
Employer shall pay to Executive, in addition to
Accrued Compensation and those payments due him
under Section 5(a)(ii), (iii) and (iv), a "Change of
Control Severance Payment" equal to (A) two (2)
times Executive's Base Salary and bonus
compensation, as reported on Executive's annual Form
W-2 for the year preceding the year in which the
Change of Control occurs, plus (B) $56,800; provided
however, that such Change of Control severance
payment shall be reduced by the amount of any
Retention Bonus or lump sum Severance Payment paid
or due to Executive under Sections 3.7(f) or 4(a)(i)
of this Agreement; provided further that the amount
of the lump sum severance benefit shall be
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reduced by the amount of any payment to Executive
during the Employment Period from or as a result of
cash lease recoveries on leases to Silver Valley
Hospital District and/or Xx. Xxxxxx Xxxxxxxxx that
were written off in the year 2000 by Employer. A
"Change of Control" of Employer shall mean:
(i) A change in control of a nature that would
be required to be reported in response to
Item 6(e) of Schedule 14A of Regulation 14A
as in effect on the date hereof pursuant to
the Exchange Act of 1934; provided that,
without limitation, such a change in control
shall be deemed to have occurred at such
time as any person hereafter becomes the
"beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or
indirectly, of 25 percent or more of the
combined voting power of the voting
securities of Employer, except that a change
in control shall not be deemed to have
occurred in the event a person who presently
owns 10 percent or more of Employer's voting
securities outstanding as of the date of
this Agreement, directly or indirectly,
becomes the owner of 25 percent or more of
the combined voting power of the voting
securities of Employer; or
(ii) During any period of two consecutive years,
individuals who at the beginning of such
period constitute the Board of Employer
cease for any reason to constitute at least
a majority thereof unless the election, or
the nomination for election by Employer's
shareholders, of each new director was
approved by a vote of at least two-thirds of
the directors then still in office who were
directors at the beginning of the period; or
(iii) There shall be consummated (x) any
consolidation or merger of Employer in which
Employer is not the continuing or surviving
corporation or pursuant to which voting
securities of Employer would be converted
into cash, securities, or other property,
other than a merger of Employer in which the
holders of their voting securities
immediately prior to the merger have the
same proportionate ownership of common stock
of the surviving corporation immediately
after the merger, or (y) any sale, lease,
exchange, or other transfer (in one
transaction or a series of related
transactions) of all, or substantially all
of the assets of Employer.
(iv) A Change of Control shall be deemed to have
occurred on the date the events resulting in
the Change of Control are completed and
closed.
(b) Limitations on Payments. Notwithstanding any other
provision of this Agreement, in the event that any
payment or benefit received or to be received by the
Executive in connection with the termination of the
Executive's employment (whether pursuant to the
terms of this Agreement or any other plan,
arrangement or agreement (all such payments and
benefits, including the payments and benefits
provided for hereunder, being hereinafter called
"Total Payments") would not be deductible (in whole
or part), by Source Capital, an affiliate or other
person or entity making such payment or providing
such benefit as a result of section 280G of the
Code, as amended, then, to the extent necessary to
make such portion of the Total Payments deductible,
(A) the cash payments provided for by Section
5(a)(i) hereof or Section 6(a)(i) hereof shall first
be reduced (if necessary, to zero), and (B) the
benefits provided for by Sections 5(a)(ii),
5(a)(iii) and 5(a)(iv) hereof shall next be reduced
(if necessary). For purposes of this limitation, no
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portion of the Total Payments the receipt or
enjoyment of which the Executive shall have waived
by written notice to Source Capital prior to the
date of payment of the Severance Benefits shall be
taken into account. All determinations required to
be made under the provisions of this Section 6(b)
shall be made by tax counsel selected by Employer's
independent auditors and acceptable to the
Executive.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit Executive's continuing or future participation in any plan, program or
policy provided by Employer or any of its affiliated companies and for which
Executive may qualify. Amounts that are vested benefits or that Executive is
otherwise entitled to receive under any plan, policy, or program of Employer or
any of its affiliated companies at or subsequent to the Date of Termination will
be payable in accordance with such plan, policy, or program, except as
explicitly modified by this Agreement.
8. Full Settlement; Certain Legal Expenses.
---------------------------------------
(a) Employer's obligation to make the payments provided
for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any
set-off, counterclaim, recoupment, defense or other
claim, right or action that Employer or any of its
affiliated companies may have against Executive or
others. In no event shall Executive be obligated to
seek other employment or take any other action by
way of mitigation of the amounts payable to
Executive under any of the provisions of this
Agreement and such amounts shall not be reduced
whether or not Executive obtains other employment.
(b) Employer shall pay to Executive all reasonable legal
fees and expenses incurred by Executive as a result
of a termination that entitles Executive to any
payments under this Agreement including all such
fees and expenses, if any, incurred in contesting or
disputing any Notice of Termination given hereunder
or in seeking to obtain or enforce any right or
benefit provided by this Agreement or in connection
with any tax audit or proceeding to the extent
attributable to the application of Section 4999 of
the Code to any payment or benefit provided
hereunder. Such payments shall be made within ten
(10) business days after delivery of Executive's
respective written requests for payment accompanied
with such evidence of fees and expenses incurred as
Employer reasonably may require.
9. Assignment and Successors.
-------------------------
(a) Executive. This Agreement is personal to Executive
and without the prior written consent of Employer
shall not be assignable by Executive otherwise than
by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be
enforceable by Executive's legal representatives.
(b) Source Capital. This Agreement shall inure to the
benefit of and be binding upon Employer and its
successors and assigns.
(c) Assumption by Successors. Employer will require any
successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of
Employer to assume expressly and agree to perform
this Agreement in the same manner and to the same
extent that Employer would be required to perform it
if no such succession had taken place. As used in
this Agreement, "Employer"
11
means Source Capital Corporation and any successor
to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by
operation of law or otherwise.
(d) No Waiver. The failure by Employer to exercise its
right to terminate Executive's employment under this
Agreement with respect to any one or more of the
matters referred to in Section 5 above, or with
respect to any incapacity of Executive which would
give rise to the Employer having a right to
terminate this Agreement, as provided for above,
shall not be taken or held to be a waiver by the
Employer of its right of termination of this
Agreement in respect of that breach or incapacity
(provided it shall be continuing) or of any
subsequent breach or incapacity. Section 5 shall not
limit the Employer's rights or remedies, other than
in regard to termination, for a breach of this
Agreement by Executive.
(e) Rights Preserved. In the event that at any time
during the term of this Agreement, the Employer
shall be liquidated or dissolved or merged into or
consolidated with another corporation, all rights of
Executive under this Agreement shall be preserved
unimpaired, and all liabilities and obligations of
Employer hereunder shall thenceforth flow to the
entity receiving the properties and assets of
Employer in such liquidation and dissolution, or the
surviving corporation in such merger or
consolidation, and may be enforced against
corporation in such merger or consolidation, and may
be enforced against it to the same extent as if this
Agreement had been entered into by it; provided,
however, that in the event Employer is merged into
another corporation and is not the surviving entity,
Executive shall exercise his Options prior to the
effective date of such merger and, if such Options
are not so exercised, then they shall automatically
expire and terminate.
10. Disclosure of Information. Executive will not, during or any time after
termination of employment hereunder, without written authorization of Employer,
disclose to, or make use of, for himself or for any person or corporation or
other entity, any files or trade secrets or other confidential or proprietary
information concerning the business, clients, methods, operations, financing, or
services of Employer. Trade secrets and confidential information shall mean the
information disclosed to Executive or known by him as a consequence of his
employment by Employer, whether or not pursuant to this Agreement and not
generally known in the industry.
11. Surrender of Books and Records. Executive acknowledges that all files,
lists, books, records, products, and other materials owned by Employer or used
by it in connection with the conduct of its business shall at all times remain
the property of Employer and that upon termination of employment hereunder,
irrespective of the time, manner, or cause of such termination, Executive will
surrender to the Employer all such files, lists, books, records, products, and
other materials.
12. Severability. If any provisions of this Agreement shall be held invalid
or unenforceable, the remainder of this Agreement shall, nevertheless, remain in
full force and effect. If any provisions are held invalid or unenforceable with
respect to particular circumstances, it shall nevertheless, remain in full force
and effect in all other circumstances.
13. Notice. All notices required to be given under the terms of this
Agreement shall be in writing, shall be effective, upon receipt, and shall be
delivered to the addressee in person or mailed by certified mail, return receipt
requested:
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If to Employer: Source Capital Corporation
c/o Chairman of the Board
0000 X. Xxxxxxxxxx Xxxx
Xxxxxxx, XX 00000
If to Executive: D. Xxxxxxx Xxxxx
PMB 212
0000 X. 00xx Xxxxxx
Xxxxxxx, XX 00000
14. Benefit. This Agreement shall inure to and shall be binding upon the
parties hereto, the successors and assigns of Employer and the heirs and
personal representatives of Executive. This Agreement cannot be assigned by
Executive because of the personal services required of Executive.
15. Waiver. The waiver by either party of any breach or violation of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach or violation hereof.
16. Governing Law. This Agreement has been negotiated and executed in the
State of Washington, and the law of that state shall govern its construction and
validity.
17. Arbitration. Any controversy arising out of, connected to, or relating
to any matters herein of the transactions between Executive and Employer
(including for purposes of arbitration, officers, directors, employees,
controlling persons, affiliates, professional advisors, accountants, attorneys,
agents, or promoters of the Employer), on behalf of the undersigned, or this
Agreement, or the breach thereof, including, but not limited to any claims of
violations of Federal and/or State Securities Acts, Banking Statutes, Consumer
Protection Statutes, Federal and/or State anti-Racketeering (e.g. RICO) claims
as well as any common law claims and any State Law claims of breach of contract,
fraud, negligence, negligent misrepresentations, unlawful discharge, and/or
conversion shall be settled by arbitration; and in accordance with this Section,
and judgment on the arbitrator's award may be entered in any court having
jurisdiction thereof in accordance with the provisions of RCW 7.04. In the event
of such a dispute, each party to the conflict shall select an arbitrator, both
of whom shall select a third arbitrator, which shall constitute the three person
arbitration board. The decision of a majority of the board of arbitrators, who
shall render their decision within thirty (30) days of appointment of the final
arbitrator, shall be binding upon the parties. Venue for arbitration and any
action herein shall lie in Spokane County, State of Washington. The laws of the
State of Washington shall apply herein.
18. Entire Agreement. This Agreement contains the entire agreement between
the parties hereto with respect to the employment of Executive by Employer. No
change, addition, or amendment shall be made except by written agreement signed
by the parties hereto.
19. Representations and Warranties of Executive. Executive hereby represents
and warrants to the Employer:
(a) Executive understands that this Agreement and the Common Stock
to be issued herein, HAS NOT BEEN APPROVED OR DISAPPROVED BY
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION, THE
STATE OF WASHINGTON, OR ANY OTHER STATE SECURITIES AGENCIES.
(b) Executive is not an underwriter and would be acquiring this
Agreement and the Common Stock to be issued, solely for
investment for his own account and not with a view to,
13
or, resale in connection with any distribution of stock within
the meaning of the Federal Securities Acts, the Washington
State Securities Act, or any other applicable State Securities
Acts.
(c) Executive understands the speculative nature and risks of
investments associated with the Employer, and confirms that
this Agreement and the Common Stock to be issued would be
suitable and consistent with his investment program and that
his financial position enables it bear the risks of this
investment; and that there may not be any public market for
this Agreement and the Common Stock to be issued herein.
(d) This Agreement and the Common Stock to be issued herein may
not be transferred, encumbered, sold, hypothecated, or
otherwise disposed of to any person, without the express prior
written consent of the Employer, and the prior opinion of
counsel for the Employer, that such disposition will not
violate Federal and/or State Securities Acts. Disposition
shall include, but is not limited to acts of selling,
assigning, transferring, pledging, encumbering, hypothecating,
giving, and any form of conveying, whether voluntary or not.
(e) To the extent that any Federal and/or State Securities law
shall require, Executive hereby agrees that: (1) any shares
acquired pursuant to this Agreement shall be without
preference as to dividends, assets, or voting rights and shall
have no greater or lesser rights per share than the securities
issued for cash or its equivalent; (2) any shares acquired
pursuant to this Agreement shall be subordinated in favor of
the securities to be sold to the public with respect to
dividend rights or preferences and liquidation or other
distribution rights or preferences in the event of a
dissolution, liquidation, bankruptcy, receivership, or sale of
all or substantially all of such issuer's assets until such
time as the purchasers of the public stock offering shall have
received back their initial investment at which time all
Executive' shall share pro rata in any further distribution.
(f) Executive has fully reviewed or had the opportunity to review
the economic consequences of this Agreement and the Common
Stock to be issued, with his attorney and/or other financial
advisor, has been afforded access to the books and records of
the Corporation (including tax returns) and is or has had the
opportunity to become fully familiar with the financial
affairs of the Corporation.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date
set forth above.
EMPLOYER:
SOURCE CAPITAL CORPORATION
By /s/ XXXXX X. XXXXX, XX.
-------------------------------
Title: Chairman of the Board
EXECUTIVE:
/s/ D. XXXXXXX XXXXX
-------------------------------
D. XXXXXXX XXXXX
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