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EXHIBIT 10.3
EMPLOYMENT CONTRACT
PALACE REIT
TEXAS REAL ESTATE INVESTMENT TRUST
THIS EMPLOYMENT CONTRACT is executed as of May 1, 1998, by and between
PALACE REIT, a Texas real estate investment trust ("Company") and XXXXXX X.
XXXXXXXXX, XX. ("Employee").
1. EMPLOYMENT
The Company hereby employs Employee and Employee hereby accepts
employment upon the terms and conditions set forth below.
2. TERM AND RENEWAL
2.1 Term. The term of this Contract shall be deemed to have
commenced on the date of this Contract (the "Effective Date"), and shall
continue for three (3) years from the Effective Date (the "Term") on the terms
and conditions set forth below, unless sooner terminated as provided in Article
5 below.
2.2 Extension. Following the expiration of each year of the Term
and provided that this Contract has not been terminated pursuant to Article 5
below, and every year thereafter, the Contract shall be automatically renewed
for an additional twelve (12) month period, effective on each anniversary date
of the Effective Date.
3. COMPENSATION
3.1 Base Compensation. For the services to be rendered by
Employee under this Contract, Employee shall be entitled to receive, commencing
as of the Effective Date, an initial annual base compensation ("Base
Compensation") of $200,000.00 payable in twelve (12) equal monthly payments.
This Base Compensation shall be reviewed and adjusted annually as determined by
the Compensation Committee of the Board (the "Board"), but in no event will the
annual Base Compensation be less than the initial amount set forth above.
3.2 Options. The Compensation Committee may, at its discretion and
pursuant to the provisions of the Company's Stock Option Plan, issue to
Employee additional Options to purchase shares of the Company's stock to
compensate Employee for services rendered to the Company and/or as an incentive
for services to be performed in the future.
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3.3 Insurance Benefits.
(a) The Company shall provide to Employee, his spouse and
dependant children, at its sole cost, such health, dental and optical insurance
as the Company may from time to time make available to its other executive
employees.
(b) The Company shall provide Employee such disability
and/or life insurance as the Company in its sole discretion may from time to
time make available to its other executive employees.
3.4 Bonus Compensation. At least annually, the Compensation
Committee of the Board shall review Employee's performance and may award
Employee a cash bonus which the Board shall reasonably determine as fairly
compensating and awarding Employee for service to the Company and/or as an
incentive for continued service to the Company. The amount of such cash bonus
is dependent on, among other things, the achievement of certain performance
levels by the Company, including growth in funds from operations, and
Employee's performance and contribution to increasing the Company's funds from
operations. The amount of such bonus shall be limited to 100% of Employee's
Base Compensation for the year awarded.
3.5 Method of Payment. The monetary compensation payable to
Employee hereunder may be paid in whole or in part, from time to time, by the
Company, its subsidiaries and/or its affiliates, but shall at all times remain
the responsibility of the Company.
4. DUTIES
4.1 Service. Employee shall serve as President and Chief
Operating Officer of the Company, which office shall at all times hereunder
have the status and duties currently set forth in the Company's Bylaws, and
shall serve as a member of the Board of Trust Managers of the Company (subject
to shareholder approval when required). At the request of the Board, subject
to shareholder approval when required, Employee shall serve as a director
and/or officer of such of the Company's subsidiaries and/or affiliates as the
board may request. Employee may, at his discretion, serve the Company in other
offices and capacities in addition to the foregoing, but shall not be required
to do so. In the event the Company and the Employee voluntarily agree that
Employee shall terminate his service in any one or more of the
aforementioned-capacities, or Employee's service in one or more of the
aforementioned capacities is terminated, Employee's compensation as specified
in the Contract, shall not be diminished or reduced in any manner.
Any change of Employee's status as an officer of the Company as herein
provided or any material decrease in Employee's authority or responsibilities
hereunder, without Employee's written consent shall, at Employee's election,
constitute a material breach of this Contract and immediate termination without
cause of Employee's employment hereunder.
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4.2 Devotion of Time and Effort. Employees shall use his good
faith best efforts and judgement in performing his duties as required hereunder
and to act in the best interests of the Company. Employee shall devote such
time, attention and energies to the business of the Company as are reasonably
necessary to satisfy Employee's required responsibilities and duties hereunder.
4.3 Other Activities. Employee may engage in other activities for
his own account during the term of this Contract including charitable
activities, community activities and/or other business activities.
4.4 Vacation. It is understood and agreed that Employee shall be
entitled to four (4) weeks vacation per year. During such vacation periods,
Employee shall not be relieved of his duties under this Contract, and there
will be no abatement or reduction of Employee's compensation hereunder.
4.5 The Company's Obligations. The Company shall provide Employee
with any and all necessary appropriate current financial information and access
to current information and records regarding all material transactions
involving the Company and/or its subsidiaries and/or affiliates, including but
not limited to acquisition of assets, personnel contracts, dispositions of
assets, service agreements and registration statements or other state or
federal filings or disclosures to carry out his duties and responsibilities
hereunder. In addition, the Company agrees to provide Employee, as a condition
to his services hereunder, such staff, equipment and office space as is
reasonably necessary for Employee to perform his duties hereunder.
5. TERMINATION
5.1 By Company Without Cause. The Company may terminate this
Contract without "cause" (as that term is hereinafter defined), provided that
the Company first delivers to Employee the Company's written election to
terminate this Contract at least ninety (90) days prior to the effective date
of termination.
5.2 Severance Payment.
5.2.1 Amount. In the event the Company terminates
Employee's services hereunder pursuant to Section 5.1, Employee shall
continue to render services pursuant hereto until the date of
termination and shall continue to receive compensation, as provided
hereunder, through the termination date. In addition to other
compensation payable to Employee for services through the termination
date, the Company shall pay Employee on the termination date, as a
single severance payment, an amount (the "Severance Amount") equal to
two times the sum of (i) Employee's current annual Base Compensation,
and (ii) the highest annual bonus paid to Employee with respect to the
two preceding fiscal years.
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5.2.2 Excise Tax Gross-Up.
(a) Notwithstanding anything contained in this
Agreement to the contrary, in the event it shall be determined
(pursuant to (b) below) or finally determined (as defined in
(c) below) that any payment, distribution or benefit by the
Company or its predecessors, or the subsidiaries or affiliates
of the Company or its predecessors, to or for the benefit of
Employee (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional
payments required under this Section 5.2.2) (a "PAYMENT") is
or was subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code of 1986, as amended, or any interest
or penalties are or were incurred by Employee with respect to
such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred
to as the "EXCISE TAX"), then, within ten (10) days after such
determination or final determination, as the case may be, the
Company shall pay to Employee an additional cash payment or
additional cash payments (hereinafter referred to in the
aggregate as the "GROSS-UP PAYMENT") in an aggregate amount
such that after payment by Employee of all taxes, interest and
penalties imposed with respect to the Gross-Up Payment
(including, without limitation, any excise taxes imposed upon
the Gross-Up Payment), Employee retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the
payments.
(b) Except as provided in subsection (c) below,
the determination that a Payment is subject to an Excise Tax
shall be made by a certified public accounting firm engaged by
Employee ("Employee's Accountant"). Such determination shall
include the amount of the Gross-Up Payment, including when a
Gross-Up Payment is to be paid and the assumptions to be
utilized in arriving at such determination, which
determination shall provide detailed supporting calculations
both to the Company and to the Employee within fifteen (15)
business days of the receipt of notice from the Employee that
there has been a Payment. The calculations prepared by
Employee's Accountant shall be reviewed on behalf of the
Company by a certified public accounting firm engaged by the
Company. The Company shall notify Employee within ten (10)
business days of any disagreement or dispute with the findings
of Employee's Accountant, and failure to so notify shall be
considered a determination in favor of the findings of
Employee's Accountant, obligating the Company to make payment
as provided in subsection (a) above. In the event of a
dispute between the Company's accounting firm and Employee's
Accountant, such firms shall jointly select a third nationally
recognized certified public accounting firm to resolve the
dispute and the decision of such third firm shall be final,
binding and conclusive upon the Employee and the Company. In
such a case, the third accounting firm's findings (rather than
those of the Employee's Accountant) shall be deemed the
binding determination, obligating the Company to make payment
as
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provided in subsection (a) above. All fees and expenses of
each of the accounting firms shall be borne solely by the
Company.
(c) (i) Employee shall notify the Company in
writing of any claim by the Internal Revenue Service (or any
successor thereof), that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such
notification shall be given as soon as practicable but no
later than thirty (30) days after Employee receives written
notice of such claim and shall apprise the Company of the
nature of such claim and the date on which such claim is
requested to be paid. Employee shall not pay such claim prior
to the expiration of the 30-day period following the date on
which Employee gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes,
interest or penalties with respect to such claim is due). If
the Company notifies Employee in writing prior to the
expiration of such period that it desires to contest such
claim (and demonstrates to the reasonable satisfaction of
Employee its ability to make the payments to Employee which
may ultimately be required under this section before assuming
responsibility for the claim), Employee shall:
(A) give the Company any information
reasonably requested by the Company
relating to such claim,
(B) take such action in connection with
contesting such claim as the Company
shall reasonably request in writing
from time to time, including,
without limitation, accepting legal
representation with respect to such
claim by an attorney selected by the
Company that is reasonably
acceptable to Employee,
(C) cooperate with the Company in good
faith in order to effectively
contest such claim, and
(D) permit the Company to participate in
any proceedings relating to such
claim; provided, however, that the
Company shall bear and pay directly
all attorneys fees, costs and
expenses (including additional
interest and penalties) incurred in
connection with such contest and
shall indemnify and hold Employee
harmless, on an after-tax basis, for
all taxes, interest and penalties
imposed as a result of such
representation, payment of costs and
expenses or indemnification.
Without limitation on the foregoing
provisions of this Section 5.2.2,
the Company shall control all
proceedings taken in connection with
such contest and, at its sole
option, may pursue or forego any and
all administrative
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appeals, proceedings, hearings and
conferences with the taxing
authority in respect of such claim
and may, at its sole option, either
direct Employee to pay the tax,
interest or penalties claimed and
xxx for a refund or contest the
claim in any permissible manner, and
Employee agrees to prosecute such
contest to a determination before
any administrative tribunal, in a
court of initial jurisdiction and in
one or more appellate courts, as the
Company shall determine; provided,
however, that if the Company directs
Employee to pay such claim and xxx
for a refund, the Company shall
advance an amount equal to such
payment to Employee, on an
interest-free basis, and shall
indemnify and hold Employee
harmless, on an after-tax basis,
from all taxes, interest or
penalties imposed with respect to
such advance or with respect to any
imputed income with respect to such
advance; and, further, provided that
any extension of the statute of
limitations relating to payment of
taxes, interest or penalties for the
taxable year of Employee with
respect to which such contested
amount is claimed to be due is
limited solely to such contested
amount; and, provided, further, that
any settlement of any claim shall be
reasonably acceptable to Employee
and the Company's control of the
contest shall be limited to issues
with respect to which a Gross-Up
Payment would be payable hereunder,
and Employee shall be entitled to
settle or contest, as the case may
be, any other issue raised by the
Internal Revenue Service or any
other taxing authority.
(ii) If, after receipt by Employee of an
amount advanced by the Company pursuant to Section 5.2.2 (c)
(i), Employee receives any refund with respect to such claim,
Employee shall (subject to the Company's complying with the
requirements of Section 5.2.2) promptly pay to the Company an
amount equal to such refund (together with any interest paid
or credited thereon after taxes applicable thereto). If,
after the receipt by Employee of an amount advanced by the
Company pursuant to Section 5.2.2 (c) (i), it is finally
determined that Employee is not entitled to any refund with
respect to such claim, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid.
(iii) For purposes of this Section 5.2.2,
whether the Excise Tax is applicable to a Payment shall be
deemed to be "finally determined" upon the earliest of (A) the
expiration of thirty (30) days following the rendering of a
decision by the Internal Revenue Service (or any successor
thereto) or a court of competent jurisdiction unless, within
such 30-day period, the Company notifies Employee in
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writing of its intent to contest such decision, (B) the
rendering of a decision by the Internal Revenue Service (or
any successor thereto) or a court of competent jurisdiction,
from which decision no further right of appeal exists, or (C)
the expiration of the statutory period (including any
extensions thereto) for the assessment and collection of the
Excise Tax.
5.2.3 The Employee acknowledges that, if he should exercise
any portion of the Options more than three (3) months following the
date of Employee's Termination of Employment for any reason other than
death or disability (within the meaning of Section 22 (e) (3) of the
Code, he will be taxed as to such portion of the Option so exercised,
as if such portion of the Option did not qualify as a "incentive stock
option" (within the meaning of Section 422 of the Code) but rather as
if such portion was a non-qualified option. Employee shall be
required to pay any and all withholding taxes payable at the time of
the exercise of the option or the Company shall have the right to
withhold stock in an amount equal to the amount of the withholding tax
for payment on Employee's behalf.
5.2.4 Notwithstanding anything contained in any stock
option agreement pursuant to which stock options may have been granted
or may in the future be granted to Employee, all stock options held
by Employee and not otherwise exercisable at the time of termination
of the employment of Employee under Section 5.1 shall, immediately
upon such termination, become exercisable in full and Employee shall
have the right to exercise such stock options, as well as all other
stock options held by Employee at the time of such termination, at any
time during the period ending on the 10th anniversary of the
respective date of grant of the option.
5.3 By the Company for Cause. The Company may terminate Employee
for cause at any time, upon written notice. For the Purpose hereof, "cause"
shall mean:
5.3.1 Employee's conviction for a felony; or
5.3.2 Employee's conviction for the crime of theft,
embezzlement or misappropriation against the Company; or
5.3.3 The final determination by a court of competent
jurisdiction or by the Board that Employee has materially breached
Sections 4, 6, or 7 of this Contract, if such breach is incurable; or,
if curable, a determination that Employee had been given reasonable
opportunity to cure and had not done so; or
5.3.4 Employee's death or permanent disability.
In the event Employee is terminated for cause pursuant to this
Section, Employee shall have the right to receive his compensation as otherwise
provided under this Contract through the effective date of termination.
Employee shall have no further right to receive compensation or other
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consideration from the Company, or have any other remedy whatsoever against the
Company, as a result of this Contract or the termination thereof.
The foregoing notwithstanding, in the event Employee is terminated by
reason of his permanent disability or death, the Company shall immediately pay
Employee or his representative a single severance payment as set forth under
Section 5.2, and the Employee shall have the same rights as set forth under
Section 5.2.3 regarding all stock options.
5.4 Employee's Termination for Cause. Employee may terminate this
Agreement at any time if:
5.4.1 The Company is in material breach of its obligations
hereunder; and
5.4.2 Either such breach is incurable or, if curable, has
not been cured within fifteen (15) days following receipt of written
notice of such breach by the Company.
In no event, however, may the Employee terminate this Agreement
without providing the Company with at least ten (10) days written notice of its
intent to terminate this Agreement. In the event Employee terminates this
Contract pursuant to this Section, Employee shall have the same rights and
remedies against the Company as he would have had the Company terminated his
employment without cause pursuant to Section 5.1 hereof (including all rights
under Section 5.2).
5.5 Employee's Voluntary Termination. Employee may, at any time,
terminate this Contract without cause upon written notice delivered to the
Company at least ninety (90) days prior to the effective date of termination.
In the event of such voluntary termination:
5.5.1 Employee shall have the right to monetary
compensation as provided in paragraph 3.1 above through the effective
date of termination, but shall have no further right to compensation
thereafter; and
5.5.2 Employee's stock options shall be null and void as of
the date of termination except as provided in Section 5.6 below.
The Company and Employee shall not have any further right or remedy
against one another in the event Employee terminates this Contract pursuant to
this Section except as provided in Articles 6, 7, 8, and 9 hereof which shall
remain in full force and effect.
5.6 Employee's Retention of Securities. In the event the Company
terminates Employee, without cause, Employee shall retain all options and other
securities he then owns, of record or otherwise, of the Company and/or its
subsidiaries and/or affiliates, and shall have the right to exercise said
options at any time during the remaining term of said option. In the event the
Company
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terminates this Contract for cause pursuant to Section 5.3, or Employee
voluntarily terminates this Contract pursuant to Section 5.5 above, any Options
issued to Employee which may not then have been exercised on the date of said
Termination shall be exercised within three (3) months of the date of
Termination or shall be null and void as of the date three (3) months after
Termination.
5.7 Change of Control. The Employee may terminate his employment
under this Agreement any time within two (2) years after a "change in control"
of the Company. For purposes of this Agreement, a "change in control" shall be
deemed to have occurred upon (a) the acquisition by any person of twenty
percent (20%) of the issued and outstanding stock of the Company, (b) a change
in majority of the members of the Board in connection with a tender, offer,
merger, sale of assets, etc., (c) the sale of all or substantially all of the
Company's assets or (d) a dissolution or liquidation of the Company. In the
event Employee terminates his employment within two (2) years after a change in
control, Employee shall continue to render services pursuant hereto until the
date of termination and shall continue to receive compensation, as provided
hereunder, through the termination date. In addition to other compensation
payable to Employee for services through the termination date, the Employee
shall have the same rights and remedies against the Company as he would have
had the Company terminated his employment without cause pursuant to Section 5.1
hereof (including the right to payments under Section 5.2).
6. TRADE SECRETS
During the term of employment under this Contract, Employee will have
access to and become acquainted with various information not generally
available to the public consisting of records, documents, drawings,
specifications, customer lists, procedural and operational manuals and
information, and financial records and accounts, projections and budgets, and
similar information, all of which are owned by the Company and regularly used
in the operation of the Company's business. Such assets of the Company are
secret, not generally available to the public and give the Company an advantage
over competitors who do not know of or use such information. Employee agrees
such information and documents relating to the business of the Company, whether
they are prepared by Employee or come into Employee's possession in any other
way, are owned by the Company, shall remain the exclusive property of the
Company. Employee covenants that he shall not misuse, misappropriate or
disclose any of the trade secrets described above, directly or indirectly.
Employee acknowledges and agrees not to sell any of the Company's trade
secrets.
7. SOLICITATION OF EMPLOYEES
7.1 Use of Information. Employee acknowledges and agrees that the
names, addresses and relationships of persons who perform services or provide
goods or materials to or for the Company are unique, and that the nature and
substance of the Company's relationship with such persons constitute the
Company's "trade secrets". Employee acknowledges that the sale or unauthorized
use or disclosure of any of such relationships which Employee learned of during
his employment with the Company is not permitted.
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7.2 Non-Disclosure. During the term of his employment with the
Company, and for a period of two (2) years thereafter, Employee shall not,
directly or indirectly, make known to any person, firm or company the substance
or content of any relationship of the Company with any employee, independent
contractor or provider of goods or materials to the Company. Employee agrees
that he shall not solicit, take away or induce any such person to end their
relationship with the Company, or to attempt to do any of the foregoing, or
recruit, hire or otherwise induce any such person to perform services for
Employee, or any other person, firm or company.
8. NON-COMPETITION AFTER TERMINATION
Employee shall not, for a period of one (1) year following the date of
termination, engage in the development, acquisition, construction or management
of any office and industrial properties outside of the Company within the same
markets as the Company. Nothing herein shall relieve or limit Employee's
obligation to comply with Section 6 and 7 above. The restrictions set forth in
this Section shall not apply if Employee is terminated pursuant to Section 5.1
above. If any provision hereof is determined by any court of competent
jurisdiction to be invalid or unenforceable by reason of such provision
extending the covenants and agreements contained herein for too great a period
of time or over too great a geographical area, or being too extensive in any
other respect, such provision shall be interpreted to extend only over the
maximum period of time and geographical area, and to the maximum extent in all
other respects, as to which it is valid and enforceable, all as determined by
such court in such action.
9. INDEMNIFICATION
The Company shall indemnify Employee for all losses sustained by
Employee as a direct or indirect consequence of the discharge of his duties on
behalf of the Company to the fullest extent permitted under applicable law so
long as Employee acted in good faith and in a manner which he believed to be in
the best interests of the Company with respect to the matter giving rise to the
claim or loss which Employee seeks indemnification.
10. BUSINESS EXPENSES
The Company shall promptly, but in no event later than ten (10) days
after submission of a claim of expenditure, reimburse Employee for all
reasonable business expenses incurred by him in connection with the business of
the Company and/or its subsidiaries and/or affiliates, upon presentation to the
Company of written receipts for such expenses.
11. MISCELLANEOUS PROVISIONS
11.1 Binding Effect. This Contract shall be binding upon and inure
to the benefit of any successor or successors of the Company and the personal
representative of Employee.
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11.2 Attorney's Fees. If any legal action, arbitration or other
proceedings is brought for the enforcement of this Contract, or because of an
alleged dispute, breach or default in connection with any of the provisions of
this Contract, the prevailing party shall be entitled to recover reasonable
attorney's fees and other costs incurred in that action or proceeding, in
addition to any other relief to which that party would be entitled.
11.3 Entire Contract. This Contract constitutes the entire
agreement of the parties, and supersedes all prior agreements, understandings
and negotiations, whether written or oral, between the Company and Employee
with respect to the employment of Employee by the Company, its subsidiaries
and/or affiliates. This Contract may not be changed orally, but only by
agreement in writing, signed by all parties.
11.4 Provisions Severable. In case any one or more provisions of
this Contract shall be invalid, illegal or unenforceable, in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not, in any way, be affected to impaired thereby.
11.5 Governing Law. This Contract shall be governed by and
construed under the laws of the State of Nevada.
IN WITNESS WHEREOF, the parties hereto have executed this
Contract in Xxxxx County, Nevada.
THE COMPANY: EMPLOYEE:
PALACE REIT
By: /s/ Xxxxx X. Xxxxxx . /s/ Xxxxxx X. Xxxxxxxxx, Xx.
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Xxxxx X. Xxxxxx, Chairman of the Board XXXXXX X. XXXXXXXXX, XX.
and Chief Executive Officer
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