EXHIBIT 10.7
MANAGEMENT CONTINUITY AGREEMENT
This Management Continuity Agreement (the "Agreement") is made and entered
into effective as of August 7, 2003 (the "Effective Date"), by and among Xxxxxx
X. Xxxxx (the "Executive"), Fremont General Corporation ("Fremont"), and Fremont
Investment & Loan, a wholly-owned subsidiary of Fremont ("FIL" and collectively
with Fremont the "Company").
R E C I T A L S
A. It is expected that the Company from time to time will consider the
possibility of an acquisition by another company or other significant Company
event. The Board of Directors of the Company (the "Board") recognizes that such
consideration can be a distraction to the Executive and can cause the Executive
to consider alternative employment opportunities. The Board is determined that
it is in the best interests of the Company and its stockholders to assure that
the Company will have the continued dedication and objectivity of the Executive,
notwithstanding the possibility, threat or occurrence of a Company Event (as
defined below).
B. The Board believes that it is in the best interests of the Company and
its stockholders to provide the Executive with an incentive to continue his
employment and to motivate the Executive to maximize the value of the Company
upon a Company Event for the benefit of its stockholders.
C. The Board believes that it is imperative to provide the Executive with
certain benefits upon a Company Event and, under certain circumstances, upon
termination of the Executive's employment in connection with a Company Event,
which benefits are intended to provide the Executive with financial security and
provide sufficient incentive and encouragement to the Executive to remain with
the Company notwithstanding the possibility of a Company Event.
D. To accomplish the foregoing objectives, the Board has directed the
Company, upon execution of this Agreement by the Executive, to agree to the
terms provided herein.
E. Certain capitalized terms used in the Agreement are defined in Section 8
below.
In consideration of the mutual covenants herein contained, and in
consideration of the continuing employment of Executive by the Company, the
parties agree as follows:
1. Duties and Scope of Employment.
(a) Position. The Company shall employ the Executive in the position
of President and Chief Executive Officer of FIL, with such duties,
responsibilities and compensation as in effect as of the Effective Date;
provided, however, that the Board shall have the right, at any time prior to the
occurrence of a Company Event, to revise such responsibilities and compensation
from time to time as the Board, it its discretion, may deem necessary or
appropriate.
(b) Obligations. The Executive shall continue to devote his full
business efforts and time to the Company and its subsidiaries. The Executive
shall comply with and be bound by the Company's operating policies, procedures
and practices from time to time in effect during his employment. During the term
of the Executive's employment with the Company, the Executive shall devote his
full time, skill and attention to his duties and responsibilities, and shall
perform them faithfully, diligently and competently, and the Executive shall use
his best efforts to further the business of the Company and its affiliated
entities. The foregoing, however, shall not preclude the Executive from engaging
in such activities and services as do not interfere or conflict with his
responsibilities to the Company.
2. At-Will Employment. The Company and the Executive acknowledge that the
Executive's employment is and shall continue to be at-will, as defined under
applicable law. If the Executive's employment terminates for any reason, the
Executive shall not be entitled to any payments, benefits, damages, awards or
compensation other than as provided by this Agreement, or as may otherwise be
available in accordance with the Company's established employee plans and
practices or other agreements with the Company at the time of termination.
3. Term of Agreement. The terms of this Agreement shall terminate upon the
earliest of (i) the date that all obligations of the parties hereunder have been
satisfied, (ii) in the absence of a Company Event (as defined in Section 8 (b))
prior to the third anniversary of the Effective Date, the third anniversary of
the Effective Date; or (iii) in the event of a Company Event on or prior to the
third anniversary of the Effective Date, the third anniversary of such Company
Event. Notwithstanding the foregoing, this Agreement may be extended for an
additional period or periods (the "Extension Period") by mutual written
agreement of the Company and the Executive. A termination of the terms of this
Agreement pursuant to this Section 3 shall be effective for all purposes, except
that such termination shall not affect the payment or provision of compensation
or benefits on account of a termination of employment occurring prior to the
termination of the terms of this Agreement.
4. Compensation and Benefits.
(a) Base Compensation. The Company shall pay the Executive as
compensation for services a base salary at the annualized rate of $450,000. Such
salary shall be reviewed at least annually and may be increased from time to
time. At any time prior to a Company Event, such salary may be decreased,
subject to the provisions of subsection 8(d)(ii) of this Agreement. Such salary
shall be paid periodically in accordance with normal Company payroll. The annual
compensation specified in this Section 4(a), as adjusted from time to time, is
referred to in this Agreement as "Base Compensation".
(b) Bonus. Beginning with the Company's current fiscal year and for
each fiscal year thereafter during the term of this Agreement, the Executive
shall be eligible to participate in any bonus plan or arrangement maintained by
the Company of general applicability to other key executives of the Company.
(c) Executive Benefits. The Executive shall be eligible to participate
in the employee benefit plans and executive compensation programs maintained by
the Company of general applicability to other key executives of the Company,
including (without limitation) retirement plans, savings or profit-sharing
plans, deferred compensation plans, supplemental retirement or excess-benefit
plans, stock option, restricted stock programs, incentive or other bonus plans,
life, disability, health, accident and other insurance programs, paid vacations,
and similar plans or programs, subject in each case to the generally applicable
terms and conditions of the plan or program in question and to the determination
of the Board or any committee administering such plan or program.
5. Benefits Upon a Company Event. In the event of a Company Event that
occurs while the Executive is employed by the Company, the unvested portion of
any stock option or restricted stock held by the Executive shall automatically
be accelerated in full so as to become completely vested.
6. Severance Benefits.
(a) Severance Benefits. If the Executive's employment with the Company
terminates within the thirty-six (36) month period following a Company Event,
then the Executive shall be entitled to receive severance benefits as follows:
(i) Involuntary Termination; Death; Disability. If the
Executive's employment terminates as a result of Involuntary Termination other
than for Cause or if the Executive's employment terminates as the result of the
Executive's Death or Disability, then the Company shall pay the Executive (or
the Executive's beneficiary or representative, as applicable) within ten (10)
business days after the Termination Date, a lump sum amount equal to thirty six
(36) months' Base Compensation of the Executive at the time of such Termination
(without giving effect to any reduction in Base
Compensation that resulted in such Involuntary Termination). In addition, the
Executive shall be entitled to a payment of the "Target Bonus Amount" (as such
term is defined and applied by the Company) for the then current bonus period(s)
under any bonus plan(s) maintained by the Company in which the Executive is
participating on the Termination Date. Such payment shall be paid in a lump sum
within ten (10) business days after the Termination Date.
(ii) Voluntary Resignation; Termination for Cause. If the
Executive's employment terminates by reason of the Executive's voluntary
resignation, (and is not an Involuntary Termination), or if the Executive is
terminated for Cause, then the Executive shall not be entitled to receive
severance or other benefits except for those (if any) as may then be established
(and applicable) under the Company's then-existing severance and benefits plans
and policies at the time of such termination.
(b) Benefits; Miscellaneous. In the event the Executive is entitled to
severance benefits pursuant to subsection 6 (a)(i) (other than as a result of
the Executive's death), then in addition to such benefits, the Company shall
continue to provide the Executive, for thirty-six (36) months after the
Termination Date, welfare benefits or such comparable alternative welfare
benefits as the Company may, in its discretion, determine to be sufficient to
satisfy its obligations to the Executive under this Agreement (including,
without limitation, medical, prescription, dental, disability, individual life,
group life, accidental death and travel accident plans and programs) which are
at least as favorable as the most favorable plans of the Company applicable to
other peer executives and their families as of the Termination Date.
Notwithstanding the foregoing, if the Executive is covered under any medical,
life, or disability insurance plan(s) provided by a subsequent employer, then
the amount of coverage required to be provided by the Company hereunder shall be
reduced by the amount of coverage provided by the subsequent employer's medical,
life or disability insurance plan(s). The Executive's rights under this Section
6(b) shall be in addition to, and not in lieu of, any post-termination
continuation coverage or conversion rights the Executive may have pursuant to
applicable law, including without limitation, continuation coverage required by
Section 4980B of the Internal Revenue Code.
(c) In addition, (i) the Company shall pay the Executive any unpaid
base salary due for periods prior to the Termination Date; (ii) the Company
shall pay the Executive all of the Executive's accrued and unused vacation
through the Termination Date; and (iii) following submission of proper expense
reports by the Executive, the Company shall reimburse the Executive for all
expenses reasonably and necessarily incurred by the Executive in connection with
the business of the Company prior to termination. These payments shall be made
promptly upon termination and within the period of time mandated by law.
7. Limitation on Payments. Notwithstanding anything to the contrary
contained herein, in the event it shall be determined that any payment by the
Company to or for the benefit of the Executive, whether paid or payable but
determined without regard to any additional payments required under this Section
7 (a "Payment), would be subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code"), or any comparable
federal, state, or local excise tax (such excise tax, together with any interest
and penalties, are hereinafter collectively referred to as the "Excise Tax",
then the Executive shall be entitled to receive an additional payment (a
"Gross-Up Payment") in such an amount that after the payment of all taxes
(including, without limitation, any interest and penalties on such taxes and the
Excise Tax) on the payment and on the Gross-Up Payment, the Executive shall
retain an amount equal to the Payment minus all applicable taxes on the Payment.
The intent of the parties is that the Company shall be solely responsible for,
and shall pay, any Excise Tax on the Payment and Gross-Up Payment and any income
and employment taxes (including, without limitation, penalties and interest)
imposed on any Gross-Up Payment, as well as any loss of tax deduction caused by
the Gross-Up Payment. All determinations required to be made under this Section,
including without limitation, whether and when a Gross-Up Payment is required in
the amount of such Gross-Up Payment and the assumptions to be utilized in
arriving at such determinations, shall be made by a nationally recognized
accounting firm that is the Company's outside auditor at the time of such
determinations, which firm must be reasonably acceptable to the Executive (the
"Accounting Firm"). All fees and expenses of the Accounting Firm shall be borne
solely by the Company.
8. Definition of Terms. The following terms referred to in this Agreement
shall have the following meanings:
(a) Cause. "Cause" shall mean (i) a willful act of personal dishonesty
knowingly taken by the Executive in connection with his responsibilities as an
employee and intended to result in his substantial personal enrichment, (ii) a
willful and knowing act by the Executive which constitutes gross misconduct, or
any refusal by the Executive to comply with a reasonable directive of the Board,
(iii) a willful breach by the Executive of a material provision of this
Agreement, or (iv) a material and willful violation of a federal or state law or
regulation applicable to the business of the Company. No act, or failure to act,
by the Executive shall be considered "willful" unless (1) committed without good
faith and without a reasonable belief that the act or omission was in the
Company's best interests; and (2) the Executive has been given notice of the
offending conduct and has been given a reasonable opportunity to cure, if
possible. Termination for Cause shall not be deemed to have occurred unless, by
the affirmative vote of all of the members of the Board (excluding the
Executive, if applicable), at a meeting called and held for that purpose (after
reasonable notice to the Executive and his counsel and after allowing the
Executive and his counsel to be heard before the Board), a resolution is adopted
finding that in the good faith opinion of such Board members the Executive was
guilty of conduct set forth in (i), (ii), (iii), or (iv) and specifying the
particulars thereof.
(b) Company Event. "Company Event" shall mean the occurrence of any of
the following events:
(i) The stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
the Company's assets (other than to a subsidiary or subsidiaries); or
(ii) Any "person" or "group" other than Fremont or any affiliate
of Fremont (or any employee benefit plan or trust of either), directly or
indirectly acquires or controls, after the date hereof, more than fifty percent
(50%) of the voting securities or assets of FIL in a transaction or series of
transactions.
(c) Disability. "Disability" shall mean that the Executive has been or
will be unable to perform his duties under this Agreement for a period of six or
more months due to illness, accident or other physical or mental incapacity.
(d) Involuntary Termination. "Involuntary Termination" shall mean:
(i) The continued assignment to Executive of any duties or the
continued significant change in the Executive's duties, either of which is
substantially inconsistent with the Executive's duties immediately prior to such
assignment or change for a period of 30 days after notice thereof from Executive
to the Chief Executive Officer of the Company or the Board setting forth in
reasonable detail the respects in which Executive believes such assignments or
duties are significantly inconsistent with the Executive's prior duties;
(ii) a reduction in Executive's Base Compensation, other than any
such reduction which is part of, and generally consistent with, a general
reduction of officer salaries, except that in no event shall the Executive's
Base Compensation be reduced below the rate set forth in Section 4(a) above as
of the Effective Date;
(iii) a material reduction by the Company in the kind or level of
employee benefits (other than salary and bonus) to which Executive is entitled
immediately prior to such reduction with the result that Executive's overall
benefits package (other than salary and bonus) is substantially reduced (other
than any such reduction applicable to officers of the Company generally);
(iv) the relocation of Executive's principal place for the
rendering of the services to be provided by him hereunder to a location more
than fifty (50) miles from the present location of the principal executive
office of the Company;
(v) any purported termination of the Executive's employment by
the Company other than for Cause;
(vi) the failure of the Company to obtain the assumption of this
Agreement by any successors contemplated in Section 9 below; or
(vii) any material breach by the Company of any material
provision of this Agreement which continues uncured for 30 days following notice
thereof; provided that none of the foregoing shall constitute Involuntary
Termination to the extent Executive has agreed thereto
(e) Termination Date. "Termination Date: shall mean (i) if the
Executive's employment is terminated by the Company for Disability, thirty (30)
days after notice of termination is given to the Executive (provided that the
Executive shall not have returned to the performance of the Executive's duties
on a full-time basis during such thirty (30) day period), (ii) if the
Executive's employment is terminated by the Company for any other reason, the
date on which a notice of termination is given, or (iii) if the Agreement is
terminated by the Executive, the date on which the Executive delivers the notice
of termination to the Company.
9. Successors.
(a) Company's Successors. Any successor to the Company (whether direct
or indirect and whether by purchase, lease, merger, consolidation, liquidation
or otherwise) to all or substantially all of the Company's business and/or
assets shall assume the obligations under this Agreement and agree expressly to
perform the obligations under this Agreement in the same manner and to the same
extent as the Company would be required to perform such obligations in the
absence of a succession. For all purposes under this Agreement, the term
"Company" shall include any successor to the Company's business and/or assets
which executes and delivers the assumption agreement described in this
subsection (a) or which becomes bound by the terms of this Agreement by
operation of law.
(b) Executive's Successors. The terms of this Agreement and all rights
of the Executive hereunder shall inure to the benefit of, and be enforceable by,
the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
10. Notice.
(a) General. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. In the case of the Executive, mailed
notices shall be addressed to him at the home address which he most recently
communicated to the Company in writing. In the case of the Company, mailed
notices shall be addressed to its corporate headquarters, and all notices shall
be directed to the attention of its Secretary.
(b) Notice of Termination. Any termination by the Company for Cause or
by the Executive as a result of a voluntary resignation or an Involuntary
Termination shall be communicated by a notice or termination to the other party
hereto given in accordance with Section 10 of this Agreement. Such notice shall
indicate the specific termination provision in this Agreement relied upon, shall
set forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination under the provision so indicated, and shall specify the
termination date (which shall be not more than 30 days after the giving of such
notice). The failure by the Executive to include in the notice any fact or
circumstance which contributes to a showing of Involuntary Termination shall not
waive any right of the Executive hereunder or preclude the Executive from
asserting such fact or circumstance in enforcing his rights hereunder.
11. Arbitration. At the option of either party, any and all disputes or
controversies whether of law or fact and of any nature whatsoever arising from
or respecting this Agreement shall be decided by arbitration by the American
Arbitration Association in accordance with the rules and regulations of that
Association.
The arbitrator shall be selected as follows: In the event the Company and
the Executive agree on one arbitrator, the arbitration shall be conducted by
such arbitrator. In the event the Company and the Executive do not agree, the
Company and the Executive shall each select one independent, qualified
arbitrator and the two arbitrators so selected shall select the third
arbitrator. The Company reserves the right to object to any individual
arbitrator who shall be employed by or affiliated with a competing organization.
Arbitration shall take place in Los Angeles, California, or any other
location mutually agreeable to the parties. At the request of either party,
arbitration proceedings will be conducted in the utmost secrecy; in such case
all documents, testimony and records shall be received, heard and maintained by
the arbitrators in secrecy under seal, available for the inspection only of the
Company or the Executive and their respective attorneys and their respective
experts who shall agree in advance and in writing to receive all such
information confidentially and to maintain such information in secrecy until
such information shall become generally known. The arbitrator, who shall act by
majority vote, shall be able to decree any and all relief of an equitable
nature, including but not limited to such relief as a temporary restraining
order, a temporary
and/or a permanent injunction, and shall also be able to award damages, with or
without an accounting and costs, provided that punitive damages shall not be
awarded. The decree of judgment of an award rendered by the arbitrators may be
entered in any court having jurisdiction thereof.
Reasonable notice of the time and place of arbitration shall be given to
all persons, other than the parties, as shall be required by law, in which case
such persons or those authorized representatives shall have the right to attend
and/or participate in all the arbitration hearings in such manner as the law
shall require.
12. Miscellaneous Provisions.
(a) No Duty to Mitigate. The Executive shall not be required to
mitigate the amount of any payment contemplated by this Agreement, nor shall any
such payment be reduced by any earnings that the Executive may receive from any
other source.
(b) Waiver. No provision of this Agreement shall be modified, waived
or discharged unless the modification, waiver or discharge is agreed to in
writing and signed by the Executive and by an authorized officer of the Company
(other than the Executive). No waiver by either party of any breach of, or of
compliance with, any condition or provision of this Agreement by the other party
shall be considered a waiver of any other condition or provision or of the same
condition or provision at another time.
(c) Whole Agreement. No agreements, representations or understandings
(whether oral or written and whether express or implied) which are not expressly
set forth in this Agreement have been made or entered into by either party with
respect to the subject matter hereof.
(d) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California.
(e) Severability. The invalidity or unenforceability of any provision
or provisions of this Agreement shall not affect the validity or enforceability
of any other provision hereof, which shall remain in full force and effect.
(f) No Assignment of Benefits. The rights of any person to payments or
benefits under this Agreement shall not be made subject to option or assignment,
either by voluntary or involuntary assignment or by operation of law, including
(without limitation) bankruptcy, garnishment, attachment or other creditor's
process, and any action in violation of this subsection (f) shall be void.
(g) Employment Taxes. All payments made pursuant to this Agreement
will be subject to withholding of applicable income and employment taxes.
(h) Assignment by Company. The Company may assign its rights under
this Agreement to an affiliate, and an affiliate may assign its rights under
this Agreement to another affiliate of the Company or to the Company; provided,
however, that no assignment shall be made if the net worth of the assignee is
less than the net worth of the Company at the time of assignment. In the case of
any such assignment, the term "Company" when used in a section of this Agreement
shall mean the corporation that actually employs the Executive.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Company by its duly authorized officer, as of the day and year first
above written.
FREMONT FREMONT GENERAL CORPORATION
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By: Xxxxx X. XxXxxxxx
Title: Chairman of the Board and Chief
Executive Officer
FIL FREMONT INVESTMENT & LOAN
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By: Xxxxx X. Xxxxxxx
Title: Chairman of the Board
EXECUTIVE XXXXXX X. XXXXX
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