Execution Copy
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT (this "Agreement"), dated as of
February 1, 1998, is made and entered by and between AutoBond Acceptance
Corporation, a Texas corporation (the "Company"), and Xxxxxx X. Xxxxxxxx (the
"Executive").
WITNESSETH:
WHEREAS, the Executive is a senior executive of the Company
and has made and is expected to continue to make major contributions to the
short- and long-term profitability, growth and financial strength of the
Company;
WHEREAS, the Company recognizes that, as is the case for most
publicly held companies, the possibility of a Change in Control (as defined
below) exists;
WHEREAS, the Company desires to assure itself of both present
and future continuity of management and desires to establish certain minimum
severance benefits for certain of its senior executives, including the
Executive, applicable in the event of a Change in Control;
WHEREAS, the Company wishes to ensure that its senior
executives are not practically disabled from discharging their duties in respect
of a proposed or actual transaction involving a Change in Control; and
WHEREAS, the Company desires to provide additional inducement
for the Executive to continue to remain in the ongoing employ of the Company.
NOW, THEREFORE, the Company and the Executive agree as
follows:
1. Certain Defined Terms. In addition to terms defined
elsewhere herein, the following terms have the following meanings when used in
this Agreement with initial capital letters:
(a) "Base Pay" means the Executive's annual base salary at a
rate not less than the Executive's annual fixed or base compensation as
in effect for Executive immediately prior to the occurrence of a Change
in Control or such higher rate as may be determined thereafter from
time to time by the Board or a committee thereof.
(b) "Board" means the Board of Directors of the Company.
(c) "Cause" means that, prior to any termination pursuant to
Section 3(b) or Section 3(c), the Executive shall have committed:
(i) an intentional act of fraud, embezzlement or theft
in connection with his duties or in the course of his employment with
the Company or any Subsidiary;
(ii) intentional wrongful damage to property of the
Company or any Subsidiary;
(iii) intentional wrongful disclosure of secret
processes or confidential information of the Company or any Subsidiary;
or
(iv) intentional wrongful engagement in any Competitive
Activity;
and any such act shall have been materially harmful to the Company. For
purposes of this Agreement, no act or failure to act on the part of the
Executive shall be deemed "intentional" if it was due primarily to an
error in judgment or negligence, but shall be deemed "intentional" only
if done or omitted to be done by the Executive not in good faith and
without reasonable belief that his action or omission was in the best
interest of the Company. Notwithstanding the foregoing, the Executive
shall not be deemed to have been terminated for "Cause" hereunder
unless and until there shall have been delivered to the Executive a
copy of a resolution duly adopted by the affirmative vote of not less
than three quarters of the Board then in office at a meeting of the
Board called and held for such purpose, after reasonable notice to the
Executive and an opportunity for the Executive, together with his
counsel (if the Executive chooses to have counsel present at such
meeting), to be heard before the Board, finding that, in the good faith
opinion of the Board, the Executive had committed an act constituting
"Cause" as herein defined and specifying the particulars thereof in
detail. Nothing herein will limit the right of the Executive or his
beneficiaries to contest the validity or propriety of any such
determination.
(d) "Change in Control" means the occurrence during the Term
of any of the following events:
(i) The Company is merged, consolidated or reorganized
into or with another corporation or other legal person, and as a result
of such merger, consolidation or reorganization less than a majority of
the combined voting power of the then-outstanding Voting Stock of such
corporation or person immediately after such transaction are held in
the aggregate by the holders of Voting Stock of the Company immediately
prior to such transaction;
(ii) The Company sells or otherwise transfers all or
substantially all of its assets to another corporation or other legal
person, and as a result of such sale or transfer less than a majority
of the combined voting power of the then-outstanding Voting Stock of
such corporation or person immediately after such sale or transfer is
held in the
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aggregate by the holders of Voting Stock of the Company immediately
prior to such sale or transfer;
(iii) There is a report filed on Schedule 13D or Schedule
14D-1 (or any successor schedule, form or report), each as promulgated
pursuant to the Exchange Act, disclosing that any person (as the term
"person" is used in Section 13(d)(3) or Section 14(d)(2) of the
Exchange Act) has become the beneficial owner (as the term "beneficial
owner" is defined under Rule 13d-3 or any successor rule or regulation
promulgated under the Exchange Act) of securities representing 50% or
more of the combined voting power of the then-outstanding Voting Stock
of the Company; or
(iv) The Company files a report or proxy statement with
the Securities and Exchange Commission pursuant to the Exchange Act
disclosing in response to Form 8-K or Schedule 14A (or any successor
schedule, form or report or item therein) that a change in control of
the Company has occurred or will occur in the future pursuant to any
then-existing contract or transaction.
Notwithstanding the foregoing provisions of Section 1(d)(iii) or
1(d)(iv), unless otherwise determined in a specific case by majority
vote of the Board, a "Change in Control" shall not be deemed to have
occurred (A) for purposes of Section 1(d)(iii) or 1(d)(iv) solely
because the Company, a Subsidiary, or any Company-sponsored employee
stock ownership plan or any other employee benefit plan of the Company
or any Subsidiary either files or becomes obligated to file a report or
a proxy statement under or in response to Schedule 13D, Schedule 14D-1,
Form 8-K or Schedule 14A (or any successor schedule, form or report or
item therein) under the Exchange Act disclosing beneficial ownership by
it of shares of Voting Stock, whether in excess of 50% or otherwise, or
because the Company reports that a change in control of the Company has
occurred or will occur in the future by reason of such beneficial
ownership, or (B) in any case after the Company is the subject of a
voluntary or involuntary bankruptcy proceeding.
(e) "Competitive Activity" means the Executive's
participation, without the written consent of the Board of Directors,
in the management of any business enterprise if such enterprise engages
in substantial and direct competition with the Company and such
enterprise's sales of any product or service competitive with any
product or service of the Company amounted to 10% of such enterprise's
net sales for its most recently completed fiscal year and if the
Company's net sales of said product or service amounted to 10% of the
Company's net sales for its most recently completed fiscal year.
"Competitive Activity" will not include (i) the mere ownership of
securities in any such enterprise and the exercise of rights
appurtenant thereto or (ii) participation in the management of any such
enterprise other than in connection with the competitive operations of
such enterprise.
(f) "Employee Benefits" means the perquisites, benefits and
service credit for benefits as provided under any and all employee
retirement income and welfare benefit policies, plans, programs or
arrangements in which Executive is entitled to participate,
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including without limitation any stock option, stock purchase, stock
appreciation, savings, pension, supplemental executive retirement, or
other retirement income or welfare benefit, deferred compensation,
incentive compensation, group or other life, health, medical/hospital
or other insurance (whether funded by actual insurance or self-insured
by the Company or a Subsidiary), disability, salary continuation,
expense reimbursement and other employee benefit policies, plans,
programs or arrangements that may now exist or any equivalent successor
policies, plans, programs or arrangements that may be adopted hereafter
by the Company or a Subsidiary, providing perquisites, benefits and
service credit for benefits at least as great in the aggregate as are
payable thereunder prior to a Change in Control.
(g) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(h) "Incentive Pay" means an amount equal to not less than the
highest aggregate annual bonus, incentive or other payments of cash
compensation, in addition to Base Pay, made or to be made in regard to
services rendered in any calendar year during the three calendar years
immediately preceding the year in which the Change in Control occurred
pursuant to any bonus, incentive, profit-sharing, performance,
discretionary pay or similar agreement, policy, plan, program or
arrangement (whether or not funded) of the Company or a Subsidiary, or
any successor thereto providing benefits at least as great as the
benefits payable thereunder prior to a Change in Control.
(i) "Severance Period" means the period of time commencing on
the date of the first occurrence of a Change in Control and continuing
until the earlier of (i) the second anniversary of the occurrence of
the Change in Control or (ii) the Executive's death; provided, however,
that commencing on each anniversary of the Change in Control, the
Severance Period will automatically be extended for an additional year
unless, not later than 90 calendar days prior to such anniversary date,
either the Company or the Executive shall have given written notice to
the other that the Severance Period is not to be so extended.
(j) "Subsidiary" means an entity in which the Company directly
or indirectly beneficially owns 50% or more of the outstanding Voting
Stock.
(k) "Term" means the period commencing as of the date hereof
and expiring as of the later of (i) the close of business on February
1, 2001, or (ii) the expiration of the Severance Period; provided,
however, that (A) commencing on February 1, 2001 and each January 1
thereafter, the term of this Agreement will automatically be extended
for an additional year unless, not later than November 30 of the
immediately preceding year, the Company or the Executive shall have
given notice that it or the Executive, as the case may be, does not
wish to have the Term extended and (B) subject to the last sentence of
Section 9, if, prior to a Change in Control, the Executive ceases for
any reason to be an employee of the Company and any Subsidiary,
thereupon without further action the Term shall be deemed to have
expired and this Agreement will immediately terminate and be of no
further effect. For purposes of this Section 1(k), the Executive shall
not be deemed to
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have ceased to be an employee of the Company and any Subsidiary by
reason of the transfer of Executive's employment between the Company
and any Subsidiary, or among any Subsidiaries.
(l) "Termination Date" means the date on which the Executive's
employment is terminated (the effective date of which shall be the date
of termination, or such other date that may be specified by the
Executive if the termination is pursuant to Section 3(b).
(m) "Voting Stock" means securities entitled to vote generally
in the election of directors.
2. Operation of Agreement. This Agreement will be effective
and binding immediately upon its execution, but, anything in this Agreement to
the contrary notwithstanding, this Agreement will not be operative unless and
until a Change in Control occurs. Upon the occurrence of a Change in Control at
any time during the Term, without further action, this Agreement shall become
immediately operative.
3. Termination Following a Change in Control. (a) In the event
of the occurrence of a Change in Control, the Executive's employment may be
terminated by the Company or a Subsidiary during the Severance Period and the
Executive shall be entitled to the benefits provided by Section 4 unless such
termination is the result of the occurrence of one or more of the following
events:
(i) The Executive's death;
(ii) If the Executive becomes permanently disabled
within the meaning of, and begins actually to receive disability
benefits pursuant to, the long-term disability plan in effect for, or
applicable to, Executive immediately prior to the Change in Control; or
(iii) Cause.
If, during the Severance Period, the Executive's employment is terminated by the
Company or any Subsidiary other than pursuant to Section 3(a)(i), 3(a)(ii) or
3(a)(iii), the Executive will be entitled to the benefits provided by Section 4
hereof.
(b) In the event of the occurrence of a Change in Control, the
Executive may terminate employment with the Company and any Subsidiary during
the Severance Period with the right to severance compensation as provided in
Section 4 upon the occurrence of one or more of the following events (regardless
of whether any other reason, other than Cause as hereinabove provided, for such
termination exists or has occurred, including without limitation other
employment):
(i) (A) A reduction in the aggregate of the Executive's Base
Pay received from the Company and any Subsidiary, or (B) the
termination or denial of the Executive's rights to
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Employee Benefits or a reduction in the scope or value thereof, any of
which is not remedied by the Company within 10 calendar days after
receipt by the Company of written notice from the Executive of such
change, reduction or termination, as the case may be;
(ii) The liquidation, dissolution, merger, consolidation or
reorganization of the Company or transfer of all or substantially all
of its business and/or assets, unless the successor or successors (by
liquidation, merger, consolidation, reorganization, transfer or
otherwise) to which all or substantially all of its business and/or
assets have been transferred (directly or by operation of law) assumed
all duties and obligations of the Company under this Agreement pursuant
to Section 10(a); or
(iii) Without limiting the generality or effect of the
foregoing, any material breach of this Agreement by the Company or any
successor thereto.
(c) A termination by the Company pursuant to Section 3(a) or
by the Executive pursuant to Section 3(b) will not affect any rights that the
Executive may have pursuant to any agreement, policy, plan, program or
arrangement of the Company or Subsidiary providing Employee Benefits, which
rights shall be governed by the terms thereof.
4. Severance Compensation. (a) If, following the occurrence of
a Change in Control, the Company or Subsidiary terminates the Executive's
employment during the Severance Period other than pursuant to Section 3(a)(i),
3(a)(ii) or 3(a)(iii), or if the Executive terminates his employment pursuant to
Section 3(b), the Company will pay to the Executive the following amounts within
five business days after the Termination Date and continue to provide to the
Executive the following benefits:
(i) A lump sum payment in an amount equal to the sum of (A) Base
Pay, plus (B) Incentive Pay (determined in accordance with the
standards set forth in Section 1(h)).
(ii) (A) For a period of 12 months following the Termination Date (the
"Continuation Period"), the Company will arrange to provide the
Executive with Employee Benefits that are welfare benefits (but not
stock option, stock purchase, stock appreciation or similar
compensatory benefits) substantially similar to those that the
Executive was receiving or entitled to receive immediately prior to the
Termination Date (or, if greater, immediately prior to the reduction,
termination, or denial described in Section 3(b)(ii)), except that the
level of any such Employee Benefits to be provided to the Executive may
be reduced in the event of a corresponding reduction generally
applicable to all recipients of or participants in such Employee
Benefits, and (B) such Continuation Period will be considered service
with the Company for the purpose of determining service credits and
benefits due and payable to the Executive under the retirement income,
supplemental executive retirement and other benefit plans of the
Company or Subsidiary applicable to the Executive, his dependents or
his beneficiaries immediately prior to the Termination Date (or, if
greater, immediately prior to the reduction, termination or denial
described in Section 3(b)(ii)). If and to the extent that any benefit
described in subsection (A) or (B) of this Section 4(a)(ii) is not or
cannot be paid or provided under any policy,
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plan, program or arrangement of the Company or any Subsidiary, as the
case may be, then the Company will itself pay or provide for the
payment to the Executive, his dependents and beneficiaries, of such
Employee Benefits along with, in the case of any benefit described in
subsection (A) of this Section 4(a)(ii) which is subject to tax because
it is not or cannot be paid or provided under any such policy, plan,
program or arrangement of the Company or any Subsidiary, an additional
amount such that after payment by the Executive, or his dependents or
beneficiaries, as the case may be, of all taxes so imposed, the
recipient retains an amount equal to such taxes. Without otherwise
limiting the purposes or effect of Section 5, Employee Benefits
otherwise receivable by the Executive pursuant to subsection (A) of
this Section 4(a)(ii) will be reduced to the extent comparable welfare
benefits are actually received by the Executive from another employer
during the Continuation Period following the Executive's Termination
Date, and any such benefits actually received by the Executive shall be
reported by the Executive to the Company.
(b) The parties' respective rights and obligations under this
Section 4 and under Section 5 will survive any termination or expiration of this
Agreement or the termination of the Executive's employment following a Change in
Control.
5. Limitation on Payments and Benefits. Notwithstanding any
provision of this Agreement to the contrary, if any amount or benefit to be paid
or provided under this Agreement would be an "Excess Parachute Payment," within
the meaning of Section 280G of the Internal Revenue Code of 1986, as amended
(the "Code"), or any successor provision thereto, but for the application of
this sentence, then the payments and benefits to be paid or provided under this
Agreement shall be reduced to the minimum extent necessary (but in no event to
less than zero) so that no portion of any such payment or benefit, as so
reduced, constitutes an Excess Parachute Payment; provided, however, that the
foregoing reduction shall be made only if and to the extent that such reduction
would result in an increase in the aggregate payment and benefits to be
provided, determined on an after-tax basis (taking into account the excise tax
imposed pursuant to Section 4999 of the Code, or any successor provision
thereto, any tax imposed by any comparable provision of state law, and any
applicable federal, state and local income taxes). The determination of whether
any reduction in such payments or benefits to be provided under this Agreement
or otherwise is required pursuant to the preceding sentence shall be made at the
expense of the Company, if requested by the Executive or the Company, by the
Company's independent accountants. The fact that the Executive's right to
payments or benefits may be reduced by reason of the limitations contained in
this Section 5 shall not of itself limit or otherwise affect any other rights of
the Executive other than pursuant to this Agreement. In the event that any
payment or benefit intended to be provided under this Agreement or otherwise is
required to be reduced pursuant to this Section 5, the Executive shall be
entitled to designate the payments and/or benefits to be so reduced in order to
give effect to this Section 5. The Company shall provide the Executive with all
information reasonably requested by the Executive to permit the Executive to
make such designation. In the event that the Executive fails to make such
designation within 10 business days of the Termination Date, the Company may
effect such reduction in any manner it deems appropriate.
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6. No Mitigation Obligation. The Company hereby acknowledges
that it will be difficult and may be impossible for the Executive to find
reasonably comparable employment following the Termination Date and that the
non-competition covenant contained in Section 7 will further limit the
employment opportunities for the Executive. Accordingly, the payment of the
severance compensation by the Company to the Executive in accordance with the
terms of this Agreement is hereby acknowledged by the Company to be reasonable,
and the Executive will not be required to mitigate the amount of any payment
provided for in this Agreement by seeking other employment or otherwise, nor
will any profits, income, earnings or other benefits from any source whatsoever
create any mitigation, offset, reduction or any other obligation on the part of
the Executive hereunder or otherwise, except as expressly provided in the last
sentence of Section 4(a)(ii).
7. Competitive Activity. During a period ending one year
following the Termination Date, if the Executive shall have received or shall be
receiving benefits under Section 4, the Executive shall not, without the prior
written consent of the Company, engage in any Competitive Activity.
8. Employment Rights. Nothing expressed or implied in this
Agreement will create any right or duty on the part of the Company or the
Executive to have the Executive remain in the employment of the Company or any
Subsidiary prior to or following any Change in Control. Any termination of
employment of the Executive or the removal of the Executive from the office or
position in the Company or any Subsidiary following the commencement of any
discussion with a third person that ultimately results in a Change in Control
shall be deemed to be a termination or removal of the Executive after a Change
in Control for purposes of this Agreement.
9. Withholding of Taxes. The Company may withhold from any
amounts payable under this Agreement all federal, state, city or other taxes as
the Company is required to withhold pursuant to any law or government regulation
or ruling.
10. Successors and Binding Agreement. (a) The Company will
require any successor (whether direct or indirect, by purchase, merger,
consolidation, reorganization or otherwise) to all or substantially all of the
business or assets of the Company, by agreement in form and substance
satisfactory to the Executive, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent the Company would be
required to perform if no such succession had taken place. This Agreement will
be binding upon and inure to the benefit of the Company and any successor to the
Company, including without limitation any persons acquiring directly or
indirectly all or substantially all of the business or assets of the Company
whether by purchase, merger, consolidation, reorganization or otherwise (and
such successor shall thereafter be deemed the "Company" for the purposes of this
Agreement), but will not otherwise be assignable, transferable or delegable by
the Company.
(b) This Agreement will inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees and legatees.
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(c) This Agreement is personal in nature and neither of the
parties hereto shall, without the consent of the other, assign, transfer or
delegate this Agreement or any rights or obligations hereunder except as
expressly provided in Sections 10(a) and 10(b). Without limiting the generality
or effect of the foregoing, the Executive's right to receive payments hereunder
will not be assignable, transferable or delegable, whether by pledge, creation
of a security interest, or otherwise, other than by a transfer by Executive's
will or by the laws of descent and distribution and, in the event of any
attempted assignment or transfer contrary to this Section 10(c), the Company
shall have no liability to pay any amount so attempted to be assigned,
transferred or delegated.
11. Notices. For all purposes of this Agreement, all
communications, including without limitation notices, consents, requests or
approvals, required or permitted to be given hereunder will be in writing and
will be deemed to have been duly given when hand delivered or dispatched by
electronic facsimile transmission (with receipt thereof orally confirmed), or
five business days after having been mailed by United States registered or
certified mail, return receipt requested, postage prepaid, or three business
days after having been sent by a nationally recognized overnight courier service
such as Federal Express, UPS, or Purolator, addressed to the Company (to the
attention of the Secretary of the Company) at its principal executive office and
to the Executive at his principal residence, or to such other address as any
party may have furnished to the other in writing and in accordance herewith,
except that notices of changes of address shall be effective only upon receipt.
12. Governing Law. The validity, interpretation, construction
and performance of this Agreement will be governed by and construed in
accordance with the substantive laws of the State of Texas, without giving
effect to the principles of conflict of laws of such State.
13. Validity. If any provision of this Agreement or the
application of any provision hereof to any person or circumstances is held
invalid, unenforceable or otherwise illegal, the remainder of this Agreement and
the application of such provision to any other person or circumstances will not
be affected, and the provision so held to be invalid, unenforceable or otherwise
illegal will be reformed to the extent (and only to the extent) necessary to
make it enforceable, valid or legal.
14. Miscellaneous. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and the Company. No waiver by
either party hereto at any time of any breach by the other party hereto or
compliance with any condition or provision of this Agreement to be performed by
such other party will be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, expressed or implied with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. References to Sections are to references to
Sections of this Agreement.
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15. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed and delivered as of the date first above written.
AUTOBOND ACCEPTANCE CORPORATION
By:
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Xxxxxx X. Xxxxxxxx
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