EMPLOYMENT AGREEMENT
This employment agreement (the "Agreement"), dated as of August 29, 1997
is made by and between American Family Holdings, Inc., a Delaware
corporation, having its principal offices at 0000 Xxx Xxxxxx, Xxxxx 000,
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000 (the "Company"), and Xxxxx X. Xxxxxx (the
"Employee").
In consideration of the mutual promises and agreements set forth herein,
the parties agree as follows:
1. EMPLOYMENT. The Company will employ Employee, and Employee will
serve, as President and Chief Financial Officer (CFO) of the Company pursuant
to this Agreement. Employee will report to the Board of Directors of the
Company, and will, subject to his election or appointment as such, serve as a
member of the Board of Directors and any committee of the Board of Directors.
In addition, the Company will cause Employee to be elected Vice President
and Director of American Family Communities, Inc., a to-be-formed
wholly-owned subsidiary of the Company ("AFC") and Vice President as well as
a Director of the following to-be-formed companies which will be wholly-owned
subsidiaries of AFC: Delta Greens Homes, Inc., Yosemite Xxxxx Family Resort,
Inc., Oceanside Homes, Inc., and Mori Point Destinations, Inc. Subject to
availability, the Company will cause such subsidiaries to transfer to the
Company such funds as may be necessary for the Company to honor its
obligations under this Agreement.
2. TERM OF EMPLOYMENT. The term of employment under this Agreement
will commence on the Effective Date of the Acquisition described in the
Company's registration statement to be filed on Form S-4 or SB-2 with the
Securities and Exchange Commission in the foreseeable future, and continue
through December 31, 2002 (the "Initial Term"), provided that the Agreement
shall automatically be extended for one year at the end of 2002 and each year
thereafter (the AExtended Term") unless the Agreement is earlier terminated
pursuant to its terms or the Company provides Employee with a written notice
not less than 90 days before the end of any given calendar year of its
election not to have the automatic extension provisions of this Agreement
apply as specified in said notice.
3. COMPENSATION AND OTHER BENEFITS.
3.1 BASE SALARY. As compensation for his employment under this
Agreement, commencing as of the Effective Date of the Acquisition, the
Company will pay to Employee a signing bonus of $25,000 and a base salary of
$180,000 per year (AInitial Base Salary") which, commencing January 1, 1999,
shall increase by the greater of either i) $18,000 per year during the
Initial Term, or ii) by the percentage change increase in the Consumer Price
Index (ACPI") applicable to Orange County that occurred in the year last
past. If the CPI is discontinued or revised, the government index replacing
the CPI shall be used for such calculations. Subject to normal withholding,
any base salary will be payable twice monthly in as equal installments as
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possible. It is understood that the Company may, at the discretion of its
Board of Directors, increase such base salary in amount that may be in excess
of either i) or ii) above.
3.2 BONUS COMPENSATION. Employee shall be eligible for
performance bonus compensation equal to two percent (ATwo Percent Performance
Bonus") of the ACompany's Performance Base Income," as defined herein. The
ACompany's Performance Base Income," as that term is used herein, shall be
equal to the Company's annual federal corporate taxable income as determined
under the Internal Revenue Code of 1986, as amended, as expressly modified
herein and as expressly adjusted in this Section for items not otherwise
required to be included in the Company's consolidated income for federal
corporate income tax purposes. The computation of the Company's federal
corporate taxable income shall not include a deduction for state corporate
income or franchise taxes, net operating loss carryovers (forward or back)
and depreciation in excess of income on real properties held for rental. In
addition, the computation of the Company's federal corporate taxable income
for purposes of the Two Percent Performance Bonus shall substitute the tax
basis of any real property contributed to the Company at the Effective Date
of Acquisition to reflect its then existing fair market value, which shall be
defined as the appraised value of each property utilized as the basis to
calculate its Exchange Value as determined in the registration statement of
the Company to be filed with the Securities and Exchange Commission. The
Company's federal corporate taxable income will be computed on a consolidated
basis. The Company's Performance Base Income, to the extent not required to
be consolidated for federal corporate income tax purposes or not otherwise
includable in the Company's federal corporate taxable income shall
nevertheless include the income of any subsidiary, partnership or entity to
the extent of the Company's percentage ownership in such entity, regardless
of the number of tiers of entities that may be involved and regardless of
whether currently distributable or distributed. Such bonus will be paid on or
before the 90th day after the end of the Company's applicable tax year (ATwo
Percent Performance Bonus Pay Date"). This bonus will be paid only when the
Company has sufficient reserves to fully and timely pay all of its
foreseeable operating debts as they become due. If the Company does not have
such sufficient reserves, the Company may delay payment of the Two Percent
Performance Bonus for two one-year periods; however, such amounts shall bear
interest at ten percent per annum from April 1 of the year in which the
payment was due until paid. Notwithstanding the foregoing to the contrary,
the Two Percent Performance Bonus will become absolutely payable no later
than two years after the Two Percent Performance Bonus Pay Date regardless of
any other condition including, but not limited to, the sufficiency of the
Company's working capital reserves. At the Board's discretion, the Company
may grant Employee a separate bonus of up to 50% of Employee's then existing
base salary (ABase Salary Performance Bonus"). Said bonus shall be paid on
or before the 90th day after the end of the Company's applicable tax year.
3.3 OTHER BENEFITS.
3.3.1 During the term of Employee's employment hereunder,
Employee (and his dependents where applicable) will be entitled to
participate and will be included in any employee benefit plans including but
not limited to any group health and life insurance, pension,
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profit sharing, retirement, stock incentive or similar plans of the Company
now existing or established hereafter. Employee will also be covered by the
Company's directors and officers errors and omissions insurance.
3.3.2 During the term of Employee's employment hereunder,
Employee will be authorized to incur and will be reimbursed by Company for
all reasonable business-related expenses, travel expenses (as if the Company
was headquartered in Orange County) and entertainment expenses incurred by
Employee to promote the business of the Company. Club dues and expenses will
be covered as agreed upon between Employee and the Company. In addition, the
Company will pay for, or reimburse Employee for, all mandatory continuing
education required to maintain professional licenses necessary to the
Company's business, and the costs of membership in all professional
associations reasonably applicable to the Company's business. The Company
will also pay for the equivalent or current insurance policies from the Xxxx
Xxxxxx, Xxxxxx and North American Companies unless premiums are paid for by
another affiliate of Employee. Employee shall be the owner of said policies.
3.3.3 During the term of Employees employment hereunder,
Employee will be entitled to 20 business days of vacation and ten business
days for illness during each full contract year of employment, determined on
a pro-rata basis for and partial contract year of employment during which
time Employee is not partially or fully disabled, provided that such vacation
will be arranged so that the Company may function at reasonable operating
levels during such vacation periods. Any vacation and/or sick days taken in
excess of that stated above in any given calendar year shall require Board
approval. Any vacation and/or sick days not taken shall accrue and carry
over to the next contract year provided that, at the end of any calendar year
in which this Agreement is in effect, Employee may not have accrued any
unused vacation days aggregating in excess of 30 days. Any unused sick days
by accrue without limitation. Any vacation or sick days not used upon
termination shall be paid at the rate of Employee's then existing base salary
under Section 3.1 hereunder.
3.3.4 If at any time during which Employee is a director,
executive officer or employee of the Company or any of its subsidiaries, the
Company proposes to file a registration statement under the Securities Act of
1933, as amended, relating to an underwritten or "best efforts" public
offering of Common Stock of the company, other than an offering by the
Company in which no selling stockholders participate, at least 30 days before
filing that registration statement, the Company will notify Employee of the
Company's intention to file the registration statement and the Company will
include in the registration statement any shares of the Company's Common
Stock then owned by Employee or an entity with which Employee is affiliated
which Employee requests be included in the registration statement on the same
terms and conditions as the other shares being sold, up to such number of
Employee's shares as the managing underwriter or selling agent, if any, of
the proposed public offering states in writing to Employee to be the maximum
number of Employees' shares which the managing underwriter or selling agent,
if any, has determined can be included in the public offering without
adversely affecting the sale of the other shares to which the registration
statement relates.
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3.4 SALARY AND BENEFIT CONTINUATION. The Company will continue to
pay to Employee compensation as provided in Section 3.1 hereunder at the full
rate for a period of six months after Employee is declared permanently and
totally disabled and unable to perform the duties of President or Chief
Financial Officer of the Company. Thereafter, the Company will pay to
Employee 25% of Employee's annual salary as provided in Section 3.1 hereunder
for an additional 12 consecutive months or until the regular expiration
(without regard to any automatic extension) of this Agreement, whichever is
earlier. Furthermore, in the event of such permanent and total disability,
the benefits described in Section 3.3.1 will continue as if Employee had
continued to render services pursuant to this Agreement throughout its term,
and the benefits described in Section 3.3.4 will continue in accordance with
the terms of this Agreement. For purposes of this Section, the determination
of whether or not Employee is declared permanently and totally disabled shall
be made by Employee's physician, by written notice to the Board of Directors.
In the event the Board of Directors disagrees with the determination by
Employees' physician, the Board of Directors will appoint, at the Company's
expense, another physician to make such determination. If the physician so
appointed by the Board of Directors disagrees with the determination made by
Employee's physician, then the two physicians shall appoint a mutually
acceptable third physician, at the Company's expense, to make the final
determination of whether Employee is permanently and totally disabled, which
determination will be binding upon all parties hereto.
3.5 CHANGE OF CONTROL COMPENSATION. If, pursuant to Section 5.2
hereof, Employee terminates this Agreement within six months of a Change of
Control (as defined in Section 6.1 hereof), as severance pay and in lieu of
any further salary for periods subsequent to the date of termination,
Employee shall receive 2.99 times the sum of all amounts (collectively,
AChange of Control Compensation") paid to Employee pursuant only to Sections
3.1 and 3.2 hereof during the five complete calendar years preceding the
calendar year during which the Change of Control occurs (or such lesser
number of calendar years in the event Employee has been employed by the
Company for fewer than five such calendar years) divided by five (or such
lesser number in the event Employee has been employed by the Company for
fewer than five such calendar years). The following provisions shall apply
for purposes of this Section 3.5:
(a) The Change of Control Compensation paid to Employee
during any partial calendar years of employment shall be annualized, and such
annualized year shall be treated as a full calendar year.
(b) Amounts payable to Employee pursuant to this Section 3.5
shall be paid without interest in 18 equal monthly installments (less
applicable withholding) commencing on the first day of the first month after
Employee's termination occurring after a Change of Control.
(c) The amounts payable pursuant to this Section 3.5 shall
not be reduced, offset or subject to recovery by the Company by reason of any
amounts earned by Employee as the result of employment by another employer
after the date of termination, or otherwise.
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(d) Any Change of Control Compensation due to Employee from
the Company shall also include any stock options not yet granted pursuant to
Section 3.8 hereunder.
3.6 LIMITATION ON CHANGE OF CONTROL COMPENSATION. Notwithstanding
Section 3.5 hereof, if any portion of the Change of Control Compensation
provided for in this Agreement would constitute a "parachute payment" (as
defined in Section 280G(b)(2) of the Internal Revenue Code), the payments and
benefits due to the Employee shall be reduced, in such order of priority and
amount as the Employee shall elect, to the largest amount as will result in
no portion of such payments being subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code. Notwithstanding anything in the
foregoing to the contrary, any dispute or controversy regarding whether any
payments under this Agreement must be reduced pursuant to this Section 3.6
shall be settled by an independent accounting firm acceptable to each of the
parties hereto, or, if no such firm is acceptable to each party, each of the
Employee and the Company shall select an accounting firm acceptable to it,
and such accounting firms shall together designate an independent accounting
firm to settle such dispute or controversy, and such settlement shall be
binding upon both parties. The Company may withhold from any benefits
payable under this Agreement all federal, state, city or other taxes as shall
be required pursuant to any law or governmental regulation or ruling.
3.7 AUTO AND CELL PHONE EXPENSES. The Company shall be
responsible for any automobile expenses for Employee and shall reimburse
Employee for the costs of service, maintenance, insurance, licensing and
fueling such automobile(s). In addition, the Company shall provide cellular
telephones and reimburse Employee for any charges for such usage.
3.8 STOCK OPTIONS. As of the Effective Date of the Acquisition,
and on the first and second anniversaries thereof, in addition to any options
granted to Employee pursuant to the Company's 1997 Stock Option and Incentive
Plan, the Employee shall be granted the following options to purchase the
Company's common stock:
Date of Grant Number of shares Exercise Price/Share
------------- ---------------- --------------------
Acquisition Effective Date 10,000 $10.000
First Anniversary of 10,000 Fair Market Value
Acquisition Effective Date
Second Anniversary of 10,000 Fair Market Value
Acquisition Effective Date
"Fair Market Value" shall be the closing price of the Company's
common stock on the national exchange on which it is traded on the trading
day before the options are granted. If the Company's common stock is not
traded on a national exchange, Fair Market Value shall be determined in good
faith by the Board of Directors.
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Each group of options will be exercisable as follows: 3,333 shares
immediately, 3,333 shares on the first anniversary of grant; and 3,334 shares
on the second anniversary of grant. To the extent not exercised, options
granted pursuant to this Section 3.8 shall expire ten years from the date of
grant.
The options granted hereby shall not be transferable without the
consent of a majority of the Board of Directors of the Company; provided that
such options may be transferred by will or to a revocable living trust for
estate planning purposes. If any options are so transferred, they will not
be transferred by the transferee without the written consent of the Board of
Directors.
4. NON-COMPETITION/UNFAIR COMPETITION.
4.1 NON-COMPETITION. During the term of Employee's employment
under this Agreement, Employee will not knowingly, directly or indirectly,
engage or participate in any business that is in competition with the
business of the Company. The foregoing obligation of Employee not to compete
with the Company shall not prohibit (i) Employee from owning or purchasing
any corporate securities of any corporation or other entity that are
regularly traded on a recognized stock exchange or over-the-counter market so
long as Employee does not own, in the aggregate, five percent or more of the
voting equity securities of any such corporation or other entity, or (ii)
Employee from continuing to own interests in existing real estate oriented
projects in which he has investments, or (iii) Employee from assisting in the
financing for, investing in or managing any real estate oriented projects
which are not in direct competition with those of the Company.
4.2 UNFAIR COMPETITION. The Company treats certain information as
confidential information (the "Confidential Information"). Employee
acknowledges and agrees that the sale or unauthorized use or disclosure of
any Confidential Information obtained by Employee during his employment with
the Company constitute unfair competition. Employee promises and agrees not
to engage in unfair competition with the Company during the term of this
Agreement and thereafter.
5. TERMINATION PROVISIONS.
5.1 TERMINATION BY COMPANY. This Agreement may be terminated by
the Company only as provided in this Section and for no other cause or reason:
(a) The Company may terminate Employee's employment under
this Agreement upon 90 days' advance written notice by a vote of the Board of
Directors (excluding Employee but including a majority of the non-employee
directors). If such termination is other than for "Cause" (as defined
herein), the Company will pay to Employee (or his estate) the then applicable
base salary Employee would have been entitled to receive under Section 3.1
hereunder for the remaining term of this Agreement, regardless of
re-employment, if any, as if Employee's employment had continued in full
through the termination date then in effect (without giving effect to any
future automatic annual extensions) and Employee had rendered services
through
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that date, payable in equal monthly installments over a one-year period
beginning on the date of termination, but in any event no less than one
year's salary as of the date of termination. If such termination is for
"Cause" (as defined herein), to the extent permitted by law, Employee's
compensation and benefits shall terminate as of the date the termination
becomes effective. For purposes of this Agreement, "Cause" shall mean and be
limited to an act of fraud, embezzlement or similar conduct by Employee
involving the Company.
(b) Except to the extent necessary to give effect to Sections
5.1(a) and 5.2, this Agreement will terminate upon the death of Employee.
(c) Except as otherwise provided in Section 3.4, this
Agreement will terminate as of the date Employee is declared permanently and
totally disabled and unable to perform the duties assigned to him.
(d) If the Company terminates this Agreement, Employee's
employment relationship with any of the Company's subsidiaries shall be
deemed terminated as of the same time.
5.2 TERMINATION BY EMPLOYEE. This Agreement may be terminated by
Employee upon 30 days' prior written notice as set forth below:
(a) If Employee's termination is voluntary and not for any of
the reasons set forth in Sections 5.2(b) or (c), the Company shall have no
further liability to Employee upon such termination except those liabilities
that might arise with respect to the Company's stock under Section 3.9 hereof.
(b) If Employee's termination occurs within one year from the
Company's breach of this Agreement or occurs within one year of a Change of
Location (as defined in Section 6.2), Employee's compensation shall be
determined under Section 5.1(a) as if such termination was without "Cause."
(c) If Employee's termination occurs within six months from a
Change of Control (as defined in Section 6.1), Employee's compensation will
be governed by Section 3.5 hereof. If negotiations that result in a Change
of Control are occurring with less than 6 months remaining until the end of
the Initial Term or any Extended Term of this Agreement, then the provisions
governing Employee's Change of Control Compensation under this Section 5.2
and Section 3.5 hereof shall survive this Agreement.
6. DEFINITIONS.
6.1 CHANGE OF CONTROL. For purposes of this Agreement, a Change
of Control of the Company shall mean any of the following events:
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(a) The acquisition by any person or entity, including any
current shareholder of the Company, of securities of the Company resulting in
such person's owning of record or beneficially 40% or more of the voting
securities of the Company;
(b) A merger, consolidation or other combination, or sale of
substantially all of the assets of the Company, the result of which is either
(i) the ownership by shareholders of the Company of less than 51% of the
voting securities of the resulting or acquiring entity having the power to
elect a majority of the Board of such entity and the power to preserve such
power to elect, or (ii) the Company having no substantial operating business;
or
(c) A change in the membership in the Board which, taken in
conjunction with any other prior or concurrent changes, results in 50% or
more of the Board's membership being persons not nominated by management in
the Company's then most recent form of nomination, excluding changes
resulting from substitutions for retirement or death or for removal or
resignation due to demonstrated disability.
Notwithstanding anything in the foregoing to the contrary, no
Change of Control shall be deemed to have occurred for purposes of this
Agreement by virtue of any transaction which results in the Employee, or a
group of persons or entity which includes the Employee, acquiring, directly
or indirectly, 40% or more of any class of voting securities of the Company.
For purposes of Section 6.1, the terms "person" and "beneficial
owner" have the meanings set forth in Regulation 13D under the Securities
Exchange Act of 1934, as such Regulation exists on the date hereof, and the
term "voting security" includes any security that has, or may have upon an
event of default or in respect to any transaction, a right to vote on any
matter upon which the holder of any class of common stock of the Company
would have a right to vote.
For purposes of subsection (a) through ( c) above, such Change of
Control shall include any such applicable lesser standard prescribed by
Section 280(G) of the Internal Revenue Code or regulations issued or proposed
thereto.
6.2 CHANGE IN LOCATION. For purposes of this Agreement, the term
"Change of Location" means any change of the headquarters operations of the
Company to a place outside of Orange County, California, or the requirement
that Employee spend more than 50% of his business time for the Company at
locations outside of Orange County, California.
7. INDEMNIFICATION. As an officer, and if so elected, a director, of
the Company and any of its subsidiaries or affiliates, Employee shall be
indemnified by the Company and any of its subsidiaries or affiliates to the
fullest extent permitted by applicable law. To the extent necessary and
permissible, such indemnification will protect Employee from prior operations
of properties acquired by the Company or any of its subsidiaries or affiliates
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8. OTHER PROVISIONS.
8.1 NOTICES. All notices, requests, demands and other
communications required or permitted to be given hereunder will be in writing
and will be deemed to have been duly given if personally delivered or sent by
telecopier or sent by prepaid telegram or first class mail, postage prepaid,
registered or certified, as follows:
If to Employee: Xxxxx X. Xxxxxx
27282 Xxxxxxx
Xxxxxxx Xxxxx, Xx. 00000
If to Company: 0000 Xxx Xxxxxx Xxxxxx
Xxxxx 000
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
Attention: CEO
Either party may change the address to which such
communications are to be delivered by giving written notice to the other
party. Any notice personally given will be deemed received upon delivery to
the address designated, any notice by mail as provided in this paragraph will
be deemed given on the third business day following such mailing, and any
notice given by telecopier or telegram as provided herein will be deemed
delivered on the business day following the transmission by telecopier or the
delivery of such notice to the telegraph company for transmission.
8.2 ATTORNEYS' FEES. In the event of a dispute between any or all
of the parties hereto, or in the event either party seeks to enforce this
Agreement, the prevailing or successful party in a court or arbitration
determination shall be entitled to have its reasonable attorney=s fees and
costs reimbursed by the other party.
8.3 GOVERNING LAW. This Agreement shall be construed in
accordance with, and governed by, the laws of the State of California and
performable in Orange County, California.
8.4 ENTIRE AGREEMENT. This Agreement contains all of the terms
and conditions agreed upon by the parties hereto with reference to the
subject matter hereof and supersedes any and all prior written or verbal
agreements. This Agreement may not be modified except by a written instrument
executed by both parties or their permitted successors in interest, if any.
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Each and every term of this Agreement will be valid and enforced to
the fullest extent permitted by law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first above written.
/s/ XXXXX X. XXXXXX
----------------------------------------
Xxxxx X. Xxxxxx (the "Employee")
AMERICAN FAMILY HOLDINGS, INC.
(the "Company")
By /s/ XXXXX X. XXXX
----------------------------------------
Xxxxx X. Xxxx, Chief Executive Officer
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