UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 3 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Exact name of each Registrants specified in I.R.S Employer
Commission its charter, state of incorporation, address Identification
File No of principal executive offices, telephone Number
001-12211 ECHELON INTERNATIONAL CORPORATION 59-2554218
(A Florida Corporation)
One Progress Plaza, Suite 2400
St. Petersburg, Florida 33701
Telephone (813) 824-6767
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ---------------------------------------------- -------------------
Common Stock, par value $.01 per share New York Stock Exchange
Series A Junior Participating Preferred Stock,
par value $.01 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES |X| NO |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulations S-K is not contained herein, and will not be contained, to the
best of each registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|
State the aggregate market value of the voting stock hold by non-affiliates of
the registrant: $120,615,183 as of March 24, 1997 (based upon the closing sales
price for the registrant's stock reported by the New York Stock Exchange on
March 24, 1997 as published in The Wall Street Journal and, solely for these
purposes, considering as non-affiliates all stockholders other than the
registrant's executive officers and directors).
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Common stock, par value $.01 per share, 6,763,605 shares, as of March 24,1997
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement to be filed with the
U.S. Securities and Exchange Commission, relating to the 1997 Annual Meeting of
Stockholders, are incorporated by reference in Part III hereof.
----------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
PART I.
Item 1. Business .............................................. 1
Item 2. Properties ............................................ 18
Item 3. Legal Proceedings ..................................... 18
Item 4. Submission of Matters to a Vote of Security Holders ... 18
PART II.
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters ..................... 18
Item 6. Selected Financial Data ............................... 19
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................. 19
Item 8. Financial Statements and Supplementary Data
Report of Independent Certified Public Accountants .. F-1
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ................. III-1
PART III.
Item 10. Directors and Executive Officer of the Registrant .... III-1
Item 11. Executive Compensation ............................... III-1
Item 12. Security Ownership of Certain Beneficial Owners
and Management ..................................... III-1
Item 13. Certain Relationships and Related Transactions ....... III-1
PART IV.
Item 14. Exhibits, Financial Statement Schedule, and
Reports on Form 8-K ............................... III-1
Signatures .................................................... III-6
Financial Statement Schedules ................................. S-1
<PAGE>
PART I
ITEM 1. BUSINESS
General
Echelon International Corporation ("Echelon" or the "Company") is a
real estate and financial services company with operations in two business
segments: (i) development, ownership and management of commercial and
multi-family residential real estate (the "Real Estate Business") and (ii)
collateralized financing of commercial real estate and aircraft and leasing of
aircraft and other assets (the "Lending and Leasing Business"). Echelon's
executive offices are located at One Progress Plaza, Suite 2400, St. Petersburg,
Florida, 33701, telephone (813) 824-6767.
Prior to December 18, 1996, Echelon was a wholly-owned subsidiary of
Florida Progress Corporation ("Florida Progress"). On July 1, 1996, the Board of
Directors of Florida Progress approved in principle a plan ("the Distribution")
to distribute all the issued and outstanding Echelon Common Stock to all holders
of outstanding Florida Progress Common Stock. On November 21, 1996, the Florida
Progress Board of Directors formally approved the Distribution and declared a
dividend payable to each holder of record at the close of business on December
5, 1996, ("Record Date") of one share of Echelon Common Stock for every 15
shares of Florida Progress Common Stock held by such holder on the Record Date.
On April 11, 1996, Florida Progress received a ruling from the IRS
that the receipt by Florida Progress stockholders of the Echelon Common Stock in
the Distribution will be generally tax-free to such stockholders and Florida
Progress for United States federal income tax purposes. The Distribution was
made on December 18, 1996.
The Real Estate Business
Commercial Real Estate Ownership and Management
General
Echelon owns and manages a portfolio of income-producing commercial
real estate properties located in Florida. The majority of these properties are
located in the Tampa Bay area including Tampa, St. Petersburg and the Gateway
area in between Tampa, St. Petersburg and Clearwater. With over two million
residents, Tampa Bay ranks among the top 25 metropolitan areas in the United
States in terms of population. The employment base of the Tampa Bay area ranks
second to Miami in Florida's employment markets. According to the Commerce
Department's Bureau of Economic Analysis, Tampa is expected to add at least
300,000 new jobs over the course of the next decade. Echelon believes these
demographics will support Echelon's business plan to maximize the value of its
assets, grow its Real Estate Business and achieve profitability.
Echelon's owned assets include 11 major commercial real estate
properties, consisting of five office buildings and six industrial sites and
other properties. The following table summarizes Echelon's owned commercial real
estate:
<PAGE>
Summary of Owned Commercial Real Estate Portfolio
<TABLE>
<CAPTION>
% of
Rentable
Percentage Sq. Ft.
Leased Leased
Rentable as of Major by Major
Project Name Description Location Sq. Ft.(2) Dec. 31, 1996 Tenants Tenants
<S> <C> <C> <C> <C> <C> <C>
Office Buildings
Bamett Tower 26-story Class A office tower St. Petersburg, FL 294,096 96% Florida Progress 21%
Barnett Bank 16%
Holland & Knight 9%
Merrill Lynch 7%
Raymond James 6%
KPMG Peat Marwick 5%
Carlton Fields 5%
McNulty
Station 5 multi-tenant, Class A office St. Petersburg. FL 90,978 97% Andersen Consulting 79%
buildings, historic renovation AmSouth Bank 8%
3rd & 3rd 3-story Class C office building St. Petersburg. FL 32,607 100% Florida Power(l) 100%
100 Carillon 3-story, multi-tenant Class A St. Petersburg, FL 79,013 100% Raymond James 83%
suburban office building
located in Carillon Park
Highpoint
Center 15-story, multi-tenant Class A Tallahassee, FL 79,670 95% Katz Kutter Law 46%
office building near the state Firm
capitol building Huey Guilday Law 22%
Firm
Industrial and Other Properties
Progress Center 2 multi-tenant, Class A Gainesville, FL 87,630 59% U of FL Tissue
office/research buildings Bank, Inc. 26%
located in research park Pharmos Corporation 13%
Bayboro
Property Land adjacent to St. Petersburg, FL 104,152 100% Florida Power 100%
Harborage at Bayboro,
leased to Florida Power
7th Avenue Class A, Industrial warehouse Tampa, FL 187,500 54% All Points 54%
5th Avenue Industrial warehouse Tampa, FL 16,482 100% Finer Scrap Metal 100%
Progress Packaging Industrial warehouse Tampa, FL 121,860 46% Sports & Recreation 30%
Harborage at
Bayboro Full service marina includes St. Petersburg, FL 235 wet slips 100% n/a n/a
wet slips and high & dry boat 425 dry slips 100%
storage, boat sales,
marine repair & service, parts sales,
and marine supply store
</TABLE>
- ----------
(1) Lease scheduled to expire March 31, 1997.
(2) Unless otherwise indicated.
Office Buildings
A significant component of Echelon's total investment in real estate
is represented by its portfolio of commercial office buildings. Three of
Echelon's five office buildings, Barnett Tower, McNulty Station and 3rd & 3rd,
are located in downtown St. Petersburg. Downtown St. Petersburg is home to more
than 1,400 businesses which together employ approximately 25,000 workers. St.
Petersburg is also home to the Tampa Bay Devil Rays, major league baseball's
newest expansion team, which will begin playing baseball in downtown St.
Petersburg in 1998.
2
<PAGE>
Barnett Tower is a 26-story, 294,096 square foot Class A office
building in the center of St. Petersburg and accounts for 28% of Echelon's more
than 1,000,000 square feet of owned commercial real estate. Completed in 1990,
it is the newest office building in downtown St. Petersburg and is home to
several of the area's most prominent firms, including Florida Progress; Barnett
Bank; Merrill Lynch; KPMG Peat Marwick; Raymond James & Associates, Inc.;
Carlton, Fields, Ward, Emmanuel, Smith & Cutler, P.A. and Holland & Knight.
These principal tenants account for 69% of the building's occupancy and have
leases with remaining terms of at least seven years. As of December 31, 1996 the
property was approximately 96% leased.
McNulty Station is a complex of five office buildings ranging in size
from two to five stories, totaling 90,978 square feet, and is located across the
street from the Barnett Tower. McNulty Station was part of an historic
renovation completed in 1985. The buildings are all Class A buildings leased to
such tenants as Andersen Consulting, and AmSouth Bancorporation. Echelon
recently acquired the fifth building located on the site in conjunction with the
expansion of Andersen Consulting, which leases 79% of the McNulty Station
properties under a lease scheduled to expire in August 2001. As of December 31,
1996, McNulty Station was 97% leased.
The 3rd & 3rd building is a three-story, 32,607 square foot office
building located two blocks south of Barnett Tower. Florida Power Corporation
currently occupies the entire building, but will be vacating the building in
March 1997. Echelon is currently seeking new tenants for the property.
Echelon's other office property in the St. Petersburg area is 100
Carillon. 100 Carillon, located in the Gateway area of Tampa Bay, is a
three-story, 79,013 square foot office building housed within the 432-acre
Carillon multi-use development site (the "Carillon Park"). Raymond James, a
regional securities brokerage firm with headquarters in a neighboring building,
with its affiliates occupies 83% of the building and recently extended its lease
to December 31, 2002. The property is a Class A multi-tenant building which, as
of December 31, 1996, was 100% leased. Raymond James is also planning to
construct an additional building within Carillon Park, with anticipated
completion by mid-1998.
As of December 1996, the office market in downtown St. Petersburg had
a vacancy rate of 16% (according to the Maddux Report of January 1997). Based on
historical absorption rates, the current supply of vacant office space will
hinder increases in market rental rates. This pressure on rental rates also
affects suburban office markets, such as the Gateway area where 100 Carillon is
located. Even though the Gateway area and the directly competing Westshore
(South Tampa) area have occupancy rates exceeding 90% (according to the Maddux
Report of January 1997), Echelon's business plan does not expect significant
increases in rental rates until demand for office space in the downtown St.
Petersburg and Tampa areas increases and existing vacancies in such areas are
absorbed.
Other Florida office properties owned by Echelon include the Highpoint
Center, a 15-story, 79,670 square foot Class A office building located in
downtown Tallahassee that was approximately 95% leased as of December 31, 1996.
The property is situated two blocks from the state capitol building and houses
several law firms with significant state business activities. The law firms
constituting the building's two main tenants occupy 68% of the building with
lease expirations of December 2002 and November 2000, respectively. Except for
the state capitol building, Highpoint Center, which was built in 1990, is the
tallest building in downtown Tallahassee.
Echelon intends to hold its existing portfolio of office properties
with a focus on generating growth in operating cash and net income through
leasing to high quality tenants and controlling operating expenses.
Industrial and Other Properties
Although its industrial properties do not represent a significant part
of Echelon's investment in commercial real estate, these properties are
generally located in locations with some potential for growth. Echelon's
industrial properties include Progress Center, the Bayboro Property, the 7th
Avenue property, the 5th Avenue property and Progress Packaging.
Progress Center, located near Gainesville, Florida, is an 87,630
square foot office research facility. The facility includes two buildings, each
of which is comprised of approximately 25% office space and 75% laboratory
space. The property is part of a 200-acre research park ("Progress Park") owned
by Echelon and affiliated with nearby University of Florida. The property is
approximately 59% leased, including 22,500 square feet which is occupied by
University of Florida Tissue Bank, Inc. The two
3
<PAGE>
major tenants occupy approximately 39% of the facility. The property is designed
to provide a vital link between University of Florida researchers and private
industry to transfer new technologies from the laboratory to the market place.
Echelon's Bayboro Property includes 445,500 square feet of land in St.
Petersburg, 104,152 square feet of which is leased to Florida Power. Florida
Power leases the land to house some of its "peaking"operations, a system of gas
powered backup generators used to produce power during periods of peak
electrical demand. The system includes several turbine engines to power the
generators. The lease to Florida Power can be canceled upon written notice from
Florida Power. The property includes a former power plant facility which Echelon
is renovating for commercial office use. Most of the land comprising the Bayboro
Property was acquired for its development potential. The Bayboro area is close
to downtown St. Petersburg and is located within a redevelopment zone.
Echelon has several properties located in various areas of Tampa. The
7th Avenue property, constructed in 1987, is a 187,500 square foot
warehouse/distribution facility located on the east side of Tampa. The property
is approximately 54% leased. The facility is one of the largest warehouse
properties in a predominantly industrial neighborhood. The 5th Avenue property,
located near the 7th Avenue property, is a 16,482 square foot industrial
building and is 100% leased to a single tenant who has a purchase option which
is expected to be exercised upon completion of environmental clean-up work by
Echelon. Progress Packaging is a 121,860 square foot industrial warehouse
located in West Tampa that is approximately 46% leased.
Echelon's strategy for its industrial properties, as well as strategy
for its other business segments, is currently under review. The current strategy
is to aggressively market the properties to increase occupancy and cash flow.
After achieving target occupancy and cash flow, a decision will be made to
either sell, hold or further develop these properties.
Echelon also owns and operates a marina, the Harborage at Bayboro,
located in the Bayboro Harbor area near downtown St. Petersburg. This full
service marina offers 235 wet slips and 425 high and dry slips, each of which,
as of December 31, 1996, were 100% leased.
Real Estate Management
Echelon currently manages its owned office buildings and industrial
properties. Echelon intends to expand its real estate management services
business by competing to manage office buildings and industrial properties for
third-parties, managing Echelon's new apartment developments and managing
Housing Tax Credit projects built for its own account and for third parties.
Other Owned Real Estate; Multi-Family Residential and Commercial Real Estate
Development
Overview
Another significant portion of Echelon's real estate holdings is
represented by several large parcels of undeveloped land in the St. Petersburg
area. Substantial infrastructure investment has already gone into certain of
these properties, including Carillon Park. Echelon's strategy is to accelerate
the development of both residential and commercial projects on these sites. The
following table summarizes Echelon's investment in undeveloped land:
4
<PAGE>
Summary of Undeveloped Owned Commercial Real Estate
<TABLE>
<CAPTION>
Development Potential
---------------------
Approx.
Acres for Number of
Sale or Apartment
Project Name Description Location Zoning Development Units
- ------------ ----------- -------- ------ ----------- -----
<S> <C> <C> <C> <C> <C>
Carillon Park Class A, suburban office St. Petersburg, FL Phase 1 38 N/A
and residential park in Zoned business park,
Gateway area DRI in place
Phase 11 96 1,170
Zoned multi-family
residential and business park;
area wide DRI in place
4th Street. 15 undeveloped acres St. Petersburg, FL Zoned residential office park 15 225
(Multi-family)
9th Street 72 undeveloped acres St. Petersburg, FL Zoned multi-family 72 965
(Multi-family) residential
Progress Park Research park consisting of Gainesville, FL Zoned office 150 N/A
150 acres with industrial/commercial
infrastructure in place
Royal Oaks 35 undeveloped acres Tallahassee, FL Zoned multi-family 35 N/A
adjacent to 131 single residential
family lots previously
developed and sold
Riverside Ranch 2,000-acre operating ranch Lakeland, FL Zoned agricultural 2,000 N/A
----- -----
TOTAL 2,406 2,360
===== =====
</TABLE>
Carillon Park is a 432-acre office park located in the Gateway area of
Tampa Bay and is among the largest tracts of property in the metropolitan Tampa
Bay area with all necessary zoning and other development approvals in place.
Going forward, Echelon believes that the 134 acres within Carillon Park which
are owned by Echelon and held for sale or development will play a significant
role in Echelon's business plan. Carillon Park is bordered by a triangle of
major roads serving both Pinellas and Hillsborough counties. Carillon Park's
central location (equidistant from downtown St. Petersburg, downtown Tampa and
downtown Clearwater) provides quick access to residential neighborhoods and
Tampa International Airport. Echelon estimates that Carillon Park has a
potential development capacity of over 6,000,000 square feet of office space,
750 hotel rooms, over 1,000 multi-family residential units, and a variety of
supporting retail services. The Carillon Park master plan contemplates a child
care center, fitness stations, jogging and walking paths and other amenities
which are intended to help commercial tenants attract and retain the highest
quality employees and to maximize on-the-job productivity.
Although new office construction generally has many hurdles to
overcome, including the building of infrastructure, development rights in
Carillon Park have become vested pursuant to Development of Regional Impact
("DRI") orders. Carillon Park's development plan includes stormwater retention
areas, underground utilities including fiber optic capability and zoning
approvals which allow for a broad spectrum of uses. For purposes of implementing
this plan, development of the land is divided into two phases.
Phase I has the infrastructure in place and is already the location of
offices of companies such as Raymond James, Allstate, Xerox and Public Service
Credit Union Service Centers. Phase I has 38 acres remaining to be sold.
Construction of infrastructure for Phase II was recently completed and a
jogging/fitness trail and boardwalk are substantially constructed with
completion scheduled for April, 1997.
Ninety-six of the original 155 acres of Phase II remain to be sold or
developed. Of the original 155 acres for sale in Phase II, 90 acres were zoned
for office buildings and retail and 65 acres were zoned for residential
apartments. Of the 90 acres for office buildings, almost 44 acres have been sold
including 28 acres to Franklin Templeton, Inc. This leaves a balance of
approximately 46 acres for office building development to be sold or developed
in Phase II. Of the 65 acres for apartments, 15 acres have been sold leaving
approximately 50 acres with the potential for development of approximately 1,170
apartment units. Echelon intends to develop some of the Carillon Park properties
for its own account and, if and when, market conditions warrant, to market land
to third parties.
5
<PAGE>
Financing for further development of Carillon Park, while not yet
obtained, is expected from a variety of sources, including project-based
financings, and internally generated funds from the collection of loans and
asset sales, from operating cash flow, and from existing cash, which, as of
December 31, 1996, approximated $63 million. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" in Item 7.
Echelon's 9th Street site, which is also located in the Gateway area
of Tampa Bay, has a total of 72 acres with apartment development potential of
approximately 965 units. The 9th Street site is currently in the initial stage
of its development, with the basic infrastructure completed in December 1996 so
that the site is now ready for apartment development.
Echelon's 15-acre 4th Street site has potential for the development of
approximately 225 apartment units. Echelon currently intends to use the 4th
Street site for the development of affordable housing apartments qualifying for
Housing Tax Credits. Echelon has submitted an application to the Florida Housing
Finance Agency to be awarded Housing Tax Credits on this property, and has
relinquished the credits awarded last year to proceed with development of
approximately 108 Housing Tax Credit apartment units on the 4th Street site. See
"Affordable Housing," below.
Progress Park has approximately 150 developable acres near
Gainesville, Florida. The rural setting and lack of substantial economic base
complicate the development and marketing of this property. However, given the
park's highway access and proximity to nearby Interstate 75, as well as its
proximity to the University of Florida, Echelon believes that opportunities for
developing the park may come from two areas: (i) research related office and
laboratory buildings similar to existing facilities and (ii) back office
operational centers and distribution facilities. Echelon currently intends to
subdivide the property and to add an additional median curb cut along the
highway frontage to increase the property's marketability.
Other Echelon properties include undeveloped land in the Royal Oaks
subdivision of Tallahassee and a fully operational 2,000 acre ranch property
located near Lakeland, Florida. Although no agreements currently exist relating
to the sale of such properties, Echelon intends to sell these properties as
promptly as practicable.
Apartments
Echelon believes that its most attractive opportunities for growth and
profitability are the development, ownership and operation of rental apartment
units in the Tampa Bay area and, ultimately, in other selected locations in the
southeastern United States. Echelon plans to begin developing apartments on its
owned land in St. Petersburg, including the Carillon Park, 4th Street and 9th
Street properties. and eventually on land to be acquired elsewhere in Florida
and in the southeastern United States. Echelon has previously, by itself or
through a joint venture, developed, owned and operated approximately 2,200
apartment units. Echelon marketed and sold projects representing approximately
1,700 of these units for a price in excess of $84 million. The 334-unit
Promenade at Carillon, Echelon's first apartment project in Carillon Park, cost
$17.5 million to build and was sold prior to completion in October 1994 for
$20.65 million. In addition to these owned apartments, Echelon constructed a
71-unit affordable apartment complex known as 701 Mirror Lake in downtown St.
Petersburg.
Although real estate development has inherent business risks, general
market demographics as well as independent marketing studies sponsored by
Echelon suggest that apartment development in the Gateway area is warranted and
could support 500 to 600 units annually for the next five years. In particular,
there are currently over 3,000 employees based within Carillon Park, and
thousands of additional employees are based in offices in the immediate
vicinity, including the approximately 1,000 persons employed at the nearby
offices of MCI Communications Corp. and the approximately 2,000 persons employed
at The Home Shopping Network, Inc. directly across from Carillon Park. In
addition, based on announced relocations or expansions, Echelon believes that
within two years, an additional 2,500 employees are expected to be working in or
around Carillon Park. Echelon also believes that the current population of over
two million people in the Tampa Bay metropolitan region and projected population
and employment growth rates in such region, the relatively limited supply of
land in the greater Tampa Bay metropolitan area that is currently zoned for
residential apartment development and the current high occupancy rates of
existing developments in the area collectively support Echelon's strategy to
build on its past successful apartment development efforts.
6
<PAGE>
Affordable Housing
As part of Echelon's strategy to focus on real estate development,
Echelon has invested in, and intends to invest further in, develop and operate,
affordable housing projects, including projects entitled to the benefits of
Housing Tax Credits. Housing Tax Credit projects are affordable housing projects
which meet certain requirements with respect to maximum limits on tenant income,
gross rent restrictions, and certain other requirements of state tax credit
authorities and the Internal Revenue Service. Structured properly, these
projects allow investors in Housing Tax Credit properties to record
dollar-for-dollar tax credits over a 10-year period against their United States
federal income tax liability. Echelon believes that Housing Tax Credit
investments are appropriate investments not only because of the significant
demand for affordable and low income housing and attractive risk and return
outlook, but also because Echelon expects that its operating and leveraged
leasing portfolio will create a large base of taxable income for United States
federal income tax purposes over the next 10 to 15 years which is expected to
create a significant cash outflow for Echelon over that period. Echelon believes
that investments in Housing Tax Credits could significantly reduce such cash
outflow while creating favorable earnings and returns for Echelon. Initially,
Echelon intends to invest in Housing Tax credit projects passively by purchasing
interests in limited partnerships controlled by third parties. Echelon's
eventual strategy is to develop, own and operate Housing Tax Credit apartment
projects utilizing its owned land, within the limits of Echelon's tax base.
Echelon also plans eventually to develop and operate Housing Tax Credit
properties for other investors as part of its real estate management services
business.
Through December 31, 1996, Echelon has invested $2.3 million in three
Housing Tax Credit limited partnerships which call for additional cash
investments by Echelon of $9.4 million in 1997 and $3.3 million in 1998 Echelon
intends to commit to invest in an additional $10 million of Housing Tax Credit
limited partnership interests.
Commercial Real Estate Development
In addition to residential development, Echelon plans to take
advantage of the commercial real estate market in the Gateway area, where
occupancy levels are averaging over 93% (according to the Maddux Report of
January 1997) by developing its holdings within Carillon Park. Although regional
office vacancies exist, Echelon believes the current high occupancy levels and
the lack of available commercial space in the Gateway area will support future
construction. In particular, Echelon's plans include constructing office
buildings in Carillon Park, subject to market and other conditions, and Echelon
believes that utilization of a five acre tract of land from the land inventory
in Carillon Park for such construction will enhance the value of the remaining
acreage. Echelon also believes that an office project will provide a source of
prospective tenants for the apartments expected to be developed within Carillon
Park.
To the extent market and other conditions warrant, Echelon's long-term
plans include potential office building development within Carillon Park and
elsewhere.
The Lending and Leasing Business
Collateralized Commercial Real Estate Loan Portfolio
Echelon manages a portfolio of commercial real estate loans secured by
properties located throughout the United States summarized in the chart below.
The aggregate loan balance, as of December 31, 1996, was $87.9 million. Of this
total, four borrowers, representing six loan transactions, accounted for
approximately 90% of the loan balance, or $79.3 million. The largest single
geographic concentration of loans is in the State of Florida. Echelon's real
estate loan portfolio consists of loans secured by a diverse group of
properties, including single tenant and multi-tenant office buildings, life care
facilities, and industrial properties, as summarized in the following table:
7
<PAGE>
Summary of Real Estate Loan Portfolio
<TABLE>
<CAPTION>
Balance
Maturity Interest as of
Collateral Collateral Maturity Date After Rate 12/31/96
Borrower/Project Location Description Date Extensions(3) Basis (millions) Amortization
- ---------------- -------- ----------- ---- ------------- ----- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Madison Building(l) Tampa, FL Multi-tenant, Class C Nov-98 N/A Floating 3.3 30-year
office building
Marquardt Van Nuys, CA Industrial office complex Dec-97 N/A Floating 23.5 None
on 54 acres
Plaza Del Rio Bradenton, FL Multi-tenant, Class B Apr-97 N/A Floating 5.3 30-year
office building
Vine Street - Olympia Olympia, WA Single tenant (State of May-97 July-01 Floating 5.3
None
(Black Lake Place) Washington), Class A
office building
Vine Street - Capitol Olympia, WA Single tenant (State of Oct-98 N/A Floating 5.8
None
View I Washington), Class A
office building
Vine Street - Capitol Olympia, WA Single tenant (State of Dec-99 N/A Floating 5.0 None
View II Washington), Class A
office building
Vine Street - Town Olympia, WA Single tenant (State of May-97 May-01 Floating 4.5 None
Square VI Washington), Class A
office building
Life Care(4) Port Charlotte & 440-unit Independent Apr-00 N/A Fixed 35.2 Yes,
Leesburg, FL Living Facility ("ILF") Varied(2)
with 120 bed nursing
home and 140-unit
Assisted Living Facility
"ALF") located in Port
Charlotte, Florida and
a 400-unit ILF with 40
bed nursing home and a
20-unit ALF located in
Leesburg, Florida
Total $87.9
=====
</TABLE>
(1) Echelon's balance represents an 80% interest in this loan.
(2) Depending on excess cash flow relative to net operating income (as defined
in the loan documents), the borrowers may be required to pay additional
principal payments.
(3) The maturity date of certain loans may be extended upon satisfaction by the
borrowers of certain conditions.
(4) Loan was repaid in full in January, 1997.
Certain loans have extension options which allow the borrower, at its
option and subject to prior notification and payment of a fee to Echelon, to
extend the maturity of the loans pursuant to the loan agreement. Echelon has
attempted to encourage its borrowers to refinance or repay loans without
extension. The final maturities of the loans comprising Echelon's real estate
loan portfolio, including all applicable extension options, range from 1997 to
2001. As is indicated in the preceding table, most of the loans bear interest at
a floating rate. The floating interest rates are at premiums to the prime rate
ranging from 0.75% to 2.0%.
Echelon's largest borrower is the Johnson Ezell Company ("Johnson
Ezell") with three loans totaling $35.2 million as of December 31, 1996. These
three loans were repaid in full in January, 1997.
As is indicated in the preceding table, Echelon has four loans
aggregating $20.6 million as of December 31, 1996 to the two Vine Street
partnerships. Each loan is a stand-alone facility, and each loan is secured by
an office building located in the State of Washington. The several buildings
securing such loans range in size from 43,000 to 76,000 square feet. The loans
are split between two Vine Street partnerships: Vine Street Investors ("VSI")
and Vine Street Associates ("VSA"). Each partnership
8
<PAGE>
guarantees the other partnership's loans. VSI is the borrower of the Olympia
Building and Capital View I and II loans, while VSA provides the guarantees. VSA
is the borrower of the Town Square VI loan, while VSI provides the guarantee.
The guarantees are secured with second liens and assignment of leases on the
other partnership's security. All four buildings are leased to the State of
Washington. A comparison of lease terms to loan maturities is as follows:
Maximum
Current Current Original Extended Maximum
Loan Lease Lease Loan Lease
Project Loans Maturity Maturity Term Maturity Maturity
- --------------------------------------------------------------------------------
Capital View I 10/30/98 5 /31/99 5 years 10/30/98 5/31/04
Capital View 1I 12/31/99 6/30/00 5 years 12/31/99 6/20/05
Town View Square VI 5/31/97 11/30/01 10 years 5/31/01 11/30/01
Olympia Building 5/31/97 4/30/97 5 years 7/31/01 4/30/02
Extension options under the Vine Street loans are contingent upon the borrower
receiving lease extensions of no less than five years.
As of December 31, 1996, Echelon had a $23.5 million loan to the
Marquardt Company ("Marquardt"). Marquardt is owned by Ferranti PLC
("Ferranti"), which is operating under receivership in the United Kingdom. The
Ferranti receiver, Arthur Andersen & Co., is in the process of liquidating
Ferranti's assets, including Marquardt. Echelon's loan is secured by a 54-acre
industrial complex located in California adjacent to the Van Nuys airport.
Situated on the property are several industrial buildings on short-term leases
of less than one year and a 173,764 square foot building on 16 acres of land
leased to Kaiser Marquardt for the manufacturing and testing of aerospace
engines. In addition, Echelon has been assigned Marquardt's lease with Kaiser
Marquardt. Currently, this lease generates $2.4 million in rental income, which
is sufficient to service the interest payments on Echelon's loan. Echelon
estimates that the potential fair market value of the industrial complex exceeds
the outstanding loan balance. Echelon has extended the maturity on this loan
several times through forbearance and does not expect full payment until the
infrastructure has been completed and the parcel has been subdivided. Ferranti
recently received initial indication of approval from Los Angeles County to
subdivide the property to enhance its marketability. It is anticipated that the
implementation of the subdivision plan could take two years to complete. In
addition, the borrower has submitted an environmental closure plan to the
California Department of Environmental Protection and is awaiting its approval.
As of December 31, 1996, Echelon had a $5.3 million loan to Plaza Del
Rio Corp. The loan is secured by a first mortgage on a 76,587 square foot office
building located in Bradenton, Florida. The borrower's interest in the property
is a leasehold interest subject to a subordinated, long-term ground lease with
an expiration date of October 2083. Currently, the property is 100% leased to
eight tenants. The principals of the borrower have personally guaranteed a
portion of the principal balance. The original maturity of the loan has been
extended to April 1997, in order for the borrower to refinance the property.
As of December 31, 1996, Echelon had an 80% participation in a $4.1
million loan to Madison Building, Inc. The loan is secured by a first mortgage
on a 94,680 square foot Class-C office building located in downtown Tampa. The
borrower has provided additional collateral in the form of $250,000 in
marketable securities. The borrower's interest in the property is a leasehold
interest subject to a subordinated, long-term ground lease with an expiration
date of 2062. Currently, the building is less than 61% occupied and does not
generate enough cash flow to cover debt service. Although, in the past, the
borrower has had sufficient resources to cover previous shortfalls, there can be
no assurance that the borrower will be able to continue to make payments.
Echelon has commenced discussions with the borrower and expressed its desire to
be paid off, paid down or adequately secured by additional collateral or
principal payments and ultimately expects to be paid. If Echelon is forced to
foreclose, proceeds from the sale of the building are expected to be
substantially less than the principal amount of the loan.
Echelon does not anticipate originating any new financings of
commercial real estate unless such financing facilitates a sale of an existing
asset. Echelon's strategy is to collect outstanding loan balances as soon as
practicable, to take the steps necessary to maximize the value of each asset,
and, ultimately, to withdraw from the business of commercial real estate
financing as existing loans mature and are repaid. In the event that certain
borrowers are unable to repay or refinance their loans at final maturity,
Echelon anticipates either negotiating an extension of the maturity of the loan
or taking the necessary legal steps to foreclose on the underlying collateral
and then liquidating the underlying property. Echelon's strategy is to redeploy
capital from its real estate loan portfolio first to repay debt with any excess
amounts reinvested in its Real Estate
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<PAGE>
Business.
Collateralized Financing and Leasing of Aircraft/Equipment
General
Echelon owns and manages a portfolio of leveraged, direct finance and
operating leases of aircraft and other equipment and a number of collateralized
loans secured by aircraft.
Echelon's portfolio of leveraged leases represent transactions in
which Echelon acts as the equity investor and owner participant. In a typical
aircraft leveraged lease transaction, an airline, which may be unable either to
allocate capital to the purchase of a large commercial aircraft or to utilize
effectively the tax benefits related to the ownership thereof, and an aircraft
manufacturer enter into a transaction in which a third party (called an "owner
participant or "equity participant") purchases the aircraft, typically through a
special purpose trust (an "owner trust"), from the manufacturer and then leases
that aircraft to the airline or to an affiliate of the manufacturer which then
subleases the aircraft to the airline. The owner trust is the legal owner of the
aircraft. The purchase of the aircraft is generally financed by both the equity
investment by the owner participant and by non-recourse loans borrowed by the
owner trust from a bank or other lender or lenders. The rent payable to the
owner trust pursuant to the leveraged lease generally represents the amount
necessary to service the debt, plus a return on the owner participant's equity
investment. The owner participant also generally reaps certain tax benefits as
the beneficial owner of the aircraft. These leases are typically long-term (20
years or more) and at their termination the owner participant takes possession
of the plane or other asset, which generally still has a useful life of several
years (usually 10 years in the case of aircraft). Upon expiration, the lessee
generally has the right to purchase the asset for the higher of the asset's fair
market value or for some stated percentage of the asset's cost. The lessee may
also generally terminate the lease early by payment of the lease termination
value (a predetermined pricing method which reflects, among other things, the
amount of non-recourse debt, the initial investment and certain tax
consequences).
Under the terms of these leases, the ultimate user (i.e., the lessee
or sub-lessee) of the aircraft is generally required to bear the direct
operating costs and the risk of physical loss of the aircraft; maintain the
aircraft; indemnify Echelon as lessor against any liability suffered by Echelon
as the result of any act or omission of the lessee or its agents; maintain
casualty insurance in an amount equal to the specific amount set forth in the
lease; and maintain liability insurance naming Echelon as an additional insured
with a minimum coverage which Echelon deems appropriate. In general.
substantially all obligations connected with the ownership and operation of the
leased aircraft are assumed by the lessee, and minimal obligations are imposed
upon Echelon. Default by a lessee, however, may cause Echelon to incur
unanticipated expenses. See "Governmental and Environmental Regulations" below.
Moreover, the risk that the asset will be worth less than originally
anticipated, and the risk that it will not be re-leased or sold upon expiration
of the lease, is borne by Echelon as the owner participant.
Echelon's other lease assets include operating and direct finance
leases. Under the operating leases, Echelon leases an asset to a third party in
circumstances unrelated to the financing of such asset for a term which is
generally shorter than the typical term of a leveraged lease. Direct finance
leases are generally structurally similar to the leveraged lease transactions,
except for the absence of third party debt financing by the owner trust.
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<PAGE>
Leveraged Leasing
The following table summarizes Echelon's leveraged lease portfolio:
Summary, of Leveraged Lease Portfolio
<TABLE>
<CAPTION>
Lease
Aircraft/Asset Lease Termination Age of asset
Type/Year Commencement Original Cost Date at lease
Lease/Subleases of Delivery Date ($ in thousands) (Mo./Yr.) maturity
- --------------- ----------- ---- ---------------- --------- --------
<S> <C> <C> <C> <C> <C>
A.I. Leasing II A300-B4-203 Mar-85 40,000 Jan-07 21
(Airbus)/Philippine Air 1985
Airbus A300 Leasing, Inc./ A300-B4-605R Apr-89 53,813 May-11 22
American 1989
Air Wisconsin Bael46-300A Sep-89 22,954 Mar-10 20
1989
American Airlines, Inc. DC 9-82 Oct-84 22,900 Jan-05 20
1984
American Airlines, Inc. DC 9-82 Oct-84 22,900 Jan-05 20
1984
America West Airlines, Inc. B757-2G7ER Dec-89 48,223 Jan-18 28
1989
Delta Air Lines, Inc. B737-232 ADV Apr-84 18,165 Mar-05 20
(Stage II) 1984
Delta Air Lines, Inc. B737-232 ADV Apr-84 18,183 Mar-05 20
(Stage II) 1984
Delta Air Lines, Inc. B737-247 ADV Jul-87 18,800 Jul-02 15
(Stage II) 1987
Delta Air Lines, Inc. B737-247 ADV Jul-87 18,800 Jul-02 15
(Stage II) 1987
Delta Air Lines, Inc. B767-332 ADV Nov-87 58,650 Jan-10 22
1987
Delta Air Lines, Inc. B757-232 Feb-88 43,306 Aug-10 22
1988
USAir, Inc. B737-301 Aug-86 24,303 Jan-07 20
1986
USAir, Inc. B737-301 Aug-86 24,401 Jan-07 20
1986
USAir, Inc. B737-301 Aug-86 24,257 Jan-07 20
1986
United Technologies, Inc./ two spare engines Jul-87 9,022 Jan-08 20
Tarom
Consolidated Rail Co. 25 GE Mar-85 32,469 Jan-01 -
C-36-7 locomotives
Union Bank-Real Estate 410,000 square foot Sep-86 50,100 Dec-11 -
Monterey Park, CA building
Reading & Bates(l) oil rig - - - -
</TABLE>
(l) Reading & Bates encountered financial difficulties in 1987 and restructured
the lease. Echelon anticipates that the underlying asset could be subject
to foreclosure, which would trigger a tax liability payable by Echelon of
approximately $7.9 million. The Echelon Consolidated Balance Sheet at
December 31, 1996, which is included in Item 8 of this Form 10-K, reflects
such amount in deferred tax liability. On March 5, 1997, Echelon received
$1.3 million from Reading & Bates to terminate Echelon's interest in the
leased equipment.
Because current disposition of the leveraged lease assets would result
in significant current income tax liabilities, Echelon plans to hold the
leveraged lease assets to maturity or until the termination value of a leveraged
lease asset equals its market value. At that time, Echelon will either sell or
hold and re-lease the underlying aircraft or other asset, depending upon which
option is determined to provide the highest return. Current market values for
aircraft are relatively low due to the excess supply for most types of aircraft
relative to current market demands. After initial lease maturity, the average
age of the leased aircraft in Echelon's portfolio will be only 20 years. Based
on a useful aircraft life of 30 years, Echelon expects to have an average of ten
years to attempt to recoup the residual value of the leased assets through sale
or re-leasing.
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<PAGE>
Direct Finance and Operating Leases
Echelon's portfolio includes two direct finance lease transactions.
The first is through the Progress Potomac Capital Ventures ("PPCV") joint
venture between Echelon and Potomac Capital Corporation ("Potomac") and involves
two 1973 DC10-30s that are currently on lease to Continental Airlines
("Continental"). Continental reduced and/or renegotiated the rent paid to
lessors on many of its leased aircraft. As a result, PPCV agreed to revised
terms with Continental pursuant to which the rent payable was deferred for 4
months starting in 1992 and 16 months starting in 1995. Continental issued
deferred rent notes with interest rates of 10.4% and 8.0% for the 1992 and 1995
notes, respectively. The principal amount of these notes as of December 31, 1996
was $7.1 million and will be fully amortized by the maturity of the notes in
2000. The second direct finance lease covers a 1984 B737-300 leased to Southwest
Airlines through June 1, 2004.
Echelon currently has two operating leases: a 1981 B727-200 ADV
aircraft on lease to Air Micronesia (a subsidiary of Continental) which has a
lease expiration of December 1998, and two 1986 CFM-56 engines leased through
PPCV to America West.
Although operating leases are generally for relatively higher rental
rates than longer term direct finance or leveraged leases and the lessee enjoys
relatively greater flexibility through the shorter term, the lessor under an
operating lease may be at relatively greater risk because the asset must be
re-leased on maturity. Re-leasing any such asset could take time and could be
delayed due to future market weakness and could be impacted by potentially lower
future rental rates.
Echelon believes that to maximize the long-term values of its existing
aircraft and equipment assets, it may be necessary to hold such assets beyond
the terms of their current leases. Echelon also believes that redeploying such
assets under operating leases represents an opportunity which could provide
acceptable returns on a risk-adjusted basis.
Aircraft Lending
The following table summarizes Echelon's aircraft loan portfolio:
Summary of Aircraft Loan Portfolio
<TABLE>
<CAPTION>
Loan Interest
Aircraft Year/ Balance at 12/31/96 Loan Rate Lease
Borrower/Lessee Asset Type ($ millions) Maturity Basis Maturity
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Pegasus/TWA 1974 L1O11-50 $ 9.6 Jun-96 Floating Dec-99
Pegasus/ChallengAir 1973 DC1O-30 26.3 Jun-96 Floating Dec-97
American Finance/SouthWest 1978-79 (3)B737-2H4 .7 Dec-99 7.57% Dec-99
-----
Total $36.6
=====
</TABLE>
Echelon's two largest aircraft loans are to Pegasus Capital Corporation
("Pegasus"), an aircraft leasing company. Pegasus leases over 50 planes to the
airline industry worldwide through itself and its two affiliates. As indicated
by the table above, as of December 31, 1996, the two loans to Pegasus consisted
of a $9.6 million loan secured by a 1974 L1011-50 aircraft leased by Pegasus to
TWA, and a $26.3 million loan secured by a 1973 DC 10-30 aircraft leased by
Pegasus to ChallengAir (a charter air company based in Brussels, Belgium).
Echelon is presently negotiating with Pegasus to obtain full payment
of these loans, which maturedin June 1996. In the meantime, all lease payments
are being paid directly to Echelon. Echelon plans to withdraw from the aircraft
lending business and is working with Pegasus to negotiate the sale or
refinancing of its loans as promptly as practicable. If neither action proves
feasible, Echelon will foreclose and attempt to sell the assets. The proceeds
from any such sale or refinancing would be used to repay the PCH Note. In light
of the credit quality of Pegasus's lessees and the current low market value of
the aircraft securing Echelon's loans to Pegasus, Echelon has also recorded a
provision in its financial statements equal to the losses anticipated upon the
sale or refinancing of such loans or the sale of the collateral upon
foreclosure. The loans are reflected in the Consolidated Balance Sheet as of
December 31, 1996 among the "Assets Held for Sale."
12
<PAGE>
Bankruptcy of Lessees of Aircraft
Due to many factors, including the fluctuating state of the economy,
uncertain traffic levels, intense route and fare competition and the ease of
entry of new airlines under the Airline Deregulation Act of 1978, several
commercial airlines in recent years have been forced to suspend or cease
operations due to financial difficulties. These airlines have filed petitions
for reorganization under the Federal Bankruptcy Code, have merged with other
airlines or have been liquidated. Echelon believes this recent economic
uncertainty in the commercial airline industry is indicative of the periodic
fluctuations in the industry's economic performance. No assurance can be given
that the weakening financial condition or bankruptcies of lessees of aircraft
from Echelon would not have a material adverse effect on Echelon's business,
results of operations or financial condition. Moreover, if aircraft are returned
by bankrupt carriers, there can be no assurance that Echelon will be able to
sell or re-lease such aircraft on favorable terms or in a timely manner.
In order to encourage equipment financing to the commercial airline
industry, federal bankruptcy laws traditionally have afforded special treatment
to certain lenders or lessors who have provided such financing. Section 1110 of
the Bankruptcy Code implements this policy by creating a category of aircraft
lenders and lessors whose rights to repossession upon the occurrence of a
default are substantially enhanced.
Aircraft Remarketing and Sale
On termination of a lease and return or repossession of an aircraft to
or by Echelon, Echelon would need to remarket the aircraft to realize its full
investment. The remarketing of aircraft may be through a lease or sale. The
terms and conditions of any such transaction cannot be determined until such
time as the transaction is consummated. Whether an investment in any aircraft
initially subject to a leveraged or direct finance lease will ultimately prove
to have been profitable may depend upon the terms on which such aircraft will be
released or sold. No assurance can be given that as aircraft come off lease,
Echelon will be able to re-lease or sell such aircraft on commercially
acceptable terms or in a timely manner. Furthermore, in the event of a lessee
default or bankruptcy requiring Echelon to sell the aircraft prior to expected
maturity of the lease, Echelon would accelerate the incurrence of tax
liabilities, which could be significant, even if the aircraft is sold for less
than its long-term value.
Employees
At December 31, 1996, Echelon had 73 full-time employees. These
employees work in a variety of capacities, comprised of 17 in executive and
corporate functions, 21 in real estate and property management services and 35
in marina and other operations. None of Echelon's employees are represented by
labor unions. Echelon believes that, generally, labor relations are satisfactory
and have been maintained in a normal and customary manner. From time to time,
Echelon engages third party contractors on development projects for
infrastructure management and building construction. These contractors'
employees include persons represented by various building and trade unions.
Competition
Real Estate Industry
The real estate ownership, development and management markets are
generally regional, and the identity of Echelon's competitors and the levels of
competition vary in each area of activity and in each market. While Echelon
encounters significant competition in each area of activity and in each market,
Echelon believes that no one competitor is dominant. In particular, within the
Tampa Bay area in which Echelon's operations are concentrated, there are
numerous commercial properties that compete with Echelon in attracting tenants,
numerous companies that compete with Echelon in selecting land for development
and properties for acquisition (including within the affordable housing market
generally and for Housing Tax Credits in particular) and numerous companies that
compete for real estate management business. Echelon believes competition is
based largely on location, quality of products and services and financial
resources. Although certain of Echelon's competitors have significantly greater
financial resources than Echelon and may have greater experience than Echelon in
acquiring, developing and managing real estate, placing them at a competitive
advantage in this regard, Echelon believes the location and quality of its
properties places Echelon in a generally favorable competitive position.
13
<PAGE>
Aircraft Leasing Industry
The aircraft leasing industry is highly competitive, offering users
alternatives to the purchase of nearly every type of aircraft. Competitive
conditions vary considerably depending upon the type of aircraft to be leased
and the nature of the prospective lessee. As Echelon's aircraft leases mature,
Echelon will be subject to such competition to the extent it attempts to
re-lease such aircraft. In attempting to obtain commitments to lease aircraft to
specific lessees, Echelon may be expected to compete, directly or indirectly,
with aircraft manufacturers, airlines and other operators, equipment managers,
leasing companies, financial institutions and numerous other parties engaged in
leasing, managing, marketing or remarketing aircraft. Many of these competitors
have significantly greater financial resources than Echelon and may have greater
experience than Echelon in managing, leasing, operating and selling aircraft.
Such competitors may offer to lease aircraft at rates lower than those which
Echelon can reasonably offer and may provide certain benefits, such as
maintenance, crews, support services and trade-in privileges, which Echelon
generally cannot provide. In addition, to the extent troubled airlines seek to
re-negotiate the terms of the leases relating to their aircraft, certain of
Echelon's competitors with greater resources may be in better bargaining
positions to avoid renegotiation or may be able to enter into such negotiations
and achieve relatively more favorable terms than Echelon would be able to do.
Governmental and Environmental Regulation
Real Estate Industry
Echelon believes that it is in compliance in all material respects
with all material environmental laws or regulations and that the cost of
continued compliance with such laws and regulations will not have a material
adverse effect on Echelon. However, many of Echelon's properties are located in
urban areas where fill or current or historic industrial uses of the areas may
have caused site contamination at the properties. Nonetheless, at this time,
Echelon does not anticipate that regulatory authorities will require remediation
of the properties in any manner that would result in a material adverse effect
on Echelon's business, results of operations or financial condition, and Echelon
estimates that its proportionate share of liability for cleaning up all sites
ranges from $0.1 million to $ 1.0 million. See Note 11 to the Consolidated
Financial Statements included in Item 8.
Aircraft Leasing Industry
General. The ownership and operation of aircraft in the United States
are strictly regulated by the FAA, which imposes certain minimum restrictions
and economic burdens upon the use, maintenance and ownership of aircraft. The
FAA Act and FAA regulations contain strict provisions governing various aspects
of aircraft ownership and operation, including aircraft inspection and
certification, maintenance, equipment requirements, general operating and flight
rules, noise levels, certification of personnel, and record keeping in
connection with aircraft maintenance. In the last several years, the FAA has
issued a number of administrative directives and other regulations relating to,
among other things, collision avoidance systems, airborne windshear avoidance
systems, noise abatement and increased inspection requirements, which will
require lessees or Echelon to incur additional expenditures for compliance. FAA
policy has given high priority to aviation safety, and a primary objective of
FAA regulations is that an aircraft be maintained properly during its service
life. FAA regulations establish standards for repairs, periodic overhauls and
alterations and require that the owner or operator of an aircraft establish an
airworthiness inspection program to be carried out by certified mechanics
qualified to perform aircraft repairs. Each aircraft in operation is required to
have a Standard Airworthiness Certificate issued by the FAA.
Maintenance and Aircraft Aging. Echelon, as the beneficial owner of
aircraft, bears the ultimate responsibility for compliance with certain federal
regulations. However, under all of its aircraft leases, the lessee has the
primary obligation to ensure that at all times, the use, operation, maintenance
and repair of the aircraft are in compliance with all applicable governmental
rules and regulations and that Echelon is indemnified from loss by the lessee
for breach of any of these lessee responsibilities. Changes in government
regulations may increase the cost to, and other burdens on, Echelon of complying
with such regulations.
Maintenance is further regulated by the FAA which also monitors
compliance. At lease termination, the lessees are required to return the
aircraft in good operating condition. Echelon may incur unanticipated
maintenance expenses if a lessee were to default under a lease and Echelon were
to take possession of the leased aircraft without such maintenance having been
performed. If the lessee defaulting is in bankruptcy, Echelon will file a proof
of claim for the required maintenance expenses in
14
<PAGE>
the lessee's bankruptcy proceedings and attempt to negotiate payment and
reimbursement of a portion of these expenses. The bankruptcy of a lessee could
adversely impact Echelon's ability to recover maintenance expense.
As a result of investigations into the causes of several incidents,
including rapid in-flight aircraft decompression and fatigue cracks in critical
parts, the aircraft manufacturers issued service bulletins and the FAA has also
issued airworthiness directives ("ADs"). These bulletins and directives provide
instructions to aircraft operators in the maintenance of aircraft and are
intended to prevent the occurrence of similar incidents. Compliance with ADs is
mandatory.
On March 6, 1989, the FAA ordered extensive repairs of all older
commercial aircraft which it implemented through several 1990 ADs. These ADs
were issued to ensure that the oldest portion of the nation's transport aircraft
fleet remains airworthy. The FAA is requiring that these aircraft undergo
extensive structural modifications. These modifications are required upon
accumulation of 20 years' time in service, prior to the accumulation of a
designated number of flight-cycles or prior to 1994 deadlines established by the
various ADs, whichever occurs later. Echelon has interests in two aircraft that
have over 20 years' time in service. A formal program to control corrosion in
all aircraft has also been added to the FAA mandatory requirements for
maintenance for each type of aircraft. These FAA rules and proposed rules
evidence the current approach to aircraft maintenance developed by the
manufacturers and supported by the FAA in conjunction with an aircraft industry
group. Echelon may be required to pay for these FAA requirements if a lessee
defaults or if necessary to release or sell the aircraft.
There are more than 12,000 jet aircraft in the western fleets of the
principal airlines of the world. On average these aircraft are less than 13
years old. Several hundred have been in service for 20 years or more and that
number is growing. See "Summary of Leveraged Lease Portfolio" above for a table
showing the lease date, manufacture date and lease termination date of Echelon
aircraft.
Aircraft Noise. The FAA, through regulations, has categorized certain
aircraft types as Stage I, Stage II and Stage IIII according to the noise level
as measured at three designated points. Stage I aircraft create the highest
measured noise levels. Aircraft which exceed Stage I noise maximums are no
longer allowed to operate from civil airports in the United States.
The Aviation Safety and Capacity Act of 1990 bans the operation of
Stage II aircraft after December 31, 1999. All of Echelon's leased aircraft have
Stage III noise certification, except four B737-200s leased to Delta. A lease
extension with Delta Airlines requires the airline to install hushkits on two of
such aircraft, while Echelon plans to install hushkits on the other two aircraft
in order to qualify for Stage III noise certification. The cost of the hushkits
is currently approximately $2.5 million per aircraft.
Registration of Aircraft; United States Person. Under the FAA Act, the
operation of an aircraft not registered with the FAA in the United States is
generally unlawful. Subject to certain limited exceptions, an aircraft may not
be registered under the FAA Act unless it is owned by a "citizen of the United
States" or a "resident alien" of the United States. If Echelon were to cease
being a "citizen of the United States" or a "resident alien" of the United
States, it may be subject to claims based upon its breach of covenants and
representations concerning its status as a citizen of the United States included
in the contracts underlying its leveraged, direct finance and operating leases.
Because Florida Progress continues to guarantee certain of these covenants after
the Distribution. Echelon and Florida Progress have agreed that the Echelon
Chairman, the Echelon President and two-thirds of the Echelon Board of Directors
will be United States citizens or resident aliens within the meaning of the FAA
Act for as long as any of such covenants are guaranteed by Florida Progress.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained herein regarding matters that are not
historical facts are forward-looking statements, including (i) certain
statements contained in "Management's Discussion and Analysis of Financial
Condition and Results of Operations," such as those statements concerning
Echelon's strategies, generally, Echelon's expected sources of funds, and
Echelon's expected uses of funds, including its expected capital expenditures,
and (ii) certain statements contained in "Business," such as those statements
concerning Echelon's strategy (a) with respect to its office properties, to hold
its existing portfolio of properties with a focus on generating favorable growth
in operating income through leasing to high quality tenants and controlling
operating expenses, (b) with respect to its industrial and other properties, to
aggressively market the properties to increase occupancy and cash flow and then
decide to sell, hold or further develop these properties, (c) with respect to
its real
15
<PAGE>
estate management business, to expand such business, (d) with respect to its
other owned real estate and commercial and residential real estate development
activities, to develop commercial and residential real estate projects on its
currently owned properties and, eventually, on properties to be acquired and, in
addition, to sell certain properties as market conditions warrant to third
parties, (e) with respect to its collateralized commercial real estate loan
portfolio, to collect outstanding loan balances upon repayment at maturity or
upon foreclosure and sale of the collateral, (f) with respect to its leasing
business, to hold the leveraged leases to maturity or until the termination
values of the assets equal their respective market values and to re-lease or
sell the assets underlying the various leases to maximize returns, (g) with
respect to its aircraft lending business, to negotiate a sale or refinancing of
its loans or to foreclose and sell the collateral, and (h) to deploy the
proceeds generated by the ultimate disposition of certain assets to the Real
Estate Business and to repayment of the PCH Note. Because such statements
involve risks and uncertainties, actual strategies and the timing and expected
results thereof may differ materially from those expressed or implied by such
forward-looking statements.
Echelon wishes to caution readers that in addition to the important
factors described elsewhere in this 10-K, the following important factors, among
others, could affect Echelon's actual results and could cause Echelon's actual
consolidated results during 1997, and beyond, to differ materially from those
expressed in any forward-looking statements made by, or on behalf of Echelon.
o Echelon's anticipated increase in its level of real estate development
activities will require a significant amount of capital. Accordingly, the
extent of Echelon's real estate development will depend upon the amount of
funds generated through operating activities, maturity and collection of
loans, planned asset sales and project-based financings. There can be no
assurance that operating activities, maturity and collection of loans,
planned asset sales and project-based financings will generate net proceeds
for Echelon in amounts and at times necessary to enable Echelon to carry
out these development activities.
o The successful implementation of Echelon's strategic and business plans
will depend in a large part on certain key officers, including Mr. Darryl
LeClair, President and Chief Executive Officer, and Mr. Larry Newsome,
Senior Vice President and Chief Financial Officer, Secretary and Treasurer,
who have managed Echelon's businesses and participated in the development
of Echelon's business plan. Due to the unique experience of these key
officers and their knowledge of Echelon's assets, such individuals could
not be easily replaced, and the loss of such key officers as a team or the
loss of certain individual members of such team could have a material
adverse effect on Echelon. Echelon has not obtained any key-man life
insurance policies.
o As a real estate development and management company, Echelon is and will be
subject to certain risks incident generally to the ownership, development
and management of real property. These risks include the cyclical nature of
real estate markets, governmental regulations and the need for governmental
approvals, general risk of acquisition, development, and construction,
tenant defaults, possible environmental liabilities, and competition from
other real estate owners. While Echelon believes that its existing real
estate portfolio of land and buildings, together with its business
strategy, will allow it to manage such risks effectively, no assurance can
be given as to the effect such matters might have on its business,
financial condition or results of operations.
o Currently, all of Echelon's owned real estate properties are located in the
State of Florida, primarily in the Tampa Bay area, including St. Petersburg
and Tampa, and approximately 80% of Echelon's commercial rental space
(measured by square footage) is located in this area. Due to this lack of
geographical diversification, Echelon is dependent upon the continued
demand for office, industrial and other commercial space in the Tampa Bay
area. Echelon may be adversely affected in the event the demand for office
space in St. Petersburg or Tampa declines or the St. Petersburg or Tampa
economy experiences a downturn. Like other real estate markets, the Florida
commercial real estate market has experienced periodic economic
fluctuations.
16
<PAGE>
o Aircraft leasing involves numerous risks, including risks stemming from the
obsolescence or physical deterioration of aircraft and the possibility of
defaults by lessees. In addition, fluctuations in general business and
economic conditions, the adoption of restrictive regulations and
legislation, changes in consumer demand for air travel, fluctuations in
fuel prices and other factors over which lessors of aircraft have no
control could be expected to affect adversely the supply and demand for
aircraft or aircraft leases and may cause cost increases relating to the
leasing of aircraft that cannot be offset by increased leasing revenues.
The market for aircraft is currently characterized by a relatively large
supply of most types of aircraft and relatively weak demand, which
adversely affects the marketability and near-term value of Echelon's
portfolio of aircraft lease assets.
17
<PAGE>
ITEM 2. PROPERTIES
Echelon believes that its properties are adequate to carry on its
business as currently conducted. Echelon maintains property insurance against
loss or damage by fire or other perils to the extent that such property is
usually insured. A substantial portion of developed and undeveloped commercial
real estate is pledged as collateral for certain loans. (See Note 5 of Notes to
Consolidated Financial Statements). Equipment owned by Echelon and leased under
finance leases is subject to liens in favor of secured lenders.
See "The Real Estate Business," "Leveraged Leasing" and "Direct
Finance and Operating Leases," for a description of all significant
real estate and equipment owned by Echelon.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending against Echelon.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of Echelon's security holders
between November 21, 1996 and December 31, 1996, the period during the fourth
quarter of the fiscal year covered by this Report when Echelon's common stock
was registered under Section 12 of the Securities Exchange Act of 1934.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Echelon's common stock has traded on the New York Stock Exchange since
December 9, 1996. The high and low price per share of Echelon's common stock for
December, 1996 appears in Note 13 of the Notes to Consolidated Financial
Statements.
Dividends paid to Echelon's former parent appear in the Consolidated
Statements of Stockholders' Equity. The payment and level of cash dividends by
Echelon are subject to the discretion of the Board of Directors of Echelon.
Echelon currently intends to retain all future earnings for the development of
its business and does not anticipate paying any cash dividends for the
foreseeable future.
The approximate number of equity security holders of Echelon is as
follows:
Number of Registered Holders
Title of Class as of March 24, 1997
---------------------------------------------------------------
Common Stock, par value
$.01 per share 43,978
18
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(In millions, except per share amounts)
Summary of operations:
Revenue $ 63.2 $ 47.6 $ 48.8 $ 66.5 $ 42.4
Loss before income taxes
and extraordinary item (44.8)(1) (9.9) (9.2) (5.7) (22.5)
Net loss before extraordinary item (29.3)(1) (5.0) (5.0) (5.0) (13.1)
Extraordinary item - gain on
extinguishment of debt,
net of income tax expense 1.8 .0 .0 .0 .0
------- ------- ------- ------- -------
Net loss (2) $ (27.5)(1) $ (5.0) $ (5.0) $ (5.0) $ (13.1)
======= ======= ======= ======= =======
Per share data:
Net loss before extraordinary item $ (4.51) $ (.77) $ (.77) $ (.77) $ (2.02)
Extraordinary item 0.28 0.00 0.00 0.00 0.00
------- ------- ------- ------- -------
Net loss per common share (3) $ (4.23) $ (.77) $ (.77) $ (.77) $ (2.02)
======= ======= ======= ======= =======
Balance sheet data:
Assets:
Lending and leasing $ 334.0 $ 400.2 $ 478.3 $ 552.6 $ 598.1
Real estate 133.7 153.9 144.5 148.9 187.1
Cash and equivalents 63.3 .4 .6 -- --
------- ------- ------- ------- -------
Total assets $ 531.0 $ 554.5 $ 623.4 $ 701.5 $ 785.2
======= ======= ======= ======= =======
Deferred income taxes $ 163.3 $ 182.3 $ 224.3 $ 244.9 $ 268.3
======= ======= ======= ======= =======
Capitalization:
Notes and advances
from former parent $ 32.9 $ 250.0 $ 283.8 $ 321.2 $ 341.4
Other debt 116.5 33.2 32.7 32.5 29.4
Common equity 201.4 60.8 69.0 77.2 84.7
------- ------- ------- ------- -------
Total capitalization $ 350.8 $ 344.0 $ 385.5 $ 430.9 $ 455.5
======= ======= ======= ======= =======
</TABLE>
(1) Reflects $31.4 million pre-tax provision for lease, loan and real estate
losses.
(2) The similarity of net loss for the years ended December 31, 1995, 1994 and
1993 reflects the orderly withdrawal strategy pursuant to which Echelon was
being operated during such years. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Overview."
(3) Net loss per common share is based upon approximately 6.5 million average
outstanding common shares.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
In September 1991, Florida Progress announced its plan to withdraw
from the lending and leasing and real estate businesses. Although Florida
Progress's subsequent orderly withdrawal strategy resulted in a substantial
reduction in the size of the portfolio, the continued weakness in the airline
industry and commercial real estate market had slowed Florida Progress's
efforts. After a careful review of available options, the Florida Progress Board
of Directors concluded in June, 1996 that the Distribution was the best
alternative available for Florida Progress and its stockholders. In contrast to
the orderly withdrawal
19
<PAGE>
strategy pursued by Florida Progress before the Distribution was approved,
Echelon is currently pursuing a business plan designed to: (1) grow the Real
Estate Business and accelerate the disposal of certain non-strategic assets, (2)
maximize the value of the remaining assets, and (3) achieve profitability.
The similarity of Echelon's results for each of the three years ended
December 31, 1995, 1994 and 1993 reflects the orderly withdrawal strategy
pursuant to which Echelon was being operated. In particular, during such period,
one of the goals of Florida Progress was to dispose of certain Echelon assets
without incurring significant losses. Accordingly, Echelon conducted its
operations, selected assets for sale, determined the timing of such asset sales,
and recognized and recorded provisions for losses in a manner which, subject to
applicable accounting rules, was as consistent as possible with such orderly
withdrawal strategy and the desire to avoid significant losses in any given
period.
Effective as of September 30, 1996, Florida Progress contributed $140
million to the equity of Echelon, which was used by Echelon to repay advances
from Florida Progress. After giving effect to such recapitalization, as of
September 30, 1996, Echelon remained obligated to repay $101.1 million of
advances from Florida Progress. Prior to the Distribution, Echelon's obligation
to Florida Progress was reduced to approximately $36 million, reflecting the
repayment of $43 million using a portion of the $105 million Loan discussed
below and the repayment of approximately $22 million with proceeds generated
from operations, resulting from maturities and collections on loans and sales of
assets. During the fourth quarter, prior to the Distribution, Florida Progress
made additional capital contributions of $23.7 million to the equity of Echelon
to provide additional liquidity and to pay expenses, including legal,
accounting, and financial advisory fees and expenses involved in evaluating and
implementing the Distribution.
Due to the foregoing items and Echelon's abandonment of the orderly
withdrawal strategy which had previously guided the conduct of its business in
favor of a more growth-oriented business plan, the results of operations
discussed below are not expected to be indicative of future results.
Results of Operations
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
For the year ended December 31, 1996, Echelon reported a loss before
income taxes of $44.8 million, a $34.9 million increase in losses over the $9.9
million loss before income taxes reported for the prior year.
On September 30, 1996, Echelon extinguished debt together with accrued
interest that resulted in a gain of $3.5 million. This gain was offset by a
write-off of debt issuance costs of approximately $.4 million related to the
early payment of principal on long-term debt.
Revenues. Sales and revenues for the year ended December 31, 1996
increased $15.6 million over 1995, primarily due to three sales totaling 70
acres of land in Carillon Park for a total of $21.8 million. Rental income for
the year ended December 31, 1996 increased by $1.8 million over 1995 due
primarily to the acquisition of the remaining 67% interest in an office building
in which Echelon had previously held a 33% interest. Interest income for the
year ended December 31, 1996 declined by $4.6 million compared to 1995 due to
loan payoffs and sales.
Expenses. Operating expenses for the year ended December 31, 1996
increased by $50.5 million over 1995, primarily due to the $31.4 million
provision Echelon recorded in 1996 to cover losses expected to be incurred on
the accelerated sale of certain non-strategic assets. The $20.9 million increase
in cost of development properties sold reflected the cost of the 70 acres sold
as described above. Real Estate operations expenses increased $.6 million over
1995 primarily because of the previously mentioned acquisition of the remaining
67% interest in an office building in which Echelon had previously held a 33%
interest. Marketing and other administrative expenses increased by $5.9 million
primarily as a result of compensation expenses related to the Distribution.
Other expenses, net increased $2.5 million due primarily to expenses related to
the Distribution.
20
<PAGE>
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
For the year ended December 31, 1995, Echelon reported a $9.9 million
loss before income taxes, a $0.7 million increase in losses over the $9.2
million loss reported for the prior year.
Revenues. Rental income for the year ended December 31, 1995 increased
$1.8 million over the year ended December 31, 1994, primarily as a result of the
acquisition by Echelon of the remaining 50% interest in an office building in
1995 and the subsequent inclusion in its results of 100% of the rental revenues
generated thereby. Marina and other revenues increased $1.7 million due
primarily to a more favorable market for boat sales. Revenues from sales of
development properties decreased $4.1 million in 1995, as fewer properties were
sold compared to 1994. Earned income on finance leases in 1995 was essentially
unchanged over 1994 despite the sale in 1995 of two aircraft leveraged leases
and the termination of a third aircraft leveraged lease upon receipt of
insurance proceeds in 1995.
Expenses. The $1.2 million increase in depreciation for the year ended
December 31, 1995 over the year ended December 31, 1994 and the $1.5 million
increase in cost of real estate operations were due primarily to the effects of
Echelon's acquisition of the remaining 50% interest in an office building in
1995, as discussed above. The cost of development properties sold decreased by
$4.0 million due to the decrease in sales of properties in 1995 as discussed
above. Marketing and other administrative expenses increased $1.1 million due to
an increase in professional fees in connection with the liquidation of a number
of leveraged lease assets. The $4.3 million increase in other expenses, net
primarily reflected costs associated with the sale and termination of leveraged
leases in 1995 as discussed above. The $1.2 million decrease in interest expense
primarily reflected the reduction of debt to Florida Progress that resulted from
the use of cash proceeds generated through the sale of assets. In 1995, Echelon
recorded an additional provision for losses of $7.0 million compared to $10.6
million in 1994 based on estimated future losses from the continued orderly
liquidation of assets.
Liquidity and Capital Resources
Sources of Liquidity
Prior to the Distribution, Echelon's sources of liquidity were derived
from the proceeds of asset sales and the maturity and collection of Echelon's
loan portfolio, operating cash flow, and advances from Florida Progress. After
the Distribution, the sources of funds are expected to come from the continued
maturity and collection of Echelon's loan portfolio and proceeds from the sale
of certain non-strategic assets, operating cash flow and, with respect to
Echelon's future real estate development, from project-based financings.
On November 5, 1996, Echelon obtained a three-year secured loan ("the
Loan") from Salomon Brothers Realty Corp. in the principal amount of $105
million. The proceeds of the Loan were used to repay $43 million of advances
from Florida Progress and to create a cash balance for working capital and other
investments. The Loan is non-recourse to Echelon (except for certain cases of
actual fraud and other wrongful acts and except in certain events with respect
to a $6 million tax lien on a real estate loan portfolio property), and is
secured by five of Echelon's commercial real estate properties (Barnett Tower,
McNulty Station, 100 Carillon, Highpoint Center and Progress Center),
substantially all of Echelon's real estate loan portfolio and certain additional
collateral, including the Harborage at Bayboro and the 7th Avenue property. See
"Business Commercial Real Estate Ownership and Management."
The Loan requires mandatory monthly principal payments based on an
amortization schedule of 25 years (or, in the case of the real estate loan
portfolio, the scheduled principal payments actually received, if greater),
provided, however, that the scheduled amortization is accelerated to 18 years if
the loan-to-value of collateral ratio is greater than 75%. Additional principal
payments may be due upon the sale or other transfer of individual items of
collateral or upon the prepayment at a discount of any real estate loan
comprising collateral. Under the Loan, monthly payments of interest at the rate
of LIBOR plus 2.95% per annum are due on the unpaid principal balance.
The current loan-to-value of collateral ratio under the Loan is less
than 70%. If the loan-to-value of collateral ratio exceeds 75%, then Echelon
will be required to deposit the cash flow from the assets pledged as collateral
into a collection account to be disbursed monthly to pay scheduled Loan
payments, property expenses and other items and to fund certain reserves. Cash
balances remaining in such account would then be released to Echelon. Under the
terms of the Loan, the lender
21
<PAGE>
has the right to give notice if it determines the loan-to-value of collateral
ratio exceeds 75% and Echelon has certain rights to contest that determination.
If the loan-to-value of collateral ratio exceeds 80%, then the remaining cash
balances in such account which would otherwise have been released to Echelon
will be applied monthly to reduce the principal amount of the Loan until the
ratio is less than 80%. The imposition of such a requirement could have a
adverse impact on Echelon's ability to successfully implement its business plan
because the items comprising the collateral represent Echelon's key sources of
operating cash flow.
In addition, the loan agreement governing the Loan contains covenants
that require Echelon to maintain a ratio of debt to total capitalization of not
greater than 60% and to maintain certain levels of liquidity during each year of
the Loan. Based on Echelon's current and expected sources of liquidity (as
described above), Echelon expects that it will have sufficient resources to
comply with the covenants and maintain such debt to capitalization ratio and
liquidity levels during each year of the Loan. If Echelon fails to pay any
amount due on the Loan after it becomes due, fails to repay outstanding
principal at the stated maturity of the Loan, becomes bankrupt or insolvent,
fails to comply with any covenants in the loan agreement or a change of control
of Echelon occurs (each an "Event of Default"), then the lender may accelerate
the maturity of the Loan and during the continuance of an Event of Default,
overdue amounts will bear interest at 5.0% above the rate otherwise applicable.
Cash Flow Used in and Provided from Operating Activities
Cash flow used in operating activities was $18.0 million, $28.7
million, and $28.7 million for 1996, 1995, and 1994, respectively. The primary
use of cash in each of these years was largely related to previously deferred
tax liabilities becoming due and payable as a result of sales and collections of
leases. Deferred income taxes from leveraged leasing activities, which are
reflected in cash flows from operating activities, are offset by related
collections from lessees which are included in cash flows from investing
activities. Prospectively, Echelon currently plans to hold its leveraged lease
assets to maturity or until their termination values equal their market values,
which would spread the remaining deferred tax payments over a longer term. Net
cash flow from operations in the future is generally expected to be reinvested
in the Real Estate Business.
Cash Flow From Investing Activities
Echelon's net cash flow from investing activities for 1996, 1995, and
1994 was $61.5 million, $75.5 million, and $78.0 million, respectively. In each
case, the foregoing cash flows reflected the $45.9 million, $75.5 million, and
$67.4 million, respectively, in proceeds received from the sale or collection of
leases and loans. Upon the maturity and collection of Echelon's loan portfolio,
Echelon expects investing activities to become a net use of funds as Echelon
attempts to build the Real Estate Business.
Capital expenditures for 1996, 1995, and 1994, which are reported as
real estate property additions, were $9.1 million, $4.1 million, and $1.3
million, respectively, and were primarily for office tenant construction
improvements and land development infrastructure improvements such as roads,
water, and sewer construction. In 1997, capital expenditures and investments are
expected to be approximately $29.9 million, comprised of approximately $6.6
million for tenant improvements and land development, approximately $10.3
million for new apartment development, and approximately $13 million for passive
investments in Housing Tax Credits. These expenditures are expected to be funded
through project-based financings and from existing cash.
Cash Flow from Financing Activities
In connection with the Distribution, Echelon obtained third-party
secured financing of $105 million, and the material terms of such Loan are
described above. Proceeds of the Loan were used to repay $43 million of advances
from Florida Progress and to create a cash balance for working capital and other
investments.
In connection with the Distribution, Echelon became obligated under a
$36 million note payable to Progress Capital Holdings, Inc., an affiliate of
Echelon's former parent ( the "PCH Note.") The PCH Note is secured by certain
non-strategic assets that will be sold as soon as practicable. The entire
principal amount of the PCH Note is due in December 2000, provided that
prepayments are required from the proceeds from the sales of such assets.
Echelon expects that proceeds from the sale of the assets securing the PCH Note
will be sufficient to repay the PCH Note.
22
<PAGE>
Echelon expects to use land Echelon currently owns which is not
encumbered by debt to help procure financing for new apartment developments on
such land. By using the land as equity, Echelon expects to be able to obtain
non-recourse construction financing upon favorable terms.
Dividends to Florida Progress were $.1 million in 1996 and $3.2 in
both 1995 and 1994. Echelon does not anticipate paying any cash dividends for
the foreseeable future.
Off-Balance Sheet Risk
Through a previous partnership, Echelon remains contingently liable
for first mortgage bonds issued to residents of the life care communities owned
by such partnership. The contingent liability reduces over time as those who
were residents at the time of the sale of Echelon's partnership interest
discontinue their residency. If the current owners fail to perform their
obligations and if the partnership assets, consisting primarily of land and
buildings, were worthless, Echelon could be liable for an additional $30.0
million as of December 31, 1996. Echelon considers the incurrence of this
liability to be remote based on asset values and the indemnification agreement
from the current owners to Echelon, but has unamortized deferred revenues
relating to the contingency at December 31, 1996 of $4.1 million from the sale
of its partnership interest.
Impact of Inflation
Echelon believes that inflation will not have a materially adverse
effect on its business or financial condition.
Outlook
Echelon's primary strategy, going forward, is to build on its solid
real estate base. The Company's core income-producing real estate assets, are
leased up in excess of 95% of their capacity. In addition, the Carillon
property, as well as the 4th and 9th Street properties, are at the center of one
of the fastest growing areas in Florida, which is one of the highest growth
states in the country. The Company has begun site work on three multifamily
housing projects with a combined total of 907 apartments with construction to
begin later this year. In addition, Echelon is studying the feasibility of
constructing a commercial office building in the Carillon Park. Longer term, the
Company expects to build an additional 1,456 apartments (596 on the 9th Street
site and 860 on the Carillon site) over the next five years. The Company has
also begun the process of looking for additional sites as well as existing
apartment projects and commercial office buildings within Florida and the
Southeast to sustain future growth.
Echelon is in the midst of updating its long-term strategic plan. The
process not only includes an analysis of Echelon's growth opportunities, but
also a review of the Company's current portfolio of assets, on an asset-by-asset
basis, to insure that current plans for each asset still fit within the
Company's revised overall strategy. The Company expects to complete this process
by the end of summer of 1997. Because real estate and capital markets change,
there can be no assurance that the Company will be able to execute either its
current business plan or any revised plan that it may adopt as a result of its
strategic planning process.
23
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements
Page
----
Echelon International Corporation:
Independent Auditors' Report ............................................ F-2
Financial Statements:
Consolidated Statements of Operations
for the years ended December 31, 1996, 1995 and 1994 ........... F-3
Consolidated Balance Sheets as of December 31, 1996 and 1995 ......... F-4
Consolidated Statements of Cash Flows
for the years ended December 31, 1996, 1995 and 1994 ........... F-5
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1996, 1995 and 1994 ........... F-6
Notes to Consolidated Financial Statements ........................... F-7
Progress Potomac Capital Ventures:
Independent Auditors' Report ............................................ F-19
Financial Statements:
Statements of Income for the years ended December 31,
1996, 1995, 1994 ............................................... F-20
Balance Sheets as of December 31, 1996 and 1995 ...................... F-21
Statements of Changes in Joint Venturers' Capital
for the years ended December 31, 1996, 1995, and 1994 .......... F-22
Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994 ............................................ F-23
Notes to Financial Statements ........................................ F-24
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Echelon International Corporation:
We have audited the accompanying consolidated balance sheets of Echelon
International Corporation and subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of operations and deficit, cash flows and
stockholders' equity for each of the years in the three year period ended
December 31, 1996. These financial statements are the responsibility of the
management of Echelon International Corporation. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Echelon International
Corporation and subsidiaries as of December 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
St. Petersburg, Florida KPMG Peat Marwick LLP
March 19, 1997
F-2
<PAGE>
ECHELON INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
================================================================================
(In millions, except
per share amounts)
Ended December 31,
----------------------------
1996 1995 1994
------- ------- -------
SALES AND REVENUES:
Real estate operations
Rental income $ 11.9 $ 10.1 $ 8.3
Sale of development properties 21.8 .9 5.0
Marina and other revenues 6.8 7.2 5.5
Lending and leasing operations -
Interest income 17.1 21.7 22.4
Earned income on finance leases 2.9 4.8 4.4
Other 2.7 2.9 3.2
- -------------------------------------------------------------------------------
63.2 47.6 48.8
- -------------------------------------------------------------------------------
OPERATING EXPENSES;
Real estate operations 11.1 10.5 9.0
Cost of development properties sold 21.7 .8 4.8
Depreciation 5.6 6.4 5.2
Provision for lease, loan and real estate losses 31.4 7.0 10.6
Interest expense:
Former parent 14.5 19.9 20.5
Other 4.2 2.6 3.2
Allocated administrative expenses of former parent 2.4 1.6 1.4
Marketing and other administrative 9.5 3.6 2.5
Other expenses net 7.6 5.1 .8
- -------------------------------------------------------------------------------
108.0 57.5 58.0
- -------------------------------------------------------------------------------
LOSS BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM (44.8) (9.9) (9.2)
INCOME TAX BENEFIT (15.5) (4.9) (4.2)
- -------------------------------------------------------------------------------
NET LOSS BEFORE EXTRAORDINARY ITEM (29.3) (5.0) (5.0)
EXTRAORDINARY ITEM:
Net gain on extinguishment of debt, net of
income tax expense of $1.3 million 1.8 -- --
- -------------------------------------------------------------------------------
NET LOSS $ (27.5) $ (5.0) $ (5.0)
- -------------------------------------------------------------------------------
Average shares of common stock outstanding 6.5 6.5 6.5
Per share data:
Net loss before extraordinary item $ (4.51) $ (.77) $ (.77)
Extraordinary item .28 -- --
- -------------------------------------------------------------------------------
Net loss per Common share $ (4.23) $ (.77) $ (.77)
===============================================================================
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
ECHELON INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
================================================================================
December 31,
---------------------
1996 1995
--------- --------
(In millions)
ASSETS
LEASES, LOANS, PROPERTY & OTHER INVESTMENTS:
Leases and loans receivable, net (Note 2) $ 190.6 $ 309.3
Property. net (Note 3) 130.1 153.6
Investments in and advances to unconsolidated
affiliates (Note 8) 32.5 39.9
- --------------------------------------------------------------------------------
353.2 502.8
- --------------------------------------------------------------------------------
ASSETS HELD FOR SALE (Note 4) 29.4 --
- --------------------------------------------------------------------------------
CURRENT ASSETS:
Cash and equivalents 63.3 .4
Accounts receivable, net 1.1 2.0
Current portion of leases and loans receivable 75.9 42.4
lnventories. at cost 3.1 2.2
Other .7 .6
- --------------------------------------------------------------------------------
144.1 47.6
- --------------------------------------------------------------------------------
OTHER NON-CURRENT ASSETS 4.3 4.1
- --------------------------------------------------------------------------------
Total assets $ 531.0 $ 554.5
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and other liabilities $ 15.7 $ 10.0
Income taxes payable .1 9.6
Accounts and interest payable to former parent .8 6.2
Current portion of long-term debt and note payable
to former parent 75.6 10.2
- --------------------------------------------------------------------------------
Total current liabilities 92.2 36.0
LONG-TERM DEBT (Note 5) 73.8 273.0
DEFERRED INCOME TAXES (Note 9) 163.3 182.3
OTHER LIABILITIES .3 2.4
- --------------------------------------------------------------------------------
Total liabilities 329.6 493.7
- --------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY (Note 7)
Preferred stock, $.01 par value, 10,000,000 shares
authorized none issued -- --
Common stock, $.01 par value, 25,000,000 shares
authorized, 6,763,605 outstanding .1 .1
Additional paid in capital 279.4 111.2
Retained deficit (78.1) (50.5)
- --------------------------------------------------------------------------------
Total stockholders' equity 201.4 60.8
- --------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 531.0 $ 554.5
================================================================================
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
ECHELON INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1996 1995 1994
------ ------ ------
(In millions)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss before extraordinary item $(29.3) $ (5.0) $ (5.0)
Adjustment for noncash items:
Depreciation and amortization 6.1 6.4 5.2
Deferred income taxes (19.0) (42.0) (20.5)
Amortization of investment tax credits (.7) (.3) (1.5)
Amortization of lease income (.7) (1.4) (1.9)
Provisions for lease, loan and real estate losses 31.4 7.0 10.6
(Gain) loss on sale of assets -- 4.0 (.2)
Equity in (income) of unconsolidated affiliates, net (2.7) (2.8) (3.0)
Changes in working capital:
Accounts payable and other liabilities 2.4 4.9 (.9)
Income taxes receivable/payable (10.8) 10.5 (12.7)
Other working capital changes (.1) (.6) .5
Other operating activities 5.4 (9.4) .7
- --------------------------------------------------------------------------------------------
(18.0) (28.7) (28.7)
- --------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchase of leases and loans -- -- (5.7)
Proceeds from sale or collection of leases and loans 45.9 75.5 67.4
Real estate property additions (9.1) (4.1) (1.3)
Proceeds from sale of real estate properties 21.1 .7 4.9
Proceeds from sale of businesses -- -- 2.1
Distributions from unconsolidated affiliates, net of investments 3.6 3.4 10.6
- --------------------------------------------------------------------------------------------
61.5 75.5 78.0
- --------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Issuance of long-term debt 136.2 -- --
Repayment of long-term debt (25.0) (9.7) (8.2)
Decrease in due to former parent (115.4) (34.1) (37.4)
Dividends paid to former parent (.1) (3.2) (3.2)
Equity contribution from former parent 23.7 -- --
- --------------------------------------------------------------------------------------------
19.4 (47.0) (48.8)
- --------------------------------------------------------------------------------------------
Net increase(decrease) in cash and equivalents 62.9 (.2) .5
Beginning cash and equivalents .4 .6 .1
- --------------------------------------------------------------------------------------------
Ending cash and equivalents $ 63.3 $ .4 $ .6
============================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
(Notes 6 and 7): Cash paid
during the period for:
Interest $ 23.9 $ 22.9 $ 23.6
Income taxes (net of refunds) 14.2 26.7 29.1
Debt issuance costs 4.8 -- --
============================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
ECHELON INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
================================================================================
(In millions)
Additional
Common Paid in Retained
Stock Capital Deficit
----- ------- -------
Balance, December 31, 1993 $ .1 $111.2 $(34.1)
Net income -- -- (5.0)
Dividends to former parent -- -- (3.2)
- -------------------------------------------------------------------------------
Balance, December 31, 1994 .1 111.2 (42.3)
Net income -- -- (5.0)
Dividends to former parent -- -- (3.2)
- -------------------------------------------------------------------------------
Balance, December 31, 1995 .1 111.2 (50.5)
Net income -- -- (27.5)
Non-cash contribution from former parent -- 140.0 --
Cash contributions from former parent -- 23.7 --
Common stock issued--295,867 shares -- 4.5 --
Dividends to former parent -- -- (.1)
- -------------------------------------------------------------------------------
Balance, December 31, 1996 $ .1 $279.4 $(78.1)
===============================================================================
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
ECHELON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Spin-off Transaction and Description of Business
Echelon International Corporation ("Echelon" or the "Company") is a real
estate and financial services company with operations in two business
segments: (i) the Real Estate Business and (ii) the Lending and Leasing
Business.
Echelon operated as a wholly owned subsidiary of Florida Progress
Corporation ("Florida Progress") until December 18, 1996 (the "Distribution
Date"). Florida Progress distributed Echelon stock to Florida Progress
shareholders (one share of Echelon for each fifteen shares of Florida
Progress) as a tax-free dividend (the "Distribution"). See Note 6. The
Distribution established Echelon as a publicly held corporation separate
from Florida Progress. In connection with the Distribution, Echelon
determined that certain non-strategic assets were to be disposed within two
years. See Note 4.
Principles of Presentation
The accompanying consolidated financial statements include the financial
results of the Company and its majority owned operations. Certain amounts
in 1995 and 1994 have been reclassified to conform with the 1996
presentation.
All significant intercompany balances and transactions have been
eliminated. Investments in 20% to 50% owned joint ventures and partnerships
are accounted for using the equity method. A 20.9% investment in common
stock of a non-publicly traded entity is accounted for by the cost method.
See Note 8.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those
estimates.
Finance Leases
Finance leases consist of direct financing leases and leveraged leases.
Income on direct financing leases is recognized by a method which produces
a constant periodic rate of return on the outstanding investment in the
lease. Income on leveraged leases is recognized by a method which produces
a constant rate of return on the outstanding investment in the lease net of
the related deferred tax liability and deferred investment tax credits in
the years in which the net investment is positive. The investment in direct
finance lease equals rental receivable plus residual value less unearned
income. The investment in leveraged leases is the aggregate of rentals
receivable (net of principal and interest on the related nonrecourse third
party debt) and estimated residual value of the equipment less the unearned
income and deferred investment tax credit. When the residual value of
leased equipment is determined to be permanently impaired, the investment
in lease is recalculated and the difference between the investment in lease
and the recalculated value is taken as a charge to income.
Financial Instruments
Estimated fair value amounts have been determined by the Company using
available market information and discounted cash flow analysis. Judgment is
required in interpreting market data to develop estimates of fair value.
Accordingly, the estimates may be materially different from the amounts
that the Company could realize in a current market transaction.
Estimating fair values for loans associated with the airline industry is
difficult due to the limited number of transactions. Management, therefore,
has estimated a range of values for these loans. See Note 2.
The Company currently has no derivative financial instruments, such as
futures, forwards, swaps or options contracts.
F-7
<PAGE>
ECHELON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Allowance for Lease and Loan Losses
In accordance with SFAS No. 114, a loan is considered impaired when
management determines that it is probable that the Company will not collect
all amounts due according to the contractual terms of the loan. An
allowance for loss on an impaired loan is recognized when the present value
of the expected future cash flows, discounted at the loan's effective rate,
is less than the carrying value of the loan. When an impaired loan is
collateral dependent, and foreclosure is probable, the lower of the
carrying amount of the loan, or the fair value of collateral less costs to
sell, is used to measure the amount of allowance for loss to be recognized.
Interest income on impaired loans is recognized on a cash basis as a credit
to interest income.
Allowance for losses on leases is provided when management has determined
that it is probable that the net investment in a lease will not be
recovered due to lessee credit problems. The allowance is measured by the
difference between net investment in the lease and the market value of the
leased asset less costs to sell. Establishing the allowance for losses
relies substantially upon management judgment utilizing the best available
information at the time of review.
Property and Depreciation
The Company records property at cost adjusted for any impairment and
provides for depreciation primarily on a straight-line basis over the
estimated service lives or lease terms of the related assets. The Company
adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets To Be Disposed of," on January 1, 1996. This
standard requires that long-lived assets and certain intangible assets be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable
through future cash flows from the use and disposition of the asset. An
impairment loss recognized on assets to be held and used is measured as the
amount by which the carrying amount of the asset exceeds the fair value of
the asset. Assets held for sale are reported at the lower of carrying
amount or fair value less cost to sell. There was no impact on earnings as
a result of implementing this standard.
Real Estate Transactions
Real estate revenues include rent from leasing operations and sales of real
estate. Rental revenues, net of any rent concessions given to lessees, are
recognized ratably over the lease period. Profit from the sale of real
estate is recognized only upon the closing of a sale, the transfer of
ownership rights to the purchaser and receipt of an adequate cash down
payment. If the cash down payment is not adequate, profits are deferred
using the installment method of accounting.
Interest Expense
The accompanying consolidated statements of operations and deficit include
an allocation of Florida Progress's interest expense, prior to the
Distribution, based upon the average outstanding amounts due to Florida
Progress and affiliates. See Note 6. Management believes the allocation
method used was reasonable.
Income Taxes
Deferred taxes are provided on all significant temporary differences
between the financial and tax basis of assets and liabilities using
presently enacted tax rates in accordance with Financial Accounting
Standard No. 109, "Accounting for Income Taxes." Prior to the Distribution,
the Company was included in the consolidated federal income tax returns of
Florida Progress and the income tax provision was calculated as if the
company had filed separate returns.
Earnings Per Common Share
The net loss per common share reflects, for all periods presented the
average outstanding common shares of Echelon after giving effect to the
changes in the capitalization as discussed in Note 7. Outstanding common
stock options (see Note 7) at December 31, 1996 are antidilutive. There
were no other options, warrants or other potentially dilutive securities
outstanding during the periods presented.
F-8
<PAGE>
ECHELON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Financing Costs
Fees associated with the incurrence of long-term debt are reflected as a
discount on the associated debt. Issue costs associated with obtaining debt
are recorded as a deferred charge. All fees and issue costs are amortized
over the term of the related debt.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, demand deposits and
short-term investments with original maturities of three months or less.
Stock-Based Compensation
The Company adopted the disclosure requirements of SFAS No. 123,
"Accounting For Stock-Based Compensation" on January 1, 1996. The Company
has elected to measure and recognize stock-based compensation costs based
on the accounting prescribed by APB Opinion No. 25, "Accounting For Stock
Issued To Employees."
Commitments and Contingencies
In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 96-1, "Environmental Remediation
Liabilities." SOP 96-1 will be adopted by the Company on January 1, 1997
and requires, among other things, environmental remediation liabilities to
be accrued when the criteria of FAS No. 5, "Accounting for Contingencies,"
have been met. The SOP also provides guidance with respect to the
measurement of the remediation liabilities. Such accounting for
environmental remediation costs and, therefore, adoption of the new
statement will not have a material impact on the Company's financial
position, results of operations or liquidity.
(2) LEASES AND LOANS RECEIVABLE AND FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 31, 1996 and 1995, investments in leases and loans receivable
were as follows:
December 31,
-----------------------
1996 1995
-------- --------
(In millions)
Finance leases:
Rentals receivable $ 164.8 $ 197.6
Unguaranteed residual values 105.6 109.7
Unearned income (54.3) (62.5)
Deferred investment tax credits (14.0) (14.7)
--------------------------------------------------------------------
Total finance leases 202.1 230.1
Commercial finance loans receivable 84.5 153.6
Allowance for losses (20.1) (32.0)
--------------------------------------------------------------------
266.5 351.7
Less: current portion 75.9 42.4
--------------------------------------------------------------------
$ 190.6 $ 309.3
====================================================================
Finance leases consist primarily of leveraged investments in aircraft as
described below. The majority of the aircraft leases have remaining terms
of 11 to 16 years, with a maximum of 22 years. Rentals receivable from
finance leases represent unpaid rentals less principal and interest on
nonrecourse third-party debt. The Company's share of rentals receivable is
subordinate to the debt holders who have security interests in the leased
assets.
At December 31, 1996, net contractual maturities of rentals receivable from
finance leases were $8.4 million, $7.6 million, $10.9 million, $10.2
million and $13.8 million for each of the years in the five year period
from 1997 through 2001, respectively, and $113.9 million in total
thereafter.
F-9
<PAGE>
ECHELON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Net income recognized from leveraged leases (after payments to nonrecourse
lenders, but before other borrowing costs) was as follows:
1996 1995 1994
------ ------ ------
(In millions)
Lease income $ .3 $ 2.0 $ .5
Income tax effect -- (1.0) (.1)
Gain (loss) on sale of equipment (.5) (1.1) .2
Amortization of investment tax credits .7 .3 1.5
- -----------------------------------------------------------------------------
$ .5 $ .2 $ 2.1
================================================================================
The Company's commercial finance loans are secured by first mortgage liens
on the related commercial real estate or by security interests in aircraft,
aircraft engines or spare parts. These loans are further collateralized,
where applicable, by an assignment to the Company of the borrowers' lease
agreements, and, in some cases, third party guaranties.
At December 31, 1996 and 1995, the Company's portfolio of leases and loans
receivable included investments in the airline industry totaling $187.4
million and $261.5 million, respectively. Investments in the commercial
real estate industry totaled $99.2 million and $122.2 million at the same
dates.
At December 31, 1996, a $23.5 million loan receivable was impaired under
the definition of SFAS 114. No valuation allowance is required for the
impaired loan because, in the opinion of management, the estimated current
market value of the underlying property is in excess of the $23.5 million
loan balance and cash flow from leases on this property, which have been
assigned to the Company, supports the current recorded value of this loan.
At December 31, 1995, the Company had a total of $58.6 million of loans
that were considered impaired. A valuation allowance of $5.0 million was
applied to these loans.
The Company's portfolio of leases and loans receivable included $52.3 and
$90.2 million in loans and leases performing under restructured agreements
at December 31, 1996 and 1995. All restructured assets are performing in
accordance with their new terms and the restructurings are not anticipated
to materially reduce the Company's future annual revenue.
During 1996, 1995 and 1994, the Company recorded $2.3 million, $5.0
million, and $9.9 million respectively, for possible loan and lease losses
and had write-offs of $6.7 million in 1995 and $.7 million in 1994.
Leases and loans generally are placed on nonaccrual status when management
believes the collectibility of interest or principal is unlikely. There
were no assets on nonaccrual status at December 31, 1996 or 1995.
In the opinion of management, the estimated fair value of financial
instruments at December 31, 1996 and 1995 was as follows:
Carrying Amount Fair Value
---------------------- ----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
(In millions)
Real Estate Loans $83.8 $106.8 $85.4 $106.8
Aircraft Loans .7 46.8 .7 14 to 44
Debt (Note 5) 149.4 33.2 149.4 33.2
During 1996, management classified most of its aircraft loans as assets
held for sale. See Note 4. Management's 1995 estimate of aircraft loan fair
values takes into account not only market interest rates but additionally
considers published estimates of aircraft market values.
F-10
<PAGE>
ECHELON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(3) PROPERTY
The Company recognized an impairment of $7.6 million on an income-producing
building and on real estate under development during 1996 which is
reflected in the provision for losses. The impairment became necessary when
a tenant gave notice to not extend its lease and management does not
anticipate re-leasing this property without extensive modifications which
would not be recovered. This loss was measured using discounted cash flows.
The impairment loss on real estate under development became necessary when
it was determined that the carrying value of the property plus costs to
complete development of the property exceeded its fair value.
The depreciable lives and carrying values of property are as follows:
December 31,
Depreciable ---------------------
Lives (Years) 1996 1995
------------- ---------- ---------
(Dollars in millions)
Real estate development projects:
For sale and under development $29.5 $51.9
Income producing:
Land 15.2 15.2
Buildings and improvements 5-40 107.9 104.5
Equipment and other 3-10 1.6 2.0
- --------------------------------------------------------------------------
154.2 173.6
Other property:
Aircraft on operating lease 10 12.5 12.5
Equipment, furniture and vehicles 2-25 -- .1
- --------------------------------------------------------------------------
166.7 186.2
Less: accumulated depreciation 36.6 32.6
- --------------------------------------------------------------------------
$130.1 $153.6
==========================================================================
(4) ASSETS HELD FOR SALE
At June 30, 1996, the Company's management adopted a plan to dispose of
certain non-strategic assets. These assets and their respective reserves
have been classified as "Assets Held for Sale" at December 31, 1996.
Management expects that the disposal of these assets will be completed
within two years. Assets held for sale consist of the following:
Previous Balance Sheet Classification December 31, 1996
- ------------------------------------------------------------- -----------------
(In millions)
Leases and loans receivable $56.8
Property, net of depreciation 2.3
Investments in unconsolidated affiliates 6.4
Valuation allowance (36.1)
- --------------------------------------------------------------------------------
$29.4
================================================================================
The Company recognized the valuation allowance (including $21.5 million in
1996) on leases and loans receivable in accordance with SFAS 114, and on
property and investments in unconsolidated affiliates in accordance with
SFAS 121. Assets held for sale are reflected at the lower of carrying
amount or fair value less cost to dispose.
F-11
<PAGE>
ECHELON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(5) LONG-TERM DEBT
Long-term debt outstanding is as follows:
December 31,
Interest -------------------
Rate 1996 1995
------------- -------- --------
(Dollars in millions)
Salomon Brothers Realty Corp. 8.5%(a) $ 95.7 $ --
Former Parent (Note 6):
Advances -- -- 250.0
Note payable 8.5%(a) 32.9 --
Delayed equity obligation on finance lease 10.0% 20.2 21.9
Other 8.0% 0.6 11.3
- --------------------------------------------------------------------------------
149.4 283.2
Less: current portion of long-term debt 75.6 10.2
- --------------------------------------------------------------------------------
$ 73.8 $ 273.0
================================================================================
(a) Interest rate at December 31, 1996.
On November 5, 1996, Echelon obtained a three-year secured loan from
Salomon Brothers Realty Corp. in the principal amount of $105 million. The
loan is secured by five of Echelon's commercial real estate properties,
substantially all of Echelon's real estate loan portfolio and certain
additional collateral. For additional consideration, and subject to certain
conditions, Echelon may extend the term of the loan for one or two
additional one-year periods. The loan requires mandatory monthly principal
payments based on an amortization schedule of 25 years (or, in the case of
the real estate loan portfolio, the scheduled principal payments actually
received, if greater), provided, however, that the scheduled amortization
is accelerated to 18 years if the loan-to-value of collateral ratio is
greater than 75%. Additional principal payments may be due upon the sale of
individual items of collateral. Under the loan, monthly payments of
interest at the rate of LIBOR plus 2.95% per annum are due on the unpaid
principal balance.
If the loan-to-value of collateral ratio exceeds 75%, then Echelon will be
required to deposit the cash flow from the assets pledged as collateral
into a collection account to be disbursed monthly to pay scheduled loan
payments, property expenses, and other items and to fund certain reserves.
Cash balances remaining in such account would then be released to Echelon.
Under the terms of the loan, the lender has the right to give notice if it
determines the loan-to-value of collateral ratio exceeds 75% and Echelon
has certain rights to contest that determination. If the loan-to-value of
collateral ratio exceeds 80%, then remaining cash balances in such account
which would otherwise have been released to Echelon will be applied monthly
to reduce the principal amount of the loan until the ratio is less than
80%. The imposition of such a requirement could have a material adverse
impact on Echelon's ability to successfully implement its business plan
because the items comprising the collateral represent Echelon's key sources
of operating cash flow. In addition, the loan agreement contains covenants
that require Echelon to maintain a ratio of debt to total capitalization of
not greater than 60% and to maintain certain levels of liquidity during
each year of the loan.
On December 16, 1996, Echelon obtained a $36 million secured note from its
former parent. The note will mature in four years and will require
specified principal payments upon the disposition of certain assets held
for sale. Interest is payable semi-annually and accrues monthly at the rate
of LIBOR plus 2.95% per annum.
In connection with an aircraft lease restructured in 1992, the Company
agreed to provide additional equity over the next eleven years. The equity
contributions will be paid to the nonrecourse debt holders by the Company
and collected from the lessee over the remaining lease term. The present
value of the additional equity using a 10% discount rate was $20.2 million
and $21.9 million at December 31, 1996 and 1995, respectively, and is
included in long-term debt on the accompanying Balance Sheets.
Debt maturities, including prepayments made in January 1997, are $75.6
million, $13.3 million, $22.9 million, $27.2 million and $.4 million for
each of the years in the period 1997 through 2001, respectively. Debt
maturity in 1997 reflects an accelerated payment on the Salomon note of
$31.0 million related to the early payoff of a collateralized real estate
loan in January 1997.
F-12
<PAGE>
ECHELON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(6) TRANSACTIONS WITH FLORIDA PROGRESS
Financial information prior to the Distribution reflects the results of
operations of the Company as a wholly-owned subsidiary of Florida Progress
and is not necessarily indicative of the results of operations had the
Company operated as a separate, stand-alone entity during such prior
periods.
The Company has been utilizing accounting, legal, risk management, human
resource, tax, treasury, management, facility and office services of
Florida Progress and its affiliates and was billed for these services,
including a portion of the affiliates' overhead. Charges for these services
and overhead were $2.4 million, $1.6 million and $1.4 million in 1996, 1995
and 1994, respectively. These costs were charged to Echelon using the
affiliates' actual cost allocated to each affiliate based on its pro rata
usage of those services.
At the Distribution Date, the Company and Florida Progress entered into a
tax sharing agreement which provided for the payment of taxes and receipt
of tax refunds for periods up through the Distribution Date and provided
for various administrative matters.
Effective as of September 30, 1996, Florida Progress contributed $140
million to the equity of Echelon, which was used by Echelon to repay
advances from Florida Progress. This was a non-cash transaction which was
not reflected in the Statement of Cash Flows.
Florida Progress and its affiliates rent facility and office space in
several of the Company's office buildings for which the Company has
received payments of $2.4 million, $2.2 million and $2.5 million in 1996,
1995 and 1994, respectively. A portion of these amounts was billed to the
Company in connection with the affiliates' allocations of facility
services.
Advances and payables between the Company and Florida Progress, and its
affiliates, consisted of the following at December 31, 1996 and 1995:
December 31,
-------------------
1996 1995
-------- --------
(In millions)
Accounts and interest payable $ .8 $ 6.2
=================================================================
Long-term debt (see Note 5):
Advances $ -- $ 250.0
Note payable 32.9 --
- -----------------------------------------------------------------
$ 32.9 $ 250.0
=================================================================
Interest expense reflected in the accompanying consolidated financial
statements related to the intercompany advances from Florida Progress
represents interest allocated to the Company. The effective interest rate
on the average outstanding intercompany advances for the years ended
December 31, 1996 and 1995 was 6.0%, and the rate for 1994 was 6.6%.
(7) COMMON AND PREFERRED STOCK AND STOCK PLANS
In October 1996, the Echelon Board of Directors adopted Amended and
Restated Articles of Incorporation which increased the number of authorized
common shares from 100 to 25,000,000, changed the par value from $1.00 to
$0.01; and converted each share of $1.00 par value common stock into
64,670.18 shares of $.01 par value Common Stock. The conversion of the
common stock and the effect on loss per share has been reflected in all
periods presented. Additionally, Echelon has authorized 10,000,000 shares
of $.01 par value preferred stock. No shares of preferred stock have been
issued or are outstanding.
During 1996, the Company issued 295,867 shares of restricted Common Stock
to officers under the Long-Term Incentive Plan ("LTIP") and recorded
compensation expense of approximately $4.5 million. The Company also
granted options to purchase 134,840 shares of Common Stock at an exercise
price equal to the closing price for
F-13
<PAGE>
ECHELON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Echelon Common Stock eight months after the completion of the Distribution.
No compensation expense was recorded for the share options in accordance
with APB 25.
In October 1996, the Echelon Board of Directors approved several stock
based benefit plans, and reserved an aggregate of 1,200,000 shares of
Echelon common stock for issuance pursuant to the following plans.
Stock Option Plan. A maximum of 150,000 shares of Echelon Common Stock are
reserved for issuance under the plan. Under the Stock Option Plan,
incentive stock options, nonqualified stock options or any combination
thereof may be granted to any employee of Echelon. In general, the exercise
price of the options will be determined by the committee of the Board of
Directors administering the plan, but such price will not be less than the
market price of Echelon Common Stock on the date the option is granted.
Options will normally vest 20% each year after issuance over a period of
five years and will expire after 10 years.
Stock Purchase Plan. An aggregate of 75,000 shares of Echelon Common Stock
are reserved for issuance under the plan. Under the Stock Purchase Plan,
all employees will be given the opportunity to purchase shares of Echelon
Common Stock two times a year at a price equal to 85% of the market price
of the stock immediately prior to the beginning of each offering period.
The Stock Purchase Plan provides for two offering periods, the months of
March and September, in each of the years 1997-2006.
Echelon Long Term Incentive Plan ("LTIP"). An aggregate of 950,000 shares
of Echelon Common Stock are reserved for issuance under the plan. Under the
Echelon LTIP, restricted stock, incentive stock options, nonqualified stock
options and stock appreciation rights or any combination thereof may be
granted to Echelon employees. The exercise price of the options granted
under the plan will be determined in the discretion of the committee of the
Board of Directors administering the plan, which price may not be less than
the market price of Echelon Common Stock on the date the option is granted.
Options will normally vest 20% each year after issuance over a period of
five years and will expire after 10 years. The committee may condition
awards of restricted stock and stock appreciations rights upon satisfaction
of performance criteria or other conditions.
Directors' Plan. An aggregate of 25,000 shares of Echelon Common Stock are
reserved for issuance under the plan. Directors who are not employees of
Echelon ("Non-Employee Directors") will receive an annual retainer fee of
$15,000 paid quarterly in the form of Echelon Common Stock. In addition to
the annual retainer, each year Non-Employee Directors who are elected or
are continuing as Non-Employee Directors as of the conclusion of Echelon's
annual meeting of stockholders will receive options to purchase 1,000
shares of Echelon Common Stock. The exercise price of the options will be
equal to the market price of Echelon Common Stock on the date the option is
granted. Options will vest fully at the end of one year and will expire
after five years.
(8) INVESTMENTS IN UNCONSOLIDATED AFFILIATES
The Company has a 50% interest in a joint venture which is engaged in the
business of leasing aircraft equipment. Additionally, the Company has
investments in limited partnerships and corporate joint ventures, of which
no investment exceeds 40%. The Company accounts for its investments in the
joint venture, limited partnerships and corporate joint ventures by the
equity method. The Company also owns 20.9% of the outstanding common stock
of a non-publicly traded entity which is accounted for by the cost method
because the Company has concluded it is unable to exercise significant
influence over such entity. At December 31, 1996 such investment is
classified as "Assets Held for Sale." See Note 4.
F-14
<PAGE>
ECHELON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
At December 31, 1996 and 1995, investments in and advances to unconsolidated
affiliates were as follows:
December 31,
-----------------------
1996 1995
----------- ----------
(In millions)
Joint venture for leasing aircraft equipment $30.3 $33.2
Other limited partnership interests, corporate
joint ventures 2.2 3.6
Common stock - 3.1
===========================================================================
$32.5 $39.9
===========================================================================
The Company includes equity in earnings from unconsolidated partnerships
and joint ventures in other revenues. Presented below is combined
summarized financial information for partnerships and joint ventures
accounted for under the equity method as of December 31, 1996 and 1995 and
for the years ended December 31, 1996, 1995 and 1994. Amounts reflect 100%
of these entities' balances and results of their operations for these
periods.
December 31,
-----------------------
1996 1995
----------- ----------
ASSETS (In millions)
Finance lease receivable $57.6 $63.0
Property and equipment, net 2.9 3.4
Current assets 1.3 1.3
Other assets, net 2.3 12.8
========================================================================
$64.1 $80.5
========================================================================
LIABILITIES AND EQUITY INTEREST
Noncurrent liabilities $ 1.3 $10.5
Other partners' equity 30.3 33.2
========================================================================
31.6 43.7
========================================================================
Company's equity interest 32.5 36.8
========================================================================
$64.1 $80.5
========================================================================
Year Ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
(Dollars in millions)
REVENUES AND EXPENSES
Revenues $6.0 $8.2 $9.8
Expenses .5 2.8 4.0
==============================================================================
Combined net earnings of unconsolidated entities $5.5 $5.4 $5.8
==============================================================================
Company's equity in net earnings of unconsolidated
entities $2.7 $2.8 $3.0
==============================================================================
F-15
<PAGE>
ECHELON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(9) INCOME TAXES
1996 1995 1994
------ ------ ------
(In millions)
Components of income tax expense (benefit):
Payable currently:
Federal $ 4.2 $ 32.4 $ 15.2
State .6 4.7 1.1
- -------------------------------------------------------------------------------
4.8 37.1 16.3
- -------------------------------------------------------------------------------
Deferred, net:
Federal (16.8) (36.3) (18.6)
State (2.2) (5.7) (1.9)
- -------------------------------------------------------------------------------
(19.0) (42.0) (20.5)
- -------------------------------------------------------------------------------
(14.2) (4.9) (4.2)
Less: income taxes included under extraordinary
item 1.3 -- --
- -------------------------------------------------------------------------------
$(15.5) $ (4.9) $ (4.2)
===============================================================================
The provision for income taxes differs from income taxes computed at the
statutory federal income tax rate for each of the above years. The primary
differences between the statutory rates and the effective income tax rates
are detailed below:
1996 1995 1994
---- ---- ----
(In percent)
Federal statutory income tax rate 35.0 35.0 35.0
State income taxes, net of federal tax benefit 2.4 6.5 5.7
Rate difference on leveraged lease deferred tax
reversals .6 9.7 8.4
Amortization of investment tax credits .5 1.1 5.9
Investment tax credit basis difference (.4) (1.0) (12.0)
Non-deductible expenses (4.4) -- --
Other .3 (1.6) 2.8
- ------------------------------------------------------------------------------
34.0 49.7 45.8
==============================================================================
The following summarizes the components of deferred tax liabilities and
assets at December 31, 1996 and 1995:
December 31
--------------------
1996 1995
------- -------
(In millions)
Deferred tax liabilities:
Difference in tax basis of property $ 4.7 $ 8.7
Difference in accounting for leveraged leases 179.4 184.3
Other 7.5 11.4
- --------------------------------------------------------------------------------
Total deferred tax liabilities: 191.6 204.4
- --------------------------------------------------------------------------------
Deferred tax assets:
Accrued book expenses 24.8 18.5
Other 3.5 3.6
- --------------------------------------------------------------------------------
Total deferred tax assets 28.3 22.1
- --------------------------------------------------------------------------------
Net non-current deferred tax liabilities $ 163.3 $ 182.3
================================================================================
The Company expects the results of future operations will generate
sufficient taxable income to allow the utilization of deferred tax assets.
F-16
<PAGE>
ECHELON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(10) BUSINESS SEGMENTS
The Company's principal business segments are "Lending and Leasing" and
"Real Estate." Lending and Leasing includes leveraged leases, operating
leases and commercial finance loans. The airline industry is the primary
industry included in Lending and Leasing. See Note 2 for information
regarding concentration of risk. Real Estate includes ownership, operation
and development of office, commercial and industrial properties, land sales
and marina operations.
Business segment information for the years ended December 31, 1996, 1995
and 1994 is summarized below. No single customer accounted for 10% or more
of unaffiliated revenues.
Year Ended December 31,
------------------------------
1996 1995 1994
-------- -------- --------
(In millions)
Revenues:
Lending & leasing $ 22.7 $ 29.4 $ 30.0
Real estate 40.5 18.2 18.8
- ------------------------------------------------------------------------------
$ 63.2 $ 47.6 $ 48.8
==============================================================================
Income (loss) before income taxes:
Lending & leasing $ (30.6) $ 2.1 $ 1.0
Real estate (14.2) (12.0) (10.2)
- ------------------------------------------------------------------------------
$ (44.8) $ (9.9) $ (9.2)
==============================================================================
Identifiable assets:
Lending & leasing $ 334.0 $ 400.2 $ 478.3
Real estate 133.7 153.9 144.5
- ------------------------------------------------------------------------------
$ 467.7 $ 554.1 $ 622.8
==============================================================================
Depreciation:
Lending & leasing $ 1.1 $ 1.4 $ 1.6
Real estate 4.5 5.0 3.6
- ------------------------------------------------------------------------------
$ 5.6 $ 6.4 $ 5.2
==============================================================================
Additions to leases, loans and property:
Lending & leasing $ .0 $ .0 $ 5.7
Real estate 9.1 4.1 1.3
- ------------------------------------------------------------------------------
$ 9.1 $ 4.1 $ 7.0
==============================================================================
(11) COMMITMENTS AND CONTINGENCIES
The Company is subject to regulation with respect to the environmental
effects of its operations. The Company's disposal of hazardous waste
through third party vendors may result in costs to clean up facilities
found to be contaminated. Federal and state statutes authorize governmental
agencies to compel responsible parties to clean up certain abandoned or
uncontrolled hazardous waste sites. The Company has been notified by the
Environmental Protection Agency that a former subsidiary is or could be a
potentially responsible party at one site. Liability for cleanup costs of
this site is joint and several. Based upon information currently available,
the Company believes that its liability for cleanup of this site will not
be material and does not believe that it will be required to pay a
significantly disproportionate share of the total cleanup costs. In
addition, the Company may also be responsible for additional environmental
cleanup at other sites. Based on information currently available to the
Company, the Company estimates that its proportionate share of liability
for cleaning up all sites ranges from $0.1 million to $1.0
F-17
<PAGE>
ECHELON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
million, and it has reserved $0.5 million for potential costs that
management estimates to be probable. Management currently believes that the
ultimate outcome of these matters will not have a material adverse effect
upon the Company's results of operations, financial condition or liquidity.
Through a previous partnership, the Company remains contingently liable for
first mortgage bonds issued to residents of the life care communities owned
by the former partnership. The contingent liability reduces over time as
those who were residents at the time of the sale of the Company's interest
discontinue their residency. If the current owners fail to perform their
obligations and if the partnership assets, consisting primarily of land and
buildings, were worthless, the Company could be liable for an additional
$30.0 million as of December 31, 1996. The Company considers the incurrence
of this liability to be remote based on asset values and the
indemnification agreement from the current owners to the Company, but has
unamortized deferred revenues relating to the contingency at December 31,
1996 of $4.1 million from the sale of its partnership interest.
During 1996, Echelon signed commitments to provide capital contributions of
$15.0 million to affordable housing tax credit limited partnerships.
Echelon has funded $2.3 million as of December 31, 1996, and expects to
complete funding by late 1998.
(12) EXTRAORDINARY ITEM
On September 30, 1996, Echelon extinguished debt and accrued interest that
resulted in a gain of $3.5 million. This gain was offset by a write-off of
debt issuance costs of approximately $.4 million related to the early
payment of principal on long-term debt.
(13) QUARTERLY DATA (Unaudited)
Summarized quarterly data for 1996 and 1995 follows:
Three Months Ended
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
(In millions, except per share amounts)
1996
Revenue $ 9.7 $ 17.9 $ 21.0 $ 14.6
Loss before extraordinary item (.8) (19.4) (3.6) (5.5)
Net loss (.8) (19.4) (1.5) (5.8)
Loss per average common share (.12) (2.99) (.23) (.89)
Common stock price per share:
(trading began on Dec. 9, 1996)
High -- -- -- 16 3/8
Low -- -- -- 13
- --------------------------------------------------------------------------------
1995
Revenue $ 10.7 $ 12.3 $ 10.7 $ 13.9
Net loss (1.2) (1.4) (1.3) (1.1)
Net loss per common share (0.18) (0.22) (0.20) (0.17)
- --------------------------------------------------------------------------------
Included in revenues were property sales of $6.6 million, $11.6 million,
and $3.6 million for the quarters ended June 30, September 30, and December
31, 1996, respectively. The net loss for the three months ended June 30,
1996 included a provision of $29.2 million for losses anticipated to be
incurred on the sale of non-strategic assets in order to pay the remaining
debt to the Company's former parent. The net loss for the three months
ended December 31, 1996 included $10.2 million for expenses to complete the
spinoff from Echelon's former parent.
F-18
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Venturers of
Progress Potomac Capital Ventures:
We have audited the accompanying balance sheets of Progress Potomac Capital
Ventures as of December 31, 1996 and 1995, and the related statements of income,
changes in joint venturers' capital and cash flows for each of the years in the
three-year period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Progress Potomac Capital
Ventures as of December 31, 1996 and 1995, and the results of its operations and
cash flows for each of the years in the three-year period ended December 31,
1996, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
St. Petersburg, Florida
February 26, 1997
F-19
<PAGE>
PROGRESS POTOMAC CAPITAL VENTURES
STATEMENTS OF INCOME
For the years ended December 31, 1996, 1995 and 1994
1996 1995 1994
---------- ---------- ----------
REVENUES:
Finance lease revenue $4,826,177 $5,379,114 $5,884,136
Rental income 795,144 741,046 741,046
Interest income 430,673 219,650 335,899
---------- ---------- ----------
6,051,994 6,339,810 6,961,081
EXPENSES:
Amortization of management fees -- -- 60,097
Administration fee 60,000 60,000 60,000
Depreciation 444,000 444,000 444,000
Other 3,000 3,000 3,000
---------- ---------- ----------
507,000 507,000 567,097
---------- ---------- ----------
NET INCOME $5,544,994 $5,832,810 $6,393,984
---------- ---------- ----------
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
PROGRESS POTOMAC CAPITAL VENTURES
BALANCE SHEETS
December 31, 1996 and 1995
ASSETS
1996 1995
----------- -----------
Cash $ 49,816 $ 200,243
Jet engines, net of accumulated depreciation
of $2,259,948 in 1996 and $1,815,948 in 1995 2,940,052 3,384,052
Direct financing lease - Continental Airlines 50,473,410 56,854,337
Restricted cash 1,286,502 1,258,314
Other receivable -- 222,660
Notes receivable from Continental Airlines 7,103,922 5,910,738
----------- -----------
Total Assets $61,853,702 $67,830,344
----------- -----------
LIABILITIES AND JOINT VENTURERS' CAPITAL
Accrued expenses $ 15,000 $ 15,000
Unearned income -- 198,786
Maintenance deposits 1,286,502 1,258,314
----------- -----------
Total Liabilities 1,301,502 1,472,100
Joint Venturers' Capital:
Echelon 30,276,100 33,179,122
Potomac 30,276,100 33,179,122
----------- -----------
Total Joint Venturers' Capital 60,552,200 66,358,244
----------- -----------
Total Liabilities and Joint Venturers'
Capital $61,853,702 $67,830,344
----------- -----------
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
PROGRESS POTOMAC CAPITAL VENTURES
STATEMENTS OF CHANGES IN JOINT VENTURERS' CAPITAL
For the years ended December 31, 1996, 1995 and 1994
Echelon International Potomac Capital
Corporation Corporation
Capital Account Capital Account Total
--------------------- --------------- -----
Balance December 31, 1993 $ 37,954,569 $ 37,954,569 $ 75,909,138
Net income 3,196,992 3,196,992 6,393,984
Cash distributions (6,621,972) (6,621,972) (13,243,944)
------------ ------------ ------------
Balance December 31, 1994 34,529,589 34,529,589 69,059,178
Net income 2,916,405 2,916,405 5,832,810
Cash distributions (4,266,872) (4,266,872) (8,533,744)
------------ ------------ ------------
Balance December 31, 1995 33,179,122 33,179,122 66,358,244
Net income 2,772,497 2,772,497 5,544,994
Cash distributions (5,675,519) (5,675,519) (11,351,038)
------------ ------------ ------------
Balance December 31, 1996 $ 30,276,100 $ 30,276,100 $ 60,552,200
------------ ------------ ------------
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
PROGRESS POTOMAC CAPITAL VENTURES
Statements of Cash Flows
For the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,544,994 $ 5,832,810 $ 6,393,984
Adjustments to reconcile noncash items:
Depreciation 444,000 444,000 444,000
Amortization -- -- 60,097
Changes in assets and liabilities:
Restricted cash (28,188) (430,689) (6,327)
Other receivable 222,660 284,743 252,695
Unearned income (198,786) 13,525 --
Maintenance deposits 28,188 430,689 6,327
------------ ----------- ------------
Net cash provided by
operating activities 6,012,868 6,575,078 7,150,776
Cash flows from investing activities:
Proceeds from collections of leases 4,239,927 1,117,790 5,322,969
Proceeds from collections of notes receivable 947,816 854,408 770,207
------------ ----------- ------------
Net cash provided by
investing activities 5,187,743 1,972,199 6,093,176
Cash flows from financing activities:
Distributions to Ventures (11,351,038) (8,533,744) (13,243,944)
------------ ----------- ------------
Net increase (decrease) in cash (150,427) 13,533 8
Cash at beginning of year 200,243 186,710 186,702
------------ ----------- ------------
Cash at end of year $ 49,816 200,243 186,710
------------ ----------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
PROGRESS POTOMAC CAPITAL VENTURES
Notes to Financial Statements
(1) SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business and Principles of Presentation
Progress Potomac Capital Ventures ("PPCV") is a joint venture, formed in
February 1988, between Echelon International Corporation ("Echelon"), successor
to Progress Credit Corporation, and Potomac Capital Corporation ("Potomac"). The
purpose of the formation of the joint venture is to purchase, lease, and finance
aircraft and aircraft equipment. The joint venture is controlled 50/50 and all
decisions must be unanimously agreed to by the venturers. The income or loss
generated in each fiscal year is distributed annually based upon the pro rata
share of each venturer's capital accounts as of the end of the respective fiscal
year. The joint venture will be dissolved in 2027, unless all assets owned by
the joint venture are sold or disposed of prior to this date, at which time the
joint venture will be dissolved.
PPCV's operations consist of a direct finance lease and an operating lease.
The direct finance lease involves two DC10-30s that are currently on lease to
Continental Airlines ("Continental"). The lease was initiated in February of
1990 and expires in February of 2002. In 1992, Echelon and Potomac agreed to
revise the terms with Continental pursuant to which Continental issued a
deferred rent note for 4 months worth of rents (including interest) to be paid
back in 48 months. This note earns interest at 10.42% annually. Again in 1995,
both parties agreed to revise the terms of the Continental lease by deferring a
portion of the rent payable for 16 months, retroactive to February 1995, and
issuing another deferred rent note specific to the 1995 deferment. This note
earns interest at 8% annually, requires interest payments only for the first six
months, and principal and interest payments thereafter. The principal is
scheduled to be paid in full by 2000. The total amount of deferred rent notes
receivable from Continental as of December 31, 1996 and 1995, is $7,103,922 and
$5,910,738, respectively.
The operating lease involves two CFM-56 jet engines leased to America West.
The lease expires on December 31, 1997. As part of the leasing arrangement with
America West, America West is required to make payments to PPCV in order to
provide a maintenance and repair reserve for the engines. The funds deposited
are recorded as restricted cash as PPCV can only use the funds for maintenance
and repair. The funds are also recorded by PPCV as an other liability as any
excess funds will be returned to America West upon termination of the lease.
Aircraft and aircraft equipment leasing involves numerous risks, including
risks stemming from the obsolescence or physical deterioration of aircraft or
equipment and the possibility of defaults by lessees. In addition, fluctuations
in general business and economic conditions, the adoption of restrictive
regulations and legislation, changes in consumer demand for air travel,
fluctuations in fuel prices and other factors over which the lessors of aircraft
have no control could be expected to adversely affect the supply and demand of
the aircraft or aircraft leases and may cause cost increases related to the
leasing of aircraft that cannot be offset by increased revenues. The market for
aircraft and related equipment is currently characterized by a relatively large
supply of most types of aircraft and a relatively weak demand, which adversely
affects the marketability and near-term value of the aircraft leased assets.
F-24
<PAGE>
2
PROGRESS POTOMAC CAPITAL VENTURES
Notes to Financial Statements
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
Earned Income on Direct Financing Lease
Income on direct financing leases is recognized by a method which produces
a constant periodic rate of return on the outstanding investment in the lease.
Depreciation
The jet engines are depreciated on a straight line basis over sixteen
years.
Income Taxes
The joint venture is not a taxable entity. The taxable income is passed
through to each of the venturers as income is allocated according to the joint
venture agreement.
Loans Receivable
Effective January 1, 1995, the joint venture adopted SFAS No. 114,
"Accounting by Creditors for the Impairment of a Loan," as amended by SFAS No.
118, "Accounting by Creditors for Impairment of a Loan- Income Recognition and
Disclosure." These standards require the joint venture to compute present values
for impaired loans when determining the allowance for credit losses. There was
no impact on earnings as a result of implementing and applying these standards
to the Continental loans receivable.
Impaired Assets
The joint venture adopted Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of the Long-Lived Assets and
for Long-Lived Assets to be Disposed Of", as of January 1, 1996. This standard
requires that long lived assets and certain intangible assets be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable through future cash flows
from the use and disposition of the asset. There was no impact on earnings upon
adoption of SFAS 121.
Financial Instruments
Estimated fair value amounts have been determined by the Company using the
available market information and discounted cash flow analysis. Judgment is
required in interpreting market data to develop estimates of fair value.
Accordingly, the estimates may be materially different from the amounts that the
joint venture could realize in a current market transaction.
F-25
<PAGE>
PROGRESS POTOMAC CAPITAL VENTURES
Notes to Financial Statements
The joint venture has no derivative financial instruments, such as futures,
forwards, swaps or options contracts.
(2) FINANCIAL INSTRUMENTS
In the opinion of management, the estimated fair value of the Continental
notes receivable, at December 31, 1996 and 1995 is as follows:
Carrying amount Fair value
--------------- ----------
1995 $ 5,910,738 $ 5,910,738
1996 7,103,922 7,103,922
(3) RENTAL INCOME UNDER OPERATING LEASE
The following is a schedule by years of future minimum rentals on
noncancelable leases as of December 31, 1996:
Year ending December 31
-----------------------
1997 $ 795,144
----------
Total minimum future rentals $ 795,144
----------
(4) NET INVESTMENT IN DIRECT FINANCING LEASE
The following lists the components of the net investment in the direct
financing lease as of December 31:
1996 1995
------------- ------------
Minimum lease payments receivable $ 57,749,539 $ 68,956,643
Initial direct cost 841,261 1,079,446
Estimated residual value of the
leased property 7,800,000 7,800,000
Less unearned income (15,917,390) (20,981,752)
------------- ------------
Net investment in direct finance lease $ 50,473,410 $ 56,854,337
------------- ------------
The future minimum lease payments for each of the succeeding five years are
$11,200,000 per year.
F-26
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the directors, nominees for directors and executive
officers of Echelon is included under the headings "Management" in Echelon's
Proxy Statement and is incorporated herein by reference. Information concerning
compliance by Echelon's directors and officers, and persons who own more than
10% of Echelon's common stock, with the reporting requirements of Section 16(a)
of the Securities Exchange Act of 1934 is set forth under the heading
"Compliance with Section 16(a) of the Securities Exchange Act" in Echelon's
Proxy Statement and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item is included under the heading "Compensation of
Directors," "Compensation Committee Interlocks and Insider Participation,"
"Executive Compensation," and "Employment Agreements" in Echelon's Proxy
Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item is included under the headings "Security
Ownership" in Echelon's Proxy Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item is included under the heading "Certain
Relationships and Related Transactions" in Echelon's Proxy Statement andis
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
1. Financial statements, notes to Financial Statements and report thereon of
KPMG Peat Marwick LLP are found in Item 8 "Financial Statements and
Supplementary Data," herein.
Echelon International Corporation
Progress Potomac Capital Ventures
2. The following Financial Statement Schedules are included herein:
II - Valuation and Qualifying Accounts for the years ended December 31,
1996, 1995 and 1994
III - Real Estate and Accumulated Depreciation as of December 31, 1996
IV - Mortgage Loans on Real Estate as of December 31, 1996
III-1
<PAGE>
3. The following Exhibits are filed herewith:
10.11 Employment Agreement for Darryl A. LeClair dated November 20, 1996
10.12 Employment Agreement for Larry J. Newsome dated November 20, 1996
10.13 Employment Agreement for Thomas D. Wilson dated November 20, 1996
10.14 Employment Agreement for Raymond F. Higgins dated November 20, 1996
10.15 Employment Agreement for James R. Hobbs dated November 20, 1996
10.16 Employment Agreement for Michael S. Talmadge dated February 3, 1997
10.17 Employment Agreement for Susan G. Johnson dated December 19, 1996
10.18 Employment Agreement for Timothy S. Tinsley dated November 20, 1996
23. Consent of Independent Certified Public Accountants to the
incorporation by reference of their report on the financial statements
into the following registration statements of Echelon International
Corporation: Form S-8 (No. 333-18171), Form S-8 (No. 333-18175), Form
S-8 (No. 333-18177), Form S-8 (No. 333-18179), relating to the 1996
Employee Stock Purchase Plan, 1996 Stock Option Plan, Long Term
Incentive Plan, and Non-Employee Directors' Plan, as filed with the
SEC on December 18, 1996.
27 Financial Data Schedule of Echelon
III-2
<PAGE>
4. The following Exhibits are incorporated herein by reference:
Exhibit
Number Description
- ------ -----------
2.1 Information Statement dated November 25, 1996 (incorporated by
reference to Exhibit 2.1 to Echelon's Registration Statement on Form
10, as amended, (Registration Statement No. 001-12211))
3.1 Amended and Restated Articles of Incorporation and amendments thereto
(incorporated by reference to Exhibit 4.1 to Echelon's Registration
Statement on Form S-8 (Registration Statement No. 333-18171))
3.2 Amended and Restated By-laws (incorporated by reference to Exhibit
4.2 to Echelon's Registration Statement on Form S-8 (Registration
Statement No. 333-18171))
4.1 Specimen Common Share certificate (incorporated by reference to
Exhibit 4.1 to Echelon's Registration Statement on Form 10, as
amended, (Registration Statement No. 001-12211))
4.2 Rights Agreement between Echelon and The First National Bank of
Boston, as Rights Agent (incorporated by reference to Exhibit 4.4 to
Echelon's Registration Statement on Form S-8 (Registration Statement
No. 333-18171))
4.3 Articles of Amendment of Articles of Incorporation Providing for
Series A Junior Participating Preferred Stock of Echelon
(incorporated by reference to Exhibit 4.1 to Echelon's Registration
Statement on Form S-8 (Registration Statement No. 333-18171))
4.4 Right Certificate (incorporated by reference to Exhibit 4.5 to
Echelon's Registration Statement on Form S-8 (Registration Statement
No. 333-18171))
4.5 Loan Agreement dated as of November 5, 1996 by and among Echelon as
Borrower, Salomon Brothers Realty Corp. as Lender and LaSalle
National Bank as Collateral Agent (incorporated by reference to
Exhibit 4.5 to Echelon's Registration Statement on Form 10, as
amended, (Registration Statement No. 001-12211))
4.6 Promissory Note in the amount of $105,000,000 dated November 5, 1996
by Echelon as Maker to Salomon Brothers Realty Corp. as Holder
(incorporated by reference to Exhibit 4.6 to Echelon's Registration
Statement on Form 10, as amended, (Registration Statement No.
001-12211))
4.7 Mortgage, Assignment of Leases and Rents, Security Agreement and
Fixture Filing dated November 5, 1996 by Echelon as Mortgagor to
Salomon Brothers Realty Corp. as Mortgagee (incorporated by reference
to Exhibit 4.7 to Echelon's Registration Statement on Form 10, as
amended, (Registration Statement No. 001-12211))
4.8 Pledge and Security Agreement by Echelon as Obligor in favor of
Salomon Brothers Realty Corp. as Secured Party (incorporated by
reference to Exhibit 4.8 to Echelon's Registration Statement on Form
10, as amended, (Registration Statement No. 001-12211))
4.9 Assignment of Contracts, Licenses, Permits, Agreements, Warranties
and Approvals dated as of November 5, 1996 by Echelon as Borrower to
Salomon Brothers Realty Corp. as Lender (incorporated by reference to
Exhibit 4.9 to Echelon's Registration Statement on Form 10, as
amended, (Registration Statement No. 001-12211))
III-3
<PAGE>
4.10 Assignment of Rents and Leases executed as of November 5, 1996 by
Echelon as Borrower to Salomon Brothers Realty Corp. as Lender
(incorporated by reference to Exhibit 4.10 to Echelon's Registration
Statement on Form 10, as amended, (Registration Statement No.
001-12211))
4.11 Assignment of Participation Interest dated as of November 5, 1996 by
Echelon as Borrower to Salomon Brothers Realty Corp. as Lender
(incorporated by reference to Exhibit 4.11 to Echelon's Registration
Statement on Form 10, as amended, (Registration Statement No.
001-12211))
4.12 Collateral Assignment of Mortgage and Other Documents effective
November 5, 1996 by Echelon as Assignor to Salomon Brothers Realty
Corp. as Lender (Assignee)(incorporated by reference to Exhibit 4.12
to Echelon's Registration Statement on Form 10, as amended,
(Registration Statement No. 001-12211))
10.1 Distribution Agreement dated as of December 16, 1996 between Florida
Progress Corporation and Echelon (incorporated by reference to
Exhibit 10.1 to Echelon's Form 8-K dated as of and filed with the
Commission on December 18, 1996)
10.2 Tax Sharing Agreement dated as of December 16, 1996 between Florida
Progress Corporation and Echelon (incorporated by reference to
Exhibit 10.12 to Echelon's Form 8-K dated as of and filed with the
Commission on December 18, 1996)
10.3 Employee Benefits Allocation Agreement dated as of December 16, 1996
between Florida Progress Corporation and Echelon (incorporated by
reference to Exhibit 10.3 to Echelon's Form 8-K dated as of and filed
with the Commission on December 18, 1996)
10.4 Transition Services Agreement dated as of December 16, 1996 between
Florida Progress Corporation and Echelon (incorporated by reference
to Exhibit 10.4 to Echelon's Form 8-K dated as of and filed with the
Commission on December 18, 1996)
10.5 Note dated December 16, 1996 issued by Echelon to Progress Capital
Holdings, Inc.(incorporated by reference to Exhibit 10.5 to Echelon's
Form 8-K dated as of and filed with the Commission on December 18,
1996)
10.6 Consulting Agreement by and between Talquin Development Company and
Mission Development Company dated as of July 30, 1996 (incorporated
by reference to Exhibit 10.6 to Echelon's Registration Statement on
Form 10, as amended, (Registration Statement No. 001-12211))
10.7 1996 Employee Stock Purchase Plan (incorporated by reference to
Exhibit 10.7 to Echelon's Registration Statement on Form 10, as
amended, (Registration Statement No. 001-12211))
10.8 Long Term Incentive Plan (incorporated by reference to Exhibit 10.8
to Echelon's Registration Statement on Form 10, as amended,
(Registration Statement No. 001-12211))
10.9 Non-Employee Directors' Stock Plan (incorporated by reference to
Exhibit 10.9 to Echelon's Registration Statement on Form 10, as
amended, (Registration Statement No. 001-12211))
10.10 1996 Stock Option Plan (incorporated by reference to Exhibit 10.10 to
Echelon's Registration Statement on Form 10, as amended,
(Registration Statement No. 001-12211))
III-4
<PAGE>
(b) Reports on Form 8-K:
During the fourth quarter of the year ended December 31, 1996, Echelon
International Corporation filed the following report on Form 8-K:
Form 8-K dated December 18, 1996, reporting under Item 5 "Other
Events" (i) a News Release related to the spin-off of Echelon
International Corporation from its parent, Florida Progress
Corporation, and (ii) exhibits related to various contracts and a note
executed in connection with the spin-off.
III-5
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ECHELON INTERNATIONAL CORPORATION
March 31, 1997 By: /s/ Darryl A. LeClair
-----------------------------
Darryl A. LeClair
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Darryl A. LeClair President, Chief Executive Officer March 31, 1997
- -------------------------- and Director
Darryl A. LeClair
Principal Executive Officer
/s/ Larry J. Newsome Senior Vice President, March 31, 1997
- -------------------------- Chief Financial Officer,
Larry J. Newsome Secretary and Treasurer
Principal Financial Officer
/s/ James R. Hobbs, Jr. Vice President and March 31, 1997
- -------------------------- Controller
James R. Hobbs, Jr.
Principal Accounting Officer
/s/ W. Michael Doramus Chairman of the Board March 31, 1997
- -------------------------- and Director
W. Michael Doramus
/s/ Thomas W. Mahr Director March 31, 1997
- --------------------------
Thomas W. Mahr
/s/ Joseph H. Richardson Director March 31, 1997
- --------------------------
Joseph H. Richardson
/s/ Jonathan Blum Director March 31, 1997
- --------------------------
Jonathan Blum
III-6
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders of
Echelon International Corporation:
Under the date of March 19, 1997, we reported on the consolidated balance sheets
of Echelon International Corporation as of December 31, 1996 and 1995, and the
related consolidated statements of operations and deficit, stockholders' equity
and cash flows for each of the years in the three-year period ended December 31,
1996, which are included in the Form 10-K. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the related
consolidated financial statement schedules in the Form 10-K. These financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement schedules
based on our audits.
In our opinion such financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
March 19, 1997
St. Petersburg, Florida
<PAGE>
ECHELON INTERNATIONAL CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(Dollars in millions)
<TABLE>
<CAPTION>
Additions
Balance at Charged to Deductions Balance at
Beginning Costs and From End of
of Period Expenses Reserves Other(a) Period
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996:
Allowance for losses on loans and leases $32.0 $23.8(b) $ -- $ .4 $56.2
Allowance for doubtful accounts 1.0 -- (.7) -- .3
YEAR ENDED DECEMBER 31, 1995:
Allowance for losses on loans and leases $33.7 $5.0 $ (6.7) $ -- $32.0
Allowance for losses on real estate 16.8 1.2(b) (18.0)(c) -- --
Allowance for doubtful accounts .9 .1 -- -- 1.0
YEAR ENDED DECEMBER 31, 1994:
Allowance for losses on loans and leases $24.5 $9.9 $ (.7) $ -- $33.7
Allowance for losses on real estate 16.1 .7 -- -- 16.8
Allowance for doubtful accounts .6 .3 -- -- .9
</TABLE>
(a) Represents a balance sheet transfer from investment in unconsolidated
affiliates.
(b) Reconciliation of provision for losses charged to operations:
1996 1995
----- ----
Amount credited to allowance account $23.8 $1.2
Amount charged directly to asset account 7.6 .8
----- ----
Total provision charged to operations $31.4 $2.0
===== ====
(c) Reserve was eliminated through the writedown of assets due to impairment.
S-2
<PAGE>
ECHELON INTERNATIONAL CORPORATION
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1996
(In millions)
<TABLE>
<CAPTION>
INITIAL COST COSTS GROSS CARRYING VALUE AT 12/31/96
------------------- CAPITALIZED --------------------------------
BUILDINGS & SUBSEQUENT TO IMPAIRMENT BUILDINGS &
REAL ESTATE PROPERTY LAND IMPROVEMENTS ACQUISITION WRITE-DOWN LAND IMPROVEMENTS TOTAL
- ----------------------------------- ---- ------------ ------------- ---------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR SALE AND UNDER DEVELOPMENT (A)
St. Petersburg, Florida:
NINTH STREET PROPERTY $ 5.4 $ -- $ 2.8 $ (2.8) $ 5.4 $ -- $ 5.4
4TH STREET PROPERTY 2.5 -- 1.0 (1.9) 1.6 -- 1.6
CARILLON 15.6 -- 9.5 (2.8) 22.3 -- 22.3
Gainesville, Florida:
PROGRESS CENTER LAND .6 -- 2.9 (3.3) .2 -- .2
MISCELLANEOUS -- -- -- -- -- -- --
----- ------------ ------------- ---------- -------- ------------ --------
Sub-Total 24.1 -- 16.2 (10.8) 29.5 -- 29.5
----- ------------ ------------- ---------- -------- ------------ --------
INCOME PRODUCING
Office and Industrial Buildings
St. Petersburg, Florida:
BARNETT TOWER 3.6 -- 54.5 -- 3.6 54.5 58.1
MCNULTY STATION 1.6 1.5 10.3 (.3) 2.0 11.1 13.1
BAYBORO PROPERTIES 2.8 .9 1.8 (1.2) 2.6 1.7 4.3
3RD & 3RD .3 -- 2.3 -- .8 1.8 2.6
100 CARILLON 1.5 -- 6.3 -- 1.5 6.3 7.8
Tampa, Florida:
7TH AVENUE 1.4 -- 4.1 (.9) 1.4 3.2 4.6
5TH AVENUE .1 -- .1 -- .1 .1 .2
PROGRESS PACKAGING .4 1.2 -- -- .4 1.2 1.6
Tallahassee, Florida:
HIGHPOINT CENTER .8 -- 13.3 -- .8 13.3 14.1
Gainesville, Florida:
PROGRESS CENTER .3 -- 11.7 (1.5) .3 10.2 10.5
MISCELLANEOUS -- .2 -- -- -- .2 .2
----- ------------ ------------- ---------- -------- ------------ --------
Sub-Total 12.8 3.8 104.4 (3.9) 13.5 103.6 117.1
----- ------------ ------------- ---------- -------- ------------ --------
Dockage and Marine Services
St. Petersburg, Florida:
HARBORAGE MARINA 1.7 4.4 10.6 (9.1) 1.7 5.9 7.6
----- ------------ ------------- ---------- -------- ------------ --------
GRAND TOTAL $38.6 $ 8.2 $131.2 $(23.8) $44.7 $109.5 $ 154.2
===== ============ ============= ========== ======== ============ ========
</TABLE>
ACCUMULATED CONSTRUCTION YEAR
REAL ESTATE PROPERTY DEPRECIATION YEAR ACQUIRED
- ----------------------------------- ------------ ------------ ------------
FOR SALE AND UNDER DEVELOPMENT
St. Petersburg, Florida:
NINTH STREET PROPERTY $ -- n/a 1991
4TH STREET PROPERTY -- n/a 1993
CARILLON -- n/a 1990
Gainesville, Florida:
PROGRESS CENTER LAND -- n/a 1984
MISCELLANEOUS -- n/a n/a
------------ ------------ ------------
Sub-Total --
------------ ------------ ------------
INCOME PRODUCING
Office and Industrial Buildings
St. Petersburg, Florida:
BARNETT TOWER (8.7) 1990 1986
MCNULTY STATION (3.6) 1984 - 1988 1983 - 1996
BAYBORO PROPERTIES (1.7) n/a 1984 - 1985
3RD & 3RD (.6) 1984 1993
100 CARILLON (1.4) 1987 1994
Tampa, Florida:
7TH AVENUE (1.1) 1986 1986
5TH AVENUE -- 1979 1985
PROGRESS PACKAGING (.4) 1993 1993
Tallahassee, Florida:
HIGHPOINT CENTER (3.5) 1990 1995
Gainesville, Florida:
PROGRESS CENTER (3.5) 1984 - 1988 1984
MISCELLANEOUS (.2) n/a n/a
------------
Sub-Total (24.7)
------------
Dockage and Marine Services
St. Petersburg, Florida:
HARBORAGE MARINA (4.6) 1984 - 1988 1984
------------
------------
GRAND TOTAL $(29.3)
============
(A) See "Notes to Schedule III - Real Estate and Accumulated Depreciation."
S-3
<PAGE>
ECHELON INTERNATIONAL CORPORATION
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1996
(A) Impairment writedown is based on management's estimate of fair market value
of assets determined to be imparied.
(B) The aggregate cost for Federal income tax purposes is $145.4 million at
December 31, 1996.
(C) Reconciliation:
1996 1995 1994
------------------------------
Real Estate
Balance at beginning of period $ 173.6 $ 158.3 $ 156.3
Additions :
Acquisitions and Improvements 4.7 17.0 7.8
Deductions :
Cost of Real Estate Sold (20.8) (1.7) (5.8)
Transfer to Assets Held for Sale (3.3) -- --
------------------------------
Balance at end of period $ 154.2 $ 173.6 $ 158.3
==============================
Accumulated Depreciation
Balance at beginning of period $ 26.2 $ 19.4 $ 15.2
Additions :
Depreciation 4.1 4.8 3.6
Other: -- 3.1 1.7
Deductions :
Accum. Deprec. of Real Estate Sold -- (1.1) (1.1)
Transfer to Assets Held for Sale (1.0) -- --
------------------------------
Balance at end of period $ 29.3 $ 26.2 $ 19.4
==============================
S-4
<PAGE>
ECHELON INTERNATIONAL CORPORATION
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
AS OF DECEMBER 31, 1996
(Dollars in millions)
<TABLE>
<CAPTION>
Final Periodic Face Carrying
Interest Maturity Payment Prior Amount of Amount of
Description Rate Date Terms Liens Mortgages Mortgages
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First Mortgage Loans - Office Buildings:
Madison Building Prime + .75% Nov. 1998 Varying amounts with $3.1 balloon $ -- $ 3.6 $ 3.3
Plaza Del Rio Prime + 1.5% April 1997 Level amount with $5.3 balloon -- 5.5 5.3
Vine Street - Olympia Prime + .75% July 2001 $5.3 balloon -- 5.3 5.3
Vine Street - Capital View I Prime + .75% Oct. 1998 $5.8 balloon -- 5.8 5.8
Vine Street - Capital View II Prime + .75% Dec. 1999 $5.0 balloon -- 5.0 5.0
Vine Street - Town Square VI Prime + .75% May 2001 $4.5 balloon -- 4.5 4.5
----------------------------
-- 29.7 29.2
----------------------------
First Mortgage Loans - Industrial
Marquardt Prime + 2% Dec. 1997 $23.5 million balloon -- 35.0 23.5
First Mortgage Loans - Life Care (D)
South Port 11% April 2000 Varying amounts with $16.7 balloon -- 25.0 22.7
South Port Supplemental 11% April 2000 Varying amounts with $2.1 balloon -- 2.5 2.4
Lake Port 11% April 2000 Varying amounts with $9.2 balloon -- 11.0 10.1
----------------------------
-- 38.5 35.2
----------------------------
----------------------------
$ -- $103.2 $ 87.9
============================
</TABLE>
(A) At December 31, 1996 and 1995 there were no loans subject to delinquent
principal or interest.
(B) Reconciliation of the carrying amount of mortgage loans to total carrying
amount of mortgages:
<TABLE>
<CAPTION>
1996 1995 1994
----------------------------
<S> <C> <C> <C>
Beginning balance $110.9 $122.5 $152.3
New mortgage loans -- -- --
Collections of principal (23.0) (11.6) (29.8)
============================
Ending balance $ 87.9 $110.9 $122.5
============================
</TABLE>
Total amount of mortgages extended as of December 31, 1996 is $28.8
million.
(C) The aggregate cost for Federal income tax purposes is $88.3 million at
December 31, 1996.
(D) The First Mortgage Loans - Life Care were repaid in full in January 1997.
S-5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into this 20th day of
November, 1996, but is effective for all purposes as of the date specified below
in Section 2, by and between ECHELON INTERNATIONAL CORPORATION, a Florida
corporation (the "Company"), and DARRYL A. LECLAIR, residing at 431 Appian Way,
St. Petersburg, Florida 33704 (the "Executive").
W I T N E S S E T H:
1. EMPLOYMENT
The Company hereby employs the Executive, and the Executive hereby accepts
such employment, upon the terms and subject to the conditions set forth in this
Agreement.
2. TERM
Subject to the provisions for termination as hereinafter provided, the
term of employment under this Agreement shall begin as of the completion of the
"Distribution" as that term is defined in the Company's Registration Statement
on Form 10, as amended (the "Distribution"), and shall continue through December
31, 1999, provided, however, that beginning on January 1, 1998 and on each
January 1st thereafter (each such January 1 being referred to as a "Renewal
Date"), the term of this Agreement shall automatically be extended for an
additional one year so that on each Renewal Date the then remaining unexpired
term of this Agreement shall be three years, unless either party gives the other
written notice of termination at least ninety (90) days prior to any such
Renewal Date.
3. COMPENSATION
(a) Base Salary. The Company shall pay to the Executive as basic
compensation for all services rendered by the Executive during the term of this
Agreement a basic annualized salary of $280,000 per year, or such other sum in
excess of that amount as the parties may agree on from time to time or as
provided in the next sentence (as in effect from time to time, the "Base
Salary"), payable monthly or in other more frequent installments, as determined
by the Company. The Board of Directors shall have no authority to reduce the
Executive's Base Salary in effect from time to time. In addition, the Board of
Directors, in its discretion, may award a bonus or bonuses to the Executive in
addition to the bonuses provided for in Section 3(b).
(b) Bonuses. In addition to the Base Salary to be paid pursuant to Section
3(a), for each of the Company's three fiscal years ending December 31, 1997,
December 31, 1998 , to the extent earned, specified on Exhibit A to this
Agreement. For each fiscal year ending after December 31, 1999, the Company
shall pay to the Executive as incentive compensation annual bonuses in
accordance with comparable incentive bonus plan(s) adopted by the Board of
Directors of the Company.
<PAGE>
(c) Certain Plans and Initial Award. (i) It is anticipated that the
Company will adopt certain incentive compensation plans, including a long term
incentive plan (the "LTIP"), providing for annual or other periodic awards to
key employees of, among other things, restricted stock, and a stock option plan
(the "ISO/NSO Plan"), providing for the annual or other periodic issuance of
options to purchase the Company's common stock. The LTIP and ISO/NSO Plan are
referred to collectively in this Agreement as the "Plans." The Executive will be
given an opportunity to participate in the Plans, in accordance with and subject
to the terms of the Plans as they may be adopted, amended and administered from
time to time.
(ii) In addition to the incentive compensation referred to in
Section 3(c)(i), the Company hereby agrees to issue to the Executive under the
LTIP, effective immediately following the completion of the Distribution, that
number of shares of the Company's common stock (the "Initial Restricted Stock")
as will equal three percent (3%) of the shares of the Company's common stock
distributed in the Distribution, which Initial Restricted Stock shall be subject
to risk of forfeiture, which risk will lapse as to one-fourth of the shares of
the Initial Restricted Stock on January 31, 1998, and as to an additional
one-fourth of the Initial Restricted Stock on each of January 31, 1999, January
31, 2000 and January 31, 2001. Accordingly, as of January 31, 2001, all risks of
forfeiture shall have lapsed as to all the Initial Restricted Stock.
(iii) In addition to the incentive compensation referred to in
Section 3(c)(i) and the Initial Restricted Stock, the Company hereby agrees to
grant to the Executive under the LTIP, effective immediately following the
completion of the Distribution, options to purchase that number of shares of the
Company's common stock (the "Initial Options") as will equal two percent (2%) of
the shares of the Company's common stock distributed in the Distribution, which
Initial Options shall be exercisable as to one-third of the shares of common
stock covered by the Initial Options on January 31, 1998, and as to an
additional one-third of such shares on each of January 31, 1999 and January 31,
2000. The exercise price for the Initial Options shall be the closing price on
the New York Stock Exchange (or such other market on which the Company's stock
trades if it is not listed on the New York Stock Exchange) on the trading day
which is the eighth month anniversary of the day of the completion of the
Distribution (the "Option Pricing Date"), or if the Option Pricing Date is not a
trading day, the first trading day thereafter.
(iv) Any and all risks of forfeiture shall lapse as to all of the
Initial Restricted Stock and the Initial Options shall be fully vested and shall
be exercisable as to all of the shares of common stock covered by the Initial
Options upon (i) the death of the Executive or termination of employment upon
the "Permanent Disability" (as that term is defined in Section 7(b)(ii) of this
Agreement) of the Executive, (ii) the termination of employment of the Executive
by the Company "Without Good Cause" (as that term is defined in Section
8(b)(iii) of this Agreement) or (iii) the exercise by the Executive of his
rights to terminate his employment under Section 8(d)(ii) following a "Change of
Control" (as that term is defined in Section 8(d)(i) of this Agreement).
(d) Reimbursement. The Company shall reimburse the Executive, in
accordance with the Company's policies and practices for senior management, for
all reasonable expenses incurred by the Executive in the performance of the
Executive's duties under this Agreement, provided, however, that the Executive
must furnish to the Company an itemized account, satisfactory to the Company, in
substantiation of such expenditures.
2.
<PAGE>
(e) Certain Benefits. The Executive shall be entitled to such fringe
benefits including, but not limited to, medical and other insurance benefits as
may be provided from time to time by the Company to other senior officers of the
Company. In addition, without restricting the foregoing, the Company shall
provide the Executive at the Company's sole cost and expense with (i) a policy
or policies of term life insurance (the "Basic Life Insurance") providing, among
other things, basic death benefits of not less than two times the Base Salary in
effect from time to time, (ii) directors and officers liability insurance with
coverage, terms and limits suitable for the chief executive officer of a New
York Stock Exchange listed company comparable in financial size and wherewithal
to that of the Company and (iii) a monthly allowance of $500 cash to reimburse
the Executive for the use and maintenance of his automobile in furtherance of
the business and affairs of the Company, provided that the Executive shall at
all times insure the Executive and the Company in such amounts as may be
reasonably requested by the Company against claims for bodily injury, death and
property damages occurring as a result of its use. The Company shall use its
reasonable best efforts to make available to the Executive in providing and
paying for the Basic Life Insurance the opportunity to purchase at the
Executive's sole cost and expense additional life insurance with a basic death
benefit (the "Optional Life Insurance") equal to two times the Executive's Base
Salary in effect from time to time (affording the Executive the opportunity to
have basic death benefit life insurance coverage equal to four times such Base
Salary). The Company will use its reasonable best efforts to effect the transfer
of the ownership to the Executive of the policy or policies for the Basic Life
Insurance and the Optional Life Insurance, if any, upon the termination of the
Executive's employment by the Company premiums would be the obligation of the
Executive.
(f) Other Incentive and Benefit Plans. The Executive shall be eligible to
participate, in accordance with the terms of such plans as they may be adopted,
amended and administered from time to time, in incentive, bonus, benefit or
similar plans, including without limitation, any stock option, bonus or other
equity ownership plan, any short, mid or long term incentive plan and any other
bonus, pension or profit sharing plans established by the Company from time to
time.
4. DUTIES
(a) General. The Executive is engaged as the Chief Executive Officer and
President of the Company and initially shall be elected as a director of the
Company. In addition, at the request of the Board of Directors, the Executive
shall serve in the same positions in any wholly owned subsidiary of the Company,
without any additional compensation. The Executive's duties shall be
commensurate with those customarily associated with the chief executive of a
corporation comparable to the Company.
(b) Specific. In addition to his general duties, responsibilities and
authority as Chief Executive Officer and President, and without in any way
intending to diminish the Executive's duties, responsibilities and authority,
the Executive's duties, responsibilities and authority shall include but not be
limited to (i) suggesting to the Board of Directors persons who should serve as
executive officers for the Company and suggesting the duties, salaries, annual
raises and (except as may be limited by the specific provisions of bonus and
incentive plans adopted by the Company) the
3.
<PAGE>
bonuses for such persons and the Board shall give due and proper consideration
to such suggestions, (ii) determining who shall serve in all positions below the
level of executive officer, and determining the duties, salaries, annual raises
and (except as may be limited by the specific provisions of bonus and incentive
plans adopted by the Company) the bonuses for such persons, with authority to
delegate authority regarding such junior personnel to other members of senior
management, (iii) participating in consultation with the Board of Directors in
the development and implementation of the Company's strategic business plans and
(iv) retaining consultants, professionals and other independent contractors for
the Company's business; provided, however, that the selection of the Company's
independent certified public accountants and general counsel shall be made with
the concurrence of the Board of Directors.
(c) Indemnification. To the fullest extent permitted by law, the Company
shall indemnify and hold harmless the Executive for all liabilities, costs,
expenses and damages arising out of or in connection with the Executive's
service to the Company under this Agreement. In furtherance of this indemnity,
the Company shall enter into an indemnification agreement, in form and substance
reasonably satisfactory to the Executive and the Company. In addition, the
indemnity providn officer or director, or service in a similar capacity, for any
civic, community or charitable organization, provided such service is undertaken
at the request of or with the knowledge and acquiescence of the Company. The
foregoing indemnification shall be in addition to any rights or benefits the
Executive may have under statute, the Bylaws or Articles of Incorporation of the
Company, under a policy of insurance, or otherwise.
5. EXTENT OF SERVICES; VACATIONS AND DAYS OFF
(a) Extent of Services. During the term of the Executive's employment
under this Agreement, except during customary vacation periods and periods of
illness, the Executive shall devote full-time energy and attention during
regular business hours to the benefit and business of the Company as may be
reasonably necessary in performing the Executive's duties pursuant to this
Agreement. Notwithstanding the foregoing, the Executive may (i) serve on
corporate, trade association, civic, religious or charitable boards or
committees, (ii) deliver lectures, fulfill speaking engagements or teach at
educational institutions and (iii) manage personal investments, so long as such
activities do not materially interfere with the performance of the Executive's
duties and responsibilities and do not create a conflict of interest.
(b) Vacations. The Executive shall be entitled to vacations with pay and
to such personal and sick leave with pay in accordance with the policy of the
Company as may be established from time to time by the Company and applied to
other senior officers of the Company. In no event shall the Executive be
entitled to fewer than four weeks' annual vacation. Unused vacation days may be
carried over from one year to the next for a period of up to three years. Any
vacation days which remain unused on the third anniversary of the end of the
fiscal year to which they originally related shall expire and shall thereafter
no longer be useable by the Executive.
4.
<PAGE>
6. FACILITIES
The Company shall provide the Executive with a fully furnished office, and
the facilities of the Company shall be generally available to the Executive in
the performance of the Executive's duties pursuant to this Agreement, it being
understood and contemplated by the parties that all equipment, supplies and
office personnel required in the performance of the Executive's duties under
this Agreement shall be supplied by and at the sole expense of the Company.
7. ILLNESS OR INCAPACITY, TERMINATION ON DEATH, ETC.
(a) Death. If the Executive dies during the term of the Executive's
employment, the Company shall pay to the estate of the Executive within 30 days
after the date of death such Base Salary and any cash bonus compensation earned
pursuant to the provisions of any incentive compensation plan then in effect but
not yet paid, as would otherwise have been payable to the Executive up to the
end of the month in which the Executive's death occurs. After receiving the
payments provided in this Section 7(a), the Executive and the Executive's estate
shall have no further rights under this Agreement (other than those rights
already accrued).
(b) Disability. (i) During any period of disability, illness or incapacity
during the term of this Agreement which renders the Executive at least
temporarily unable to perform the services required under this Agreement, the
Executive shall receive the Base Salary payable under Section 3(a) of this
Agreement plus any cash bonus compensation earned pursuant to the provisions of
any incentive compensation plan then in effect but not yet paid, less any cash
benefits received by him under any disability insurance carried by or provided
by the Company. Upon the Executive's "Permanent Disability" (as defined below),
which Permanent Disability continues during the payment periods specified
herein, the Company shall pay to the Executive for the period of time specified
below an amount (the "Disability Payment") equal to the (i) sum of (A) the Base
Salary paid in the same monthly or other period installments as in effect at the
time of the Executive's Permanent Disability plus (B) an amount equal to the
target level of the annual cash bonus payable to the Executive under the
Company's Management Incentive Compensation Plan as described on Exhibit A or
any similar bonus or incentive plans or programs then in effect (the "MICP
Target Amount") in respect of the fiscal year during which the Executive's
Permanent Disability occurred, which MICP Target Amount shall be paid in pro
rata equal monthly installments over the period of time specified below (ii)
reduced by the amount of any monthly payments under any policy of disability
income insurance paid for by the Company which payments are received during the
time when any Disability Payment is being made to the Executive following the
Executive's Permanent Disability. For so long as the Executive's Permanent
Disability continues, the Disability Payment shall be paid by the Company to the
Executive in equivalent installments at the same time or times as would have
been the case for payment of Base Salary over the unexpired term of this
Agreement if the Executive had not become permanently disabled and had remained
employed by the Company hereunder, but in no case shall such period exceed 36
months. The Executive may be entitled to receive payments under any disability
income insurance which may be carried by or provided by the Company from time to
time. Upon "Permanent Disability" (as that term is defined in Section 7(b)(ii)
below) of the Executive, except as provided in this Section 7(b) all rights of
the Executive under this Agreement (other than rights already accrued) shall
terminate.
5.
<PAGE>
(ii) The term "Permanent Disability" as used in this Agreement shall
mean, in the event a disability insurance policy is maintained by the Company
covering the Executive at such time and is in full force and effect, the
definition of permanent disability set forth in such policy. In the event no
disability insurance policy is maintained at such time and in full force and
effect, "Permanent Disability" shall mean the inability of the Executive, as
determined by the Board of Directors of the Company, by reason of physical or
mental disability to perform the duties required of him under this Agreement for
a period of one hundred and eighty (180) days in any one-year period. Successive
periods of disability, illness or incapacity will be considered separate periods
unless the later period of disability, illness or incapacity is due to the same
or related cause and commences less than six months from the ending of the
previous period of disability. Upon such determination, the Board of Directors
may terminate the Executive's employment under this Agreement upon ten (10)
days' prior written notice. If any determination of the Board of Directors with
respect to permanent disability is disputed by the Executive, the parties hereto
agree to abide by the decision of a panel of three physicians. The Executive and
Company shall each appoint one member, and the third member of the panel shall
be appointed by the other two members. The Executive agrees to make himself
available for and submit to examinations by such physicians as may be directed
by the Company. Failure to submit to any such examination shall constitute a
breach of a material part of this Agreement.
8. OTHER TERMINATIONS
(a) By the Executive. (i) The Executive may terminate the Executive's
employment hereunder upon giving at least ninety (90) days' prior written
notice. In addition, the Executive shall have the right to terminate the
Executive's employment hereunder on the conditions and at the times provided for
in Section 8(d) of this Agreement.
(ii) If the Executive gives notice pursuant to Section 8(a)(i)
above, the Company shall have the right (but not the obligation) to relieve the
Executive, in whole or in part, of the Executive's duties under this Agreement,
or direct the Executive to no longer perform such duties, or direct that the
Executive should no longer report to work, or any combination of the foregoing.
In any such event, the Executive shall be entitled to receive only the Base
Salary not yet paid, as would otherwise have been payable to the Executive up to
the end of the month specified as the month of termination in the termination
notice. In the event the Executive gives notice pursuant to Section 8(a)(i)
above but specifies a termination date in excess of ninety (90) days from the
date of such notice, the Company shall have the right (but not the obligation)
to accelerate the termination date to any date prior to the date specified in
the notice that is in excess of ninety (90) days from the date of the notice,
and the Company shall have the right (but not the obligation) to relieve the
Executive, in whole or in part, of the Executive's duties under this Agreement,
or direct the Executive to no longer perform such duties, or direct that the
Executive should no longer report to work, or any combination of the foregoing;
provided, however, that in any such event the Executive shall be entitled to
receive the Base Salary, as would otherwise have been payable to the Executive
up to the end of the month of the termination date properly selected by the
Company. Upon receiving the payments provided for under this Section 8(a), all
rights of the Executive under this Agreement (other than rights already accrued)
shall terminate.
6.
<PAGE>
(b) Termination for "Good Cause". (i) Except as otherwise provided in this
Agreement, the Company may terminate the employment of the Executive hereunder
only for "good cause," which shall mean (a) the willful, substantial, continued
and unjustified refusal of the Executive substantially to perform his duties
with the (other than any failure due to physical or mental incapacity) or (b)
willful misconduct materially and demonstrably injurious to the Company,
financially or otherwise, in each case, as determined in the reasonable
discretion of the Board of Directors, but with respect to each of the foregoing
bases for termination specified in the preceding clause, only if (1) the
Executive has been provided with written notice of any assertion that there is a
basis for termination for good cause which notice shall specify in reasonable
detail specific facts regarding any such assertion and the Executive has been
given a reasonable period of time within which to remedy or cure the problem or
complaint, (2) such notice is provided to the Executive a reasonable time before
the Board of Directors meets to consider any possible termination for cause, (3)
at or prior to the meeting of the Board of Directors to consider the matters
described in the written notice, an opportunity is provided to the Executive and
his counsel to be heard by the Board of Directors with respect to the matters
described in the written notice, before it acts with respect to such matter, (4)
any resolution or other action by the Board of Directors with respect to any
deliberation regarding or decision to terminate the Executive for good cause is
duly adopted by a vote of a majority of the entire Board of Directors of the
Company at a meeting of the Board duly called and held and (5) the Executive is
promptly provided with a copy of the resolution or other corporate action taken
with respect to such termination. No act or failure to act by the Executive
shall be considered willful unless done or omitted to be done by him not in good
faith and without reasonable belief that his action or omission was in the best
interests of the Company.
(ii) If the employment of the Executive is terminated for good cause
under Section 8(b)(i) of this Agreement, the Company shall pay to the Executive
any Base Salary earned prior to the effec yet paid and any cash bonus
compensation earned pursuant to the provisions of any incentive compensation
plan then in effect but not paid to the Executive prior to the effective date of
such termination. Under such circumstances, such payments shall be in full and
complete discharge of any and all liabilities or obligations of the Company to
the Executive hereunder, and the Executive shall be entitled to no further
benefits under this Agreement (other than rights already accrued).
(iii) Termination of the employment of the Executive other than as
expressly specified above in Section 8(b)(i) for good cause shall be deemed to
be a termination of employment "Without Good Cause."
(c) Termination Without Good Cause. (i) Notwithstanding any other
provision of this Agreement, the Company shall have the right to terminate the
Executive's employment Without Good Cause pursuant to the provisions of this
Section 8(c). If the Company shall terminate the employment of the Executive
Without Good Cause effective on a date earlier than the termination date
provided for in Section 2 (with the effective date of termination as so
identified by the Company being referred to herein as the "Accelerated
Termination Date"), the Executive, until the end of the term of this Agreement
then in effect as provided for in Section 2, but in no case shall such period
exceed 36 months, or until the date which is 24 months after the Accelerated
Termination Date, whichever is greater, shall continue to receive (1) the Base
Salary, paid in the
7.
<PAGE>
same monthly or other periodic installments as in effect prior to the
Accelerated Termination Date (2) an equal monthly pro rata portion of an amount
of cash equal to the MICP Target Amount (as that term is defined in Section
7(b)(i)) in respect of the year during which the Executive's employment
terminates, multiplied times the number of years (or fractions thereof)
remaining in the then unexpired term of this Agreement or multiplied rata
portion of an amount of cash equal to the cash value of any bonus paid or to be
paid to the Executive in the form of performance shares or restricted stock
under the LTIP as described on Exhibit A or any similar bonus or incentive plans
or programs then in effect (valued, if applicable under the terms of such plans
or programs, at the greater of the closing price on the New York Stock Exchange,
or other such market on which the Company's stock trades if it is not listed on
the New York Stock Exchange, on the first trading day of the plan or program
cycle or the Accelerated Termination Date, or if the Accelerated Termination
Date is not a trading day, on the first trading day thereafter) in respect of
the then-current three year cycle of such plans or programs or such other cycle
as is then in effect, calculated as if the then-current cycle were completed and
the target levels attained (the "LTIP Target Amount"), which cash payment shall
be in lieu and in full satisfaction any rights under the LTIP in respect of such
stock or shares as described in Exhibit A or any similar bonus or incentive
plans or programs in effect at the time of such payment (all of which stock or
shares shall be cancelled upon such payment and receipt); provided however, if
the Accelerated Termination Date is prior to January 1, 1998, the amount of cash
payable to the Executive under the LTIP shall be $630,000, and (4) any other
cash or other bonus compensation earned prior to the date of such termination
pursuant to the terms of all incentive compensation plans then in effect other
than the Company's Management Incentive Compensation Plan as described on
Exhibit A or any similar bonus or incentive plans or programs then in effect;
provided that, notwithstanding such termination of employment, the Executive's
covenants set forth in Section 10 and Section 11 are intended to and shall
remain in full force and effect and provided further that in the event of such
termination, the Company shall have the right (but not the obligation) to
relieve the Executive, in whole or in part, of the Executive's duties under this
Agreement, or direct the Executive to no longer perform such duties, or direct
that the Executive no longer be required to report to work, or any combination
of the foregoing.
(ii) The parties agree that, because there can be no exact measure
of the damage that would occur to the Executive as a result of a termination by
the Company of the Executive's employment Without Good Cause, the payments and
benefits paid and provided pursuant to this Section 8(c) shall be deemed to
constitute liquidated damages and not a penalty for the Company's termination of
the Executive's employment Without Good Cause.
(d) Change of Control. (i) For purposes of this
Agreement, a "Change in Control (1)a change in control of the
Company of a nature that is required, pursuant to the
Securities Exchange Act of 1934 (the "1934 Act"), to be
reported in response to Item 1(a) of a Current Report on Form
8-K or Item 6(e) of Schedule 14A under the 1934 Act (in each
case under this Agreement, references to provisions of the
1934 Act and the rules and regulations promulgated thereunder
being understood to refer to such law, rules and regulations
as the same are in effect on November 1, 1996); or
8.
<PAGE>
(2) the acquisition of "Beneficial Ownership" (as defined in Rule
13d-3 under the 1934 Act) of the Company's securities
comprising 35% or more of the combined voting power of the
Company's outstanding securities by any "person" (as that term
is used in Sections 13(d) and 14(d)(2) of the 1934 Act and the
rules and regulations promulgated thereunder, but not
including any trustee or fiduciary acting in that capacity for
an employee benefit plan sponsored by the Company) and such
person's "affiliates" and "associates" (as those terms are
defined under the 1934 Act), but excluding any ownership by
the Executive and his affiliates and associates; or
(3) the failure of the "Incumbent Directors" (as defined below) to
constitute at least a majority of all directors of the Company
(for these purposes, "Incumbent Directors" means individuals
who were the directors of the Company on November 1, 1996,
and, after his or her election, any individual becoming a
director subsequent to November 1, 1996, whose election, or
nomination for election by the Company's stockholders, is
approved by a vote of at least two-thirds of the directors
then comprising the Incumbent Directors, except that no
individual shall be considered an Incumbent Director who is
not recommended by management and whose initial assumption of
office as a director is in connection with an actual or
threatened "election contest" relating to the "election of
directors" of the Company, as such terms are used in Rule
14a-11 of Regulation 14A under the 1934 Act); or
(4) the closing of a sale of all or substantially all of the
assets of the Company;
(5) the Company's adoption of a plan of dissolution or
liquidation; or
(6) the closing of a merger or consolidation involving the Company
in which the Company is not the surviving corporation or if,
immediately following such merger or consolidation, less than
seventy-five percent (75%) of the surviving corporation's
outstanding voting stock is held or is anticipated to be held
by persons who are stockholders of the Company immediately
prior to such merger or consolidation.
(ii) If a Change in Control of the Company occurs, the Executive
shall have the right, exercisable for a period of one year thereafter by
delivering a written statement to that effect to the Company, to immediately
terminate this Agreement and upon such a determination the Executive shall have
the right to receive and the Company shall be obligated to pay to Executive in
cash a lump sum payment in an amount equal to the sum of (1) the "Control Cash
Payment" as that term is defined in Section 8(d)(iii) of this Agreement; (2)
three times the annual Base Salary then in effect, (3) three times the MICP
Target Amount (as that term is defined in Section 7(b)(i)) in the year in which
employment terminates, (4) the cash value of the LTIP Target Amount (as that
term is defined in Section 8(c)), which cash payment shall be in lieu and in
full satisfaction of any rights under the LTIP in respect of such stock or
shares as described in Exhibit A or any similar bonus or incentive plans or
programs in effect at the time of such payment (all of which stock or shares
shall be cancelled upon such payment and receipt), and (5) the additional
payments necessary to
9.
<PAGE>
discharge certain tax liabilities (the "Gross Up") as that term is defined in
Section 13 of this Agreement (the sum of the foregoing amounts other than the
Gross Up being referred to as the "Change in Control Payment"). If the Executive
fails to exercise his rights under this Section 8(d) within one year following a
Change in Control, such rights shall expire and be of no further force or
effect.
(iii) The "Control Cash Payment" shall be (A) $500,000 if the first
event to occur that constitutes a Change in Control occurs on or before December
31, 1997; (B) $1,000,000, if the first event to occur that constitutes a Change
in Control occurs after December 31, 1997 but on or before December 31, 1998;
(C) $1,500,000, if the first event to occur that constitutes a Change in Control
occurs after Dif the first event to occur that constitutes a Change in Control
occurs at any time after December 31, 1999.
(e) Intentions Regarding Certain Stock and Benefit Plans. Except as
otherwise provided herein, upon any termination of the Executive's employment
Without Good Cause or upon the exercise by the Executive of his rights to
terminate his employment following a Change of Control, it is the intention of
the parties that any and all vesting or performance requirements or conditions
affecting any outstanding restricted stock, performance stock, stock option,
stock appreciation right, bonus, award, right, grant or any other incentive
compensation under any of the Plans, under this Agreement, or otherwise
received, shall be deemed to be fully satisfied and any risk of forfeiture with
respect thereto shall be deemed to have lapsed.
(f) Certain Rights Mutually Exclusive. The provisions of Section 8(c) and
Section 8(d) are mutually exclusive, provided, however, that if within one year
following commencement of an 8(c) payout there shall be a Change in Control as
defined in Section 8(d)(i), then the Executive shall be entitled to the amount
payable to the Executive under Section 8(d)(ii) and Section 8(d)(iii) reduced by
the amount that the Executive has received under Section 8(c) up to the date of
the change in control. The triggering of the lump sum payment requirement of
Section 8(d) shall cause the provisions of Section 8(c) to become inoperative.
9. DISCLOSURE
The Executive agrees that during the term of the Executive's employment by
the Company, the Executive will disclose and disclose only to the Company all
ideas, methods, plans, developments or improvements known by him which relate
directly or indirectly to the business of the Company, whether acquired by the
Executive before or during the Executive's employment by the Company. Nothing in
this Section 9 shall be construed as requiring any such communication where the
idea, plan, method or development is lawfully protected from disclosure as a
trade secret of a third partynants of this Section 9 shall not be violated by
ordinary and customary communications with reporters, bankers and securities
analysts and other members of the investment community.
10. CONFIDENTIALITY
10.
<PAGE>
The Executive agrees to keep in strict secrecy and confidence any and all
information the Executive assimilates or to which the Executive has access
during the Executive's employment by the Company and which has not been publicly
disclosed and is not a matter of common knowledge in the fields of work of the
Company. The Executive agrees that both during and after the term of the
Executive's employment by the Company, the Executive will not, without the prior
written consent of the Company, disclose any such confidential information to
any third person, partnership, joint venture, company, corporation or other
organization. The foregoing covenants shall not be breached to the extent that
any such confidential information becomes a matter of general knowledge other
than through a breach by the Executive of the Executive's obligations under this
Section 10.
11. NONCOMPETITION AND NONSOLICITATION
(a) General. The Executive hereby acknowledges that, during and solely as
a result of the Executive's employment by the Company, the Executive has
received and shall continue to receive: (1) special training and education with
respect to the operations of the Company's real estate development and
management businesses and its leasing, lending and financing activities, and
other related matters, and (2) access to confidential information and business
and professional contacts. In consideration of the special and unique
opportunities afforded to the Executive by the Company as a result of the
Executive's employment, as outlined in the previous sentence, the Executive
hereby agrees to the restrictive covenants in this Section 11.
(b) Noncompetition. During the term of the Executive's employment, whether
pursuant to this Agreement, any automatic or other renewal hereof or otherwise,
and, except as may be otherwise herein provided, for a period of two (2) years
after the termination of the Executive's employment with the Company, regardless
of the reason for such termination, the Executive shall not, directly or
indirectly, enter into, engage in, be employed by or consult with any business
which competes with the Company's real estate lending, leasing, development or
management businesses in Florida. The Executive shall not engage in such
prohibited activities, either as an individual, partner, officer, director,
stockholder, employee, advisor, independent contractor, joint venturer,
consultant, agent, or representative or salesman for any person, firm,
partnership, corporation or other entity so competing with the Company. The
restrictions of this Section 11 shall not be violated by (i) the ownership of no
more than 2% of the outstanding securities of any company whose stock is traded
on a national securities exchange or is quoted in the Automated Quotation System
of the National Association of Securities Dealers (NASDAQ), or (ii) other
outside business investments that do not in any manner conflict with the
services to be rendered by the Executive for the Company and that do not
diminish or detract from the Executive's ability to render the Executive's
required attention to the business of the Company.
(c) Nonsolicitation. During the Executive's employment with the Company
and, except as may be otherwise herein provided, for a period of two (2) years
following the termination of the Executive's employment with the Company,
regardless of the reason for such termination, the Executive agrees the
Executive will refrain from and will not, directly or indirectly, as an
individual, partner, officer, director, stockholder, employee, advisor,
independent contractor, joint
11.
<PAGE>
venturer, consultant, agent, representative, salesman or otherwise solicit any
of the employees of the Company to terminate their employment.
(d) Term Extended or Suspended. The period of time during which the
Executive is prohibited from engaging in certain business practices pursuant to
Sections 11(b) or (c) shall be extended by any length of time during which the
Executive is in breach of such covenants.
(e) Essential Element. It is understood by and between the parties hereto
that the foregoing restrictive covenants set forth in Sections 11(a) through (c)
are essential elements of this Agreement, and that, but for the agreement of the
Executive to comply with such covenants, the Company would not have agreed to
enter into this Agreement. Such covenants by the Executive shall be construed as
agreements independent of any other provision in this Agreement. The existence
of any claim or cause of action of the Executive against the Company, whether
predicated on this Agreement, or otherwise, shall not constitute a defense to
the enforcement by the Company of such covenants.
(f) Severability. It is agreed by the Company and Executive that if any
portion of the covenants set forth in this Section 11 are held to be invalid,
unreasonable, arbitrary or against public policy, then such portion of such
covenants shall be considered divisible both as to time and geographical area.
The Company and Executive agree that, if any court of competent jurisdiction
determines the specified time period or the specified geographical area
applicable to this Section 11 to be invalid, unreasonable, arbitrary or against
public policy, a lesser time period or geographical area which is determined to
be reasonable, non-arbitrary and not against public policy may be enforced
against the Executive. The Company and the Executive agree that the foregoing
covenants are appropriate and reasonable when considered in light of the nature
and extent of the business conducted by the Company.
12. SPECIFIC PERFORMANCE
The Executive agrees that damages at law will be an insufficient remedy to
the Company if the Executive violates the terms of Sections 9, 10 or 11 of this
Agreement and that the Company would suffer irreparable damage as a result of
such violation. Accordingly, it is agreed that the Company shall be entitled,
upon application to a court of competent jurisdiction, to obtain injunctive
relief to enforce the provisions of such Sections, which injunctive relief shall
be in addition to any other rights or remedies available to the Company. The
Executive agrees to pay to the Company all reasonable costs and expenses
incurred by the Company relating to the enforcement of the terms of Sections 9,
10 or 11 of this Agreement, including reasonable fees and reasonable
disbursements of counsel selected by the Company (during investigation and
before and at trial and in appellate proceedings).
12.
<PAGE>
13. PAYMENT OF EXCISE TAXES
(a) Payment of Excise Taxes. If the Executive is to receive any (1) Change
of Control Payment under Section 8(d), (2) any benefit or payment under Section
7 as a result of or following the death or Permanent Disability of the
Executive, (3) any benefit or payment under Section 8(c) as a result of or
following any termination of employment hereunder Without Good Cause, (4) any
benefit or payment under the Plans as a result of a Change of Control, following
the death or Permanent Disability of the Executive or following the termination
of employment hereunder Without Good Cause (such sections being referred to as
the "Covered Sections" and the benefits and payments to be received thereunder
being referred to as the "Covered Payments"), the Executive shall be entitled to
receive the amount described below to the extent applicable: If any Covered
Payment(s) under any of the Covered Sections or by the Company under another
plan or agreement (collectively, the "Payments") are subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986 (as amended from
time to time, the "Code"), or any successor or similar provision of the Code
(the "Excise Tax"), the Company shall pay the Executive an additional amount
(the "Gross Up") such that the net amount retained by the Executive after
deduction of any Excise Tax on the Payments and the federal income tax on any
amounts paid under this Section 13 shall be equal to the Payments.
(b) Certain Adjustment Payments. For purposes of determining the Gross Up,
the Executive shall be deemed to pay the federal income tax at the highest
marginal rate of taxation (currently 39.5%) in the calendar year in which the
payment to which the Gross Up applies is to be made. The determination of
whether such Excise Tax is payable and the amount thereof shall be made upon the
opinion of tax counsel selected by the Company and reasonably acceptable to the
Executive. The Gross Up, if any, that is due as a result of such determination
shall be paid to the Executive in cash in a lump sum within thirty (30) days of
such computation. If such opinion is not finally accepted by the Internal
Revenue Service upon audit or otherwise, then appropriate adjustments shall be
computed (without interest but with Gross Up, if applicable) by such tax counsel
based upon the final amount of the Excise Tax so determined; any additional
amount due the Executive as a result of such adjustment shall be paid to the
Executive by his or her Company in cash in a lump sum within thirty (30) days of
such computation, or any amount due the Executive's Company as a result of such
adjustment shall be paid to the Company by the Executive in cash in a lump sum
within thirty (30) days of such computation.
14. MISCELLANEOUS
(a) Waiver of Breach. The waiver by either party to this Agreement of a
breach of any of the provisions of this Agreement by the other party shall not
be construed as a waiver of any subsequent breach by such other party.
(b) Compliance With Other Agreements. The Executive represents and
warrants that the execution of this Agreement by him and the Executive's
performance of the Executive's obligations hereunder will not conflict with,
result in the breach of any provision of or the termination of or constitute a
default under any Agreement to which the Executive is a party or by which the
Executive is or may be bound.
13.
<PAGE>
(c) Binding Effect; Assignment. The rights and obligations of the Company
under this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of the Company. This Agreement is a personal employment
contract and the rights, obligations and interests of the Executive hereunder
may not be sold, assigned, transferred, pledged or hypothecated.
(d) Entire Agreement. This Agreement contains the entire agreement and
supersedes all prior agreements and understandings, oral or written, with
respect to the subject matter hereof. This Agreement may be changed only by an
agreement in writing signed by the party against whom any waiver, change,
amendment, modification or discharge is sought.
(e) Headings. The headings contained in this Agreement are for reference
purposes only and shall not affect the meaning or interpretation of this
Agreement.
(f) No Duty to Mitigate. The Executive shall be under no duty to mitigate
any loss of income as result of the termination of his employment hereunder and
any payments due the Executive upon termination of employment shall not be
reduced in respect of any other employment compensation received by the
Executive following such termination.
(g) Florida Law. This Agreement shall be construed pursuant to and
governed by the substantive laws of the State of Florida (except that any
provision of Florida law shall not apply if the law of a state or jurisdiction
other than Florida would otherwise apply).
(h) Venue; Process. The parties to this Agreement agree that jurisdiction
and venue in any action brought pursuant to this Agreement to enforce its terms
or otherwise with respect to the relationships between the parties shall
properly lie in and only in the Circuit Court of the Sixth Judicial Circuit of
the State of Florida in and for Pinellas County (the "Circuit Court") and the
parties agree that jurisdiction shall not properly lie in any other jurisdiction
provided, however, if jurisdiction does not properly lie with the Circuit Court,
the parties agree that jurisdiction and venue shall properly lie in and only in
the United States District Court for the Middle District of Florida, Tampa
Division. The parties hereby waive any objections which they may now or
hereafter have based on venue and/or forum non conveniens and irrevocably submit
to the jurisdiction of any such court in any legal suit, action or proceeding
arising out of or relating to this Agreement. The parties further agree that the
mailing by certified or registered mail, return receipt requested, of any
process required by any such court shall constitute valid and lawful service of
process against them, without the necessity for service by any other means
provided by statute or rule of court.
(i) Severability. Any provision of this Agreement which is determined by a
court of competent jurisdiction to be prohibited, unenforceable or not
authorized in any jurisdiction shall, as to such jurisdiction, be ineffective to
the extent of such prohibition, unenforceability or non-authorization without
invalidating the remaining provisions hereof or affecting the validity,
enforceability or legality of such provision in any other jurisdiction. In any
such case, such determination shall not affect any other provision of this
Agreement, and the remaining provisions of this Agreement shall remain in full
force and effect. If any provision or term of this Agreement is susceptible to
two or more constructions or interpretations, one or more of which would render
the provision or term
14.
<PAGE>
void or unenforceable, the parties agree that a construction or interpretation
which renders the term or provision valid shall be favored.
(j) Deduction for Tax Purposes. The Company's obligations to make payments
under this Agreement are independent of whether any or all of such payments are
deductible expenses of the Company for federal income tax purposes.
(k) Enforcement. If, within 10 days after demand to comply with the
obligations of one of the parties to this Agreement served in writing on the
other, compliance or reasonable assurance of compliance is not forthcoming, and
the party demanding compliance engages the services of an attorney to enforce
rights under this Agreement, the prevailing party in any action shall be
entitled to recover all reasonable costs and expenses of enforcement (including
reasonable attorneys' fees and reasonable expenses during investigation, before
and at trial and in appellate proceedings). In addition, each of the parties
agrees to indemnify the other in respect of any and all claims, losses, costs,
liabilities and expenses, including reasonable fees and reasonable disbursements
of counsel (during investigation prior to initiation of litigation and at trial
and in appellate proceedings if litigation ensues), directly or indirectly
resulting from or arising out of a breach by the other party of their respective
obligations hereunder. The parties' costs of enforcing this Agreement shall
include prejudgment interest. -of-pocket expenses in connection with the
enforcement of this Agreement, all such amounts shall accrue interest at 10% per
annum (or such lower rate as may be required to avoid any limit imposed by
applicable law) commencing 30 days after any such expenses are incurred.
(l) Notices. All notices which are required or may be given under this
Agreement shall be in writing and shall be deemed to have been duly given when
received if personally delivered; when transmitted if transmitted by telecopy or
similar electronic transmission method; one working day after it is sent, if
sent by recognized expedited delivery service; and three days after it is sent,
if mailed, first class mail, certified mail, return receipt requested, with
postage prepaid. In each case notice shall be sent to:
To the Company: Echelon International Corporation.
One Progress Plaza
St. Petersburg, FL 33701
Attn: Chairman of the Board
Telecopy: (813) 824-6536
To the Executive at the Executive's address herein first above written, or
to such other address as either party may specify by written notice to the
other.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
ATTEST: ECHELON INTERNATIONAL CORPORATION
15.
<PAGE>
(Corporate Seal)
________________________________ By:____________________________________
Secretary Title:
EXECUTIVE
Witnesses:
________________________________ _______________________________________
DARRYL A. LECLAIR
________________________________
As to Executive
16.
<PAGE>
EXHIBIT A
TO
EMPLOYMENT AGREEMENT WITH DARRYL A. LECLAIR
DATED NOVEMBER 20, 1996
The Company will establish a Management Incentive Compensation Plan
("MICP") and Long Term Incentive Plan ("LTIP") for its senior management in
which the Executive will participate. During the first three full fiscal years
of the Company's operation following the completion of the Spinoff ending on
December 31, 1997, 1998 and 1999, respectively (the "Covered Years"), the MICP
will provide for annual cash bonuses based upon the Company's net income for
each of the Covered Years. The LTIP will provide the opportunity to earn
restricted shares based upon the Company's cumulative results of operation for
three year cycles, beginning with the three year cycle comprising the Covered
Years. The Executive's participation in the MICP and the LTIP during the Covered
Years shall be based upon the criteria and shall include awards with the values
indicated in the tables set forth below and as more fully described in this
Exhibit A.
MICP
During each of the Covered Years, (i) all MICP bonuses shall be paid in
cash; (ii) if Threshold Net Income is not achieved, no MICP cash bonus will be
paid; (iii) if actual net income exceeds Threshold Net Income, but is less than
Target Net Income, or exceeds Target Net Income but is less than Maximum Net
Income, the percentage of the MICP bonus shall be proportionately increased
above the Threshold bonus amount or the Target Bonus amount, as the case may be,
and (iv) if actual net income equals or exceeds Maximum Net Income, the Maximum
MICP cash bonus will be paid, but no additional cash bonus will be payable under
the MICP regardless of the amount by which actual net income in that Covered
Year exceeds Maximum Net Income. The following table sets forth information
regarding the MICP Net Income Threshold, Target and Maximum and cash bonuses.
-----------------------------------------------------------
MICP 1997 1998 1999
-----------------------------------------------------------
THRESHOLD
-----------------------------------------------------------
Net Income $1,584,274 $1,768,816 $2,132,640
-----------------------------------------------------------
MICP Cash Bonus $70,000 $70,000 $70,000
(% of Target Bonus) (50%) (50%) (50%)
-----------------------------------------------------------
TARGET
-----------------------------------------------------------
Net Income $2,112,366 $2,358,422 $2,843,521
-----------------------------------------------------------
MICP Cash Bonus $140,000 $140,000 $140,000
(% of Base Salary) (50%) (50%) (50%)
-----------------------------------------------------------
MAXIMUM
-----------------------------------------------------------
Net Income $2,640,457 $2,948,027 $3,554,401
-----------------------------------------------------------
MICP Cash Bonus $210,000 $210,000 $210,000
(% of Target Bonus) (150%) 150% (150%)
-----------------------------------------------------------
17.
<PAGE>
Notwithstanding the foregoing and the information contained in any of the
tables contained in this Exhibit, and regardless of the actual net income
achieved by the Company in the first Covered Year, the MICP cash bonus shall not
be less than the amount of the MICP cash bonus that would be payable if the
Target Net Income was achieved in the first Covered Year (50% of Base Salary).
LTIP
The sum of each year's Threshold Net Income for the three Covered Years
shall be referred to as the "Threshold LTIP Net Income"; the sum of each year's
Target Net Income for the three Covered Years shall be referred to as "Target
LTIP Net Income"; and the sum of each year's Maximum Net Income for the three
Covered Years shall be referred to as "Maximum LTIP Net Income," in each case,
as set forth in the following tables:
- --------------------------------------------------------------------------------
LTIP 1997 1998 1999 LTIP NET INCOME
- --------------------------------------------------------------------------------
THRESHOLD THRESHOLD
- --------------------------------------------------------------------------------
Net Income $1,584,274.00 $1,768,816.00 $2,132,640.00 $5,485,730.00
- --------------------------------------------------------------------------------
TARGET TARGET
- --------------------------------------------------------------------------------
Net Income $2,112,366.00 $2,358,422.00 $2,843,521.00 $7,314,309.00
- --------------------------------------------------------------------------------
MAXIMUM MAXIMUM
- --------------------------------------------------------------------------------
Net Income $2,640,457.00 $2,948,027.00 $3,554,401.00 $9,142,885.00
- --------------------------------------------------------------------------------
The following table sets for information regarding the Threshold, Target
and Maximum LTIP Net income and values associated with achieving such levels of
cumulative net income:
---------------------------------------------
LTIP Three Years
Ending December
31, 1999
---------------------------------------------
THRESHOLD
---------------------------------------------
Cumulative Net Income $5,485,730.00
---------------------------------------------
LTIP Value $315,000
(% of Target Bonus) (50%)
---------------------------------------------
TARGET
---------------------------------------------
Cumulative Net Income $7,314,309.00
---------------------------------------------
LTIP Value $630,000
(% of Base Salary) (75%)
---------------------------------------------
MAXIMUM
---------------------------------------------
Cumulative Net Income $9,142,885.00
18.
<PAGE>
---------------------------------------------
LTIP Value $945,000
(% of Target Bonus) (150%)
---------------------------------------------
For purposes of administering the LTIP, during the first three-year cycle,
(i) all LTIP awards shall be paid in the form of restricted shares; (ii) the
number of restricted shares shall be determined by dividing the dollar value of
the Maximum LTIP Value $945,000 by the closing price on January 1, 1998, or the
first trading day thereafter, on the New York Stock Exchange (or such other
market on which the Company's stock trades if it is not listed on the New York
Stock Exchange); (iii) the restricted shares, among other things, shall be
subject to a risk of forfeiture if and to the extent that the performance
criteria set forth in this Exhibit A are not met; (iv) if actual cumulative net
income for the three-year period ending December 31, 1999, does not equal or
exceed Threshold LTIP Net Income, all restricted shares shall be forfeited, and
no LTIP bonus will have been earned; (v) if actual cumulative net income for the
three year period ending December 31, 1999, exceeds Threshold LTIP Net Income,
but is less than Target LTIP Net Income, or exceeds Target LTIP Net Income but
is less than Maximum LTIP Net Income, the percentage of the LTIP restricted
shares as to which the risks on forfeiture shall lapse shall be proportionately
increased above the Threshold bonus amount or the Target Bonus amount, as the
case may be; and (vi) if cumulative net income for the three-year period ending
December 31, 1999 equals or exceeds Maximum LTIP Net Income, the risks of
forfeiture shall lapse as to all restricted shares, but no additional shares
will be issuable under the LTIP regardless of the amount by which actual
cumulative net income for the three years ending December 31, 1999 exceeds
Maximum LTIP Net Income.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into this 20th day of
November, 1996, but is effective for all purposes as of the date specified below
in Section 2, by and between ECHELON INTERNATIONAL CORPORATION, a Florida
corporation (the "Company"), and LARRY J. NEWSOME, residing at 3863 40th Way
South, St. Petersburg, Florida 33711 (the "Executive").
W I T N E S S E T H:
1. EMPLOYMENT
The Company hereby employs the Executive, and the Executive hereby accepts
such employment, upon the terms and subject to the conditions set forth in this
Agreement.
2. TERM
Subject to the provisions for termination as hereinafter provided, the
term of employment under this Agreement shall begin as of the completion of the
"Distribution" as that term is defined in the Company's Registration Statement
on Form 10, as amended (the "Distribution"), and shall continue through December
31, 1998, provided, however, that this Employment Agreement shall automatically
be renewed for successive one year terms unless either party gives the other
written notice of termination at least ninety (90) days prior to the end of any
such term.
3. COMPENSATION
(a) Base Salary. The Company shall pay to the Executive as basic
compensation for all services rendered by the Executive during the term of this
Agreement a basic annualized salary of $170,000 per year, or such other sum in
excess of that amount as the parties may agree on from time to time or as
provided in the next sentence (as in effect from time to time, the "Base
Salary"), payable monthly or in other more frequent installments, as determined
by the Company. The Board of Directors shall have no authority to reduce the
Executive's Base Salary in effect from time to time. In addition, the Board of
Directors, in its discretion, may award a bonus or bonuses to the Executive in
addition to the bonuses provided for in Section 3(b).
(b) Bonuses. In addition to the Base Salary to be paid pursuant to Section
3(a), for each of the Company's two fiscal years ending December 31, 1997 and
December 31, 1998 during the term of this Agreement, and for the fiscal year
ending December 31, 1999 provided the Executive continues to be employed by the
Company under this Agreement, the Executive shall be eligible to earn as
incentive compensation the annual bonuses specified, to the extent earned, on
Exhibit A to this Agreement. For each fiscal year ending after December 31,
1999, so long as the Employee remains employed by the Company, the Executive
shall be eligible to participate in incentive compensation annual bonus plan(s)
adopted by the Board of Directors of the Company from time to time in accordance
with the terms of such plans.
(c) Certain Plans and Initial Award. (i) It is anticipated that the
Company will adopt certain incentive compensation plans including a long term
incentive plan (the "LTIP"), providing for annual or other periodic awards to
key employees, among other things, of restricted stock and a stock option plan
(the
<PAGE>
"ISO/NSO Plan"), providing for the annual or other periodic issuance of options
to purchase the Company's common stock. The LTIP and ISO/NSO are referred to
collectively in this Agreement as the "Plans." The Executive will be given an
opportunity to participate in the Plans, in accordance with and subject to the
terms of the Plans as they may be adopted, amended and administered from time to
time.
(ii) In addition to the incentive compensation referred to in
Section 3(c)(i), the Company hereby agrees to issue to the Executive under the
LTIP, effective immediately following the completion of the Distribution, that
number of shares of the Company's common stock (the "Initial Restricted Stock")
as will equal five-tenths of one percent (0.5%) of the shares of the Company's
common stock distributed in the Distribution, which Initial Restricted Stock
shall be subject to risk of forfeiture, which risk will lapse as to one-fourth
of the shares of the Initial Restricted Stock on January 31, 1998, and as to an
additional one-fourth of the Initial Restricted Stock on each of January 31,
1999, January 31, 2000 and January 31, 2001. Accordingly, as of January 31,
2001, all risks of forfeiture shall have lapsed as to all the Initial Restricted
Stock.
(iii) In addition to the incentive compensation referred to in
Section 3(c)(i) and the Initial Restricted Stock, the Company hereby agrees to
grant to the Executive under the LTIP, effective immediately following the
completion of the Distribution, options to purchase two thousand five hundred
(2,500) shares of the Company's common stock (the "Initial Options"), which
Initial Options shall be exercisable as to one-fourth of the shares of common
stock covered by the Initial Options on January 31, 1998, and as to an
additional one-fourth of such shares on each of January 31, 1999, January 31,
2000 and January 31, 2001. The exercise price for the Initial Options shall be
the closing price on the New York Stock Exchange (or such other market on which
the Company's stock trades if it is not listed on the New York Stock Exchange)
on the trading day which is the eighth month anniversary of the day of the
completion of the Distribution (the "Option Pricing Date"), or if the Option
Pricing Date is not a trading day, the first trading day thereafter.
(iv) Any and all risks of forfeiture shall lapse as to all of the
Initial Restricted Stock and the Initial Options shall be fully vested and shall
be exercisable as to all of the shares of common stock covered by the Initial
Options upon (i) the death of the Executive or termination of employment upon
the "Permanent Disability" (as that term is defined in Section 7(b)(ii) of this
Agreement) of the Executive, (ii) the termination of employment of the Executive
by the Company"Without Good Cause" (as that term is defined in Section 8(b)(ii)
of this Agreement) or (iii) the exercise by the Executive of his rights to
terminate his employment under Section 8(d)(ii) following a "Change of Control"
(as that term is defined in Section 8(d)(i) of this Agreement).
(d) Reimbursement. The Company shall reimburse the Executive, in
accordance with the Company's policies and practices for senior management, for
all reasonable expenses incurred by the Executive in the performance of the
Executive's duties under this Agreement, provided, however, that the Executive
must furnish to the Company an itemized account, satisfactory to the Company, in
substantiation of such expenditures.
(e) Certain Benefits. The Executive shall be entitled to such fringe
benefits including, but not limited to, medical and other insurance benefits as
may be provided from time to time by the Company to other senior officers of the
Company. In addition, without restricting the foregoing, the Company shall
provide the Executive at the Company's sole cost and expense with (i) a policy
or policies of term life insurance (the "Basic Life Insurance") providing, among
other things, basic death benefits of not less than two times the Base Salary in
effect from time to time, (ii) directors and officers liability insurance with
2.
<PAGE>
coverage, terms and limits suitable for a chief financial officer of a New York
Stock Exchange listed company comparable in financial size and wherewithal to
that of the Company and (iii) a monthly allowance of $500 cash to reimburse the
Executive for the use and maintenance of his automobile in furtherance of the
business and affairs of the Company, provided that the Executive shall at all
times insure the Executive and the Company in such amounts as may be reasonably
requested by the Company against claims for bodily injury, death and property
damages occurring as a result of its use. The Company shall use its reasonable
best efforts to make available to the Executive in connection with providing and
paying for the Basic Life Insurance the opportunity to purchase at the
Executive's sole cost and expense additional life insurance with a basic death
benefit (the "Optional Life Insurance") equal to two times the Executive's Base
Salary in effect from time to time (affording the Executive the opportunity to
have basic death benefit life insurance coverage equal to four times such Base
Salary). The Company shall use its reasonable best efforts to effect the
transfer of the ownership to the Executive of the policy or policies for the
Basic Life Insurance and the Optional Life Insurance, if any, upon the
termination of the Executive's employment by the Company. After the Executive's
termination, payment of any premiums would be a) Other Incentive and Benefit
Plans. The Executive shall be eligible to participate, in accordance with the
terms of such plans as they may be adopted, amended and administered from time
to time, in incentive, bonus, benefit or similar plans, including without
limitation, any stock option, bonus or other equity ownership plan, any short,
mid or long term incentive plan and any other bonus, pension or profit sharing
plans established by the Company from time to time.
4. DUTIES
(a) General. The Executive is engaged as the Chief Financial Officer and a
Senior Vice President of the Company. In addition, at the request of the Board
of Directors, the Executive shall serve in the same positions in any wholly
owned subsidiary of the Company, without any additional compensation. The
Executive shall have such duties and hold such other offices as may from time to
time be reasonably assigned to him by the Board of Directors of the Company.
(b) Indemnification. To the fullest extent permitted by law, the Company
shall indemnify and hold harmless the Executive for all liabilities, costs,
expenses and damages arising out of or in connection with the Executive's
service to the Company under this Agreement. In furtherance of this indemnity,
the Company shall enter into an indemnification agreement, in form and substance
reasonably satisfactory to the Executive and the Company. In addition, the
indemnity provided hereunder shall extend to service by the Executive as an
officer or director, or service in a similar capacity, for any civic, community
or charitable organization, provided such service is undertaken at the request
of or with the knowledge and acquiescence of the Company. The foregoing
indemnification shall be in addition to any rights or benefits the Executive may
have under statute, the Bylaws or Articles of Incorporation of the Company,
under a policy of insurance, or otherwise.
5. EXTENT OF SERVICES; VACATIONS AND DAYS OFF
(a) Extent of Services. During the term of the Executive's employment
under this Agreement, except during customary vacation periods and periods of
illness, the Executive shall devote full-time energy and attention during
regular business hours to the benefit and business of the Company as may be
reasonably necessary in performing the Executive's duties pursuant to this
Agreement.
3.
<PAGE>
(b) Vacations. The Executive shall be entitled to vacations with pay and
to such personal and sick leave with pay in accordance with the policy of the
Company as may be established from time to time by the Company and applied to
other senior officers of the Company. In no event shall the Executive be
entitled to fewer than four weeks' annual vacation. Unused vacation days may be
carried over from one year to the next for a period of up to two years. Any
vacation days which remain unused on the second anniversary of the end of the
fiscal year to which they originally related shall expire and shall thereafter
no longer be useable by the Executive.
6. FACILITIES
The Company shall provide the Executive with a fully furnished office, and
the facilities of the Company shall be generally available to the Executive in
the performance of the Executive's duties pursuant to this Agreement, it being
understood and contemplated by the parties that all equipment, supplies and
office personnel required in the performance of the Executive's duties under
this Agreement shall be supplied by and at the sole expense of the Company.
7. ILLNESS OR INCAPACITY, TERMINATION ON DEATH, ETC.
(a) Death. If the Executive dies during the term of the Executive's
employment, the Company shall pay to the estate of the Executive within 30 days
after the date of death such Base Salary and any cash bonus compensation earned
pursuant to the provisions of any incentive compensation plan then in effect but
not yet paid, as would otherwise have been payable to the Executive up to the
end of the month in which the Executive's death occurs. After receiving the
payments provided in this Section 7(a) the Executive and the Executive's estate
shall have no further rights under this Agreement (other than those rights
already accrued).
(b) Disability. (i) During any period of disability, illness or incapacity
during the term of this Agreement which renders the Executive at least
temporarily unable to perform the services required under this Agreement, the
Executive shall receive the Base Salary payable under Section 3(a) of this
Agreement plus any cash bonus compensation earned pursuant to the provisions of
any incentive compensation plan then in effect but not yet paid, less any cash
benefits received by him under any disability insurance carried by or provided
by the Company. Upon the Executive's "Permanent Disability" (as defined below),
which permanent disability continues during the payment periods specified
herein, the Company shall pay to the Executive for the period of time specified
below an amount (the "Disability Payment") equal to the (i) sum of (A) the Base
Salary, paid in the same monthly or other periodic installments as in effect at
the time of the Executive's Permanent Disability plus (B) an amount equal to the
target level of the annual cash bonus payable to the Executive under the
Company's Management Incentive Compensation Plan as described on Exhibit A or
any similar bonus or incentive plans or programs then in effect (the "MICP
Target Amount") in respect of the fiscal year during which the Executive's
Permanent Disability occurred, which MICP Target Amount shall be paid in pro
rata equal monthly installments over the period of time specified below (ii)
reduced by the amount of any monthly payments under any policy of disability
income insurance paid for by the Company which payments are received during the
time when any Disability Payment is being made to the Executive following the
Executive's Permanent Disability. For so long as the Executive's Permanent
Disability continues, the Disability Payment shall be paid by the Company to the
Executive at the
4.
<PAGE>
same time or times as would have been the case for payment of Base Salary over
the unexpired term of this Agreement if the Executive had not become permanently
disabled and had remained employed by the Company hereunder, but in no case
shall such period exceed 24 months. The Executive may be entitled to receive
payments under any disability income insurance which may be carried by or
provided by the Company from time to time. Upon "Permanent Disability" (as that
term is defined in Section 7(b)(ii) below) of the Executive, except as provided
in this Section 7(b) all rights of the Executive under this Agreement (other
than rights already accrued) shall terminate.
(ii) The term "Permanent Disability" as used in this Agreement shall
mean, in the event a disability insurance policy is maintained by the Company
covering the Executive at such time and is in full force and effect, the
definition of permanent disability set forth in such policy. In the event no
disability insurance policy is maintained at such time and in full force and
effect, "Permanent Disability" shall mean the inability of the Executive, as
determined by the Board of Directors of the Company, by reason of physical or
mental disability to perform the duties required of him under this Agreement for
a period of one hundred and eighty (180) days in any one-year period. Successive
periods of disability, illness or incapacity will be considered separate periods
unless the later period of disability, illness or incapacity is due to the same
or related cause and commences less than six months from the ending of the
previous period of disability. Upon such determination, the Board of Directors
may terminate the Executive's employment under this Agreement upon ten (10)
days' prior written notice. If any determination of the Board of Directors with
respect to permanent disability is disputed by the Executive, the parties hereto
agree to abide by the decision of a panel of three physicians. The Executive and
Company shall each appoint one member, and the third member of the panel shall
be appointed by the other two members. The Executive agrees to make himself
available for and submit to examinations by such physicians as may be directed
by the Company. Failure to submit to any such examination shall constitute a
breach of a material part of this Agreement.
8. OTHER TERMINATIONS
(a) By the Executive. (i) The Executive may terminate the Executive's
employment hereunder upon giving at least ninety (90) days' prior written
notice. In addition, the Executive shall have the right to terminate the
Executive's employment hereunder on the conditions and at the times provided for
in Section 8(d) of this Agreement.
(ii) If the Executive gives notice pursuant to Section 8(a)(i)
above, the Company shall have the right (but not the obligation) to relieve the
Executive, in whole or in part, of the Executive's duties under this Agreement,
or direct the Executive to no longer perform such duties, or direct that the
Executive should no longer report to work, or any combination of the foregoing.
In any such event, the Executive shall be entitled to receive only the Base
Salary not yet paid, as would otherwise have been payable to the Executive up to
the end of the month specified as the month of termination in the termination
notice. In the event the Executive gives notice pursuant to Section 8(a)(i)
above but specifies a termination date in excess of ninety (90) days from the
date of such notice, the Company shall have the right (but not the obligation)
to accelerate the termination
5.
<PAGE>
date to any date prior to the date specified in the notice that is in excess of
ninety (90) days from the date of the notice, and the Company shall have the
right (but not the obligation) to relieve the Executive, in whole or in part, of
the Executive's duties under this Agreement, or direct the Executive to no
longer perform such duties, or direct that the Executive should no longer report
to work, or any combination of the foregoing; provided, however, that in any
such event the Executive shall be entitled to receive the Base Salary, as would
otherwise have been payable to the Executive up to the end of the month of the
termination date properly selected by the Company. Upon receiving the payments
provided for under this Section 8(a), all rights of the Executive under this
Agreement (other than rights already accrued) shall terminate.
(b) Termination for "Good Cause". (i) Except as otherwise provided in this
Agreement, the Company may terminate the employment of the Executive hereunder
only for "good cause," which shall mean: (A) the Executive's conviction of
either a felony involving moral turpitude or any crime in connection with the
Executive's employment by the Company which causes the Company a substantial
detriment, but specifically shall not include traffic offenses; (B) actions by
the Executive as an executive officer of the Company which clearly are contrary
to the best interests of the Company; (C) the Executive's willful failure to
take actions permitted by law and necessary to implement policies of the
Company's Board of Directors which the Board of Directors has communicated to
him in writing, provided that minutes of a Board of Directors meeting attended
in its entirety by the Executive shall be deemed communicated to the Executive;
(D) the Executive's continued failure to attend to the Executive's duties as an
executive officer of the Company; or (E) any condition which either resulted
from the Executive's substantial dependence, as determined by the Board of
Directors of the Company, on alcohol, or any narcotic drug or other controlled
or illegal substance. If any determination of substantial dependence is disputed
by the Executive, the parties hereto agree to abide by the decision of a panel
of three physicians appointed in the manner and subject to the same penalties
for noncompliance as specified in Section 7(b)(ii) of this Agreement.
(ii) If the employment of the Executive is terminated for good cause
under Section 8(b)(i) of this Agreement, the Company shall pay to the Executive
any Base Salary earned prior to the effective date of termination but not yet
paid and any cash bonus compensation earned pursuant to the provisions of any
incentive compensation plan then in effect but not paid to the Executive prior
to the effective date of such termination. Under such circumstances, such
payments shall be in full and complete discharge of any and all liabilities or
obligations of the Company to the Executive hereunder, and the Executive shall
be entitr than rights already accrued).
(iii) Notwithstanding the foregoing, each of the foregoing bases for
termination specified in (A) through (E) of Subsection 8(b)(i) shall constitute
"Good Cause" only if (1) the Executive has been provided with written notice of
any assertion that there is a basis for termination for good cause which notice
shall specify in reasonable detail specific facts regarding any such assertion
and the Executive has been given a reasonable period of time within which to
remedy or cure the problem or complaint, (2) such notice is provided to the
Executive a reasonable time before the Board of Directors meets to consider any
possible termination for cause, (3) at or prior to the meeting of the Board of
Directors to consider the matters described in the written notice, an
6.
<PAGE>
opportunity is provided to the Executive and his counsel to be heard by the
Board of Directors with respect to the matters described in the written notice,
before it acts with respect to such matter, (4) any resolution or other action
by the Board of Directors with respect to any deliberation regarding or decision
to terminate the Executive for good cause is duly adopted by a vote of a
majority of the entire Board of Directors of the Company at a meeting of the
Board duly called and held and (5) the Executive is promptly provided with a
copy of the resolution or other corporate action taken with respect to such
termination.
(iv) Termination of the employment of the Executive other than as
expressly specified above in this Section 8(b) for good cause shall be deemed to
be a termination of employment "Without Good Cause."
(c) Termination Without Good Cause. (i) Notwithstanding any other
provision of this Agreement, the Company shall have the right to terminate the
Executive's employment Without Good Cause pursuant to the provisions of this
Section 8(c). If the Company shall terminate the employment of the Executive
Without Good Cause effective on a date earlier than the termination date
provided for in Section 2 (with the effective date of termination as so
identified by the Company being referred to herein as the "Accelerated
Termination Date"), the Executive, until the end of the term of this Agreement
then in effect as provided for in Section 2 or until the date which is 12 months
after the Accelerated Termination Date, whichever is greater, shall continue to
receive (1) the Base Salary, paid in the same monthly or other periodic
installments as in effect prior to the Accelerated Termination Date (2) an equal
monthly pro rata portion of an amount of cash equal to the MICP Target Amount
(as that term is defined in Section 7(b)(i)) in respect of the year during which
the Executive's employment terminates, or, if greater, the MICP Target Amount
multiplied times the number of years (or fractions thereof) remaining in the
then unexpired term of this Agreement plus (3) an equal monthly pro rata portion
of an amount of cash equal to the cash value of any bonus paid or to be paid to
the Executive in the form of performance shares or restricted stock under the
LTIP as described on Exhibit A or any similar bonus or incentive plans or
programs then in effect (valued, if applicable under the terms of such plans or
programs, at the greater of the closing price on the New York Stock Exchange, or
other such market on which the Company's stock trades if it is not listed on the
New York Stock Exchange, on the first trading day of the plan or program cycle
or the Accelerated Termination Date, or if the Accelerated Termination Date is
not a trading day, on the first trading day thereafter) in respect of the
then-current three year cycle of such plans or programs or such other cycle as
is then in effect, calculated as if the then-current cycle were completed and
the target levels attained (the "LTIP Target Amount"), which cash payment shall
be in lieu and in full satisfaction any rights under the LTIP in respect of such
stock or shares as described in Exhibit A or any similar bonus or incentive
plans or programs in effect at the time of such payment (all of which stock or
shares shall be cancelled upon such payment and receipt); provided however, if
the Accelerated Termination Date is prior to January 1, 1998, the amount of cash
payable to the Executive under the LTIP shall be $204,000 and (4) any other cash
or other bonus compensation earned prior to the date of such termination
pursuant to the terms of all incentive compensation plans then in effect other
than the Company's Management Incentive Compensation Plan as described on
Exhibit A or any similar bonus on incentive plans or programs then in effect;
provided that, notwithstanding such termination of employment, the Executive's
7.
<PAGE>
covenants set forth in Section 10 and Section 11 are intended to and shall
remain in full force and effect and provided further that in the event of such
termination, the Company shall have the right (but not the obligation) to
relieve the Executive, in whole or in part, of the Executive's duties under this
Agreement, or direct the Executive to no longer perform such duties, or direct
that the Executive no longer be required to report to work, or any combination
of the foregoing.
(ii) The parties agree that, because there can be no exact measure
of the damage that would occur to the Executive as a result of a termination by
the Company of the Executive's employment Without Good Cause, the payments and
benefits paid and provided pursuant to this Section 8(c) shall be deemed to
constitute liquidated damages and not a penalty for the Company's termination of
the Executive's employment Without Good Cause.
(d) Change of Control. (i) For purposes of this Agreement, a "Change in
Control" shall mean the first to occur of:
(1) a change in control of the Company of a nature that is
required, pursuant to the Securities Exchange Act of 1934 (the
"1934 Act"), to be reported in response to Item 1(a) of a
Current Report on Form 8-K or Item 6(e) of Schedule 14A under
the 1934 Act (in each case under this Agreement, references to
provisions of the 1934 Act and the rules and regulations
promulgated thereunder being understood to refer to such law,
rules and regulations as the same are in effect on November 1,
1996); or
(2) the acquisition of "Beneficial Ownership" (as defined in Rule
13d-3 under the 1934 Act) of the Company's securities
comprising 35% or more of the combined voting power of the
Company's outstanding securities by any "person" (as that term
is used in Sections 13(d) and 14(d)(2) of the 1934 Act and the
rules and regulations promulgated thereunder, but not
including any trustee or fiduciary acting in that capacity for
an employee benefit plan sponsored by the Company) and such
person's "affiliates" and "associates" (as those terms are
defined under the 1934 Act), but excluding any ownership by
the Executive and his affiliates and associates; or
(3) the failure of the "Incumbent Directors" (as defined below) to
constitute at least a majority of all directors of the Company
(for these purposes, "Incumbent Directors" means individuals
who were the directors of the Company on November 1, 1996,
and, after his or her election, any individual becoming a
director subsequent to November 1, 1996, whose election, or
nomination for election by the Company's stockholders, is
approved by a vote of at least two-thirds of the directors
then comprising the Incumbent Directors, except that no
individual shall be considered an Incumbent Director who is
not recommended by management and whose initial assumption of
office as a director is in connection with an actual or
threatened "election contest" relating to the "election of
directors" of the Company, as such terms are used in Rule
14a-11 of Regulation 14A under the 1934 Act); or
(4) the closing of a sale of all or substantially all of the
assets of the Company;
(5) the Company's adoption of a plan of dissolution or
liquidation; or
8.
<PAGE>
(6) the closing of a merger or consolidation involving the Company
in which the Company is not the surviving corporation or if,
immediately following such merger or consolidation, less than
seventy-five percent (75%) of the surviving corporation's
outstanding voting stock is held or is anticipated to be held
by persons who are stockholders of the Company immediately
prior to such merger or consolidation.
(ii) If a Change in Control of the Company occurs, the Executive
shall have the right, exercisable for a period of one year thereafter by
delivering a written statement to that effect to the Company, to immediately
terminate this Agreement and upon such a determination the Executive shall have
the right to receive and the Company shall be obligated to pay to Executive in
cash a lump sum payment in an amount equal to the sum of (1) two times the
annual Base Salary then in effect, (2) two times the MICP Target Amount (as that
term is defined in Section 7(b)(i)) in the year in which employment terminates,
(3) the cash value of the LTIP Target Amount (as that term is defined in Section
8(c)), which cash payment shall be in lieu and in full satisfaction any rights
under the LTIP in respect of such stock or shares as described in Exhibit A or
any similar bonus or incentive plans or programs in effect at the time of such
payment (all of which stock or shares shall be cancelled upon such payment and
receipt), and (4) the additional payments necessary to discharge certain tax
liabilities (the "Gross Up") as that term is defined in Section 13 of this
Agreement (the sum of the foregoing amounts other than the Gross Up being
referred to as the "Change in Control Payment"). If the Executive fails to
exercise his rights under this Section 8(d) within one year following a Change
in Control, such rights shall expire and be of no further force or effect.
(e) Intentions Regarding Certain Stock and Benefit Plans. Except as
otherwise provided herein, upon any termination of the Executive's employment
Without Good Cause or upon the exercise by the Executive of his rights to
terminate his employment following a Change of Control, it is the intention of
the parties that any and all vesting or performance requirements or conditions
affecting any outstanding restricted stock, performance stock, stock option,
stock appreciation right, bonus, award, right, grant or any other incentive
compensation under any of the Plans, under this Agreement, or otherwise
received, shall be deemed to be fully satisfied and any risk of forfeiture with
respect thereto shall be deemed to have lapsed.
(f) Certain Rights Mutually Exclusive. The provisions of Section 8(c) and
Section 8(d) are mutually exclusive, provided, however, that if within one year
following commencement of an 8(c) payout there shall be a Change in Control as
defined in Section 8(d)(i), then the Executive shall be entitled to the amount
payable to the Executive under Section 8(d)(ii) and Section 8(d)(iii) reduced by
the amount that the Executive has received under Section 8(c) up to the date of
the change in control. The triggering of the lump sum payment requirement of
Section 8(d) shall cause the provisions of Section 8(c) to become inoperative.
9. DISCLOSURE
9.
<PAGE>
The Executive agrees that during the term of the Executive's employment by
the Company, the Executive will disclose and disclose only to the Company all
ideas, methods, plans, developments or improvements known by him which relate
directly or indirectly to the business of the Company, whether acquired by the
Executive before or during the Executive's employment by the Company. Nothing in
this Section 9 shall be construed as requiring any such communication where the
idea, plan, method or development is lawfully protected from disclosure as a
trade secret of a third party or by any other lawful prohibition against such
communication. The covenants of this Section 9 shall not be violated by ordinary
and customary communications with reporters, bankers and securities analysts and
other members of the investment community.
10. CONFIDENTIALITY
The Executive agrees to keep in strict secrecy and confidence any and all
information the Executive assimilates or to which the Executive has access
during the Executive's employment by the Company and which has not been publicly
disclosed and is not a matter of common knowledge in the fields of work of the
Company. The Executive agrees that both during and after the term of the
Executive's employment by the Company, the Executive will not, without the prior
written consent of the Company, disclose any such confidential information to
any third person, partnership, joint venture, company, corporation or other
organization. The foregoing covenants shall not be breached to the extent that
any such confidential information becomes a matter of general knowledge other
than through a breach by the Executive of the Executive's obligations under this
Section 10.
11. NONCOMPETITION AND NONSOLICITATION
(a) General. The Executive hereby acknowledges that, during and solely as
a result of the Executive's employment by the Company, the Executive has
received and shall continue to receive: (1) special training and education with
respect to the operations of the Company's real estate development and
management businesses and its leasing, lending and financing activities, and
other related matters, and (2) access to confidential information and business
and professional contacts. In consideration of the special and unique
opportunities afforded to the Executive by the Company as a result of the
Executive's employment, as outlined in the previous sentence, the Executive
hereby agrees to the restrictive covenants in this Section 11.
(b) Noncompetition. During the term of the Executive's employment, whether
pursuant to this Agreement, any automatic or other renewal hereof or otherwise,
and, except as may be otherwise herein provided, for a period of two (2) years
after the termination of the Executive's employment with the Company, regardless
of the reason for such termination, the Executive shall not, directly or
indirectly, enter into, engage in, be employed by or consult with any business
which competes with the Company's real estate lending, leasing, development or
management businesses in Florida. The Executive shall not engage in such
prohibited activities, either as an individual, partner, officer, director,
stockholder, employee, advisor, independent contractor, joint venturer,
10.
<PAGE>
consultant, agent, or representative or salesman for any person, firm,
partnership, corporation or other entity so competing with the Company. The
restrictions of this Section 11 shall not be violated by (i) the ownership of no
more than 2% of the outstanding securities of any company whose stock is traded
on a national securities exchange or is quoted in the Automated Quotation System
of the National Association of Securities Dealers (NASDAQ), or (ii) other
outside business investments that do not in any manner conflict with the
services to be rendered by the Executive for the Company and that do not
diminish or detract from the Executive's ability to render the Executive's
required attention to the business of the Company.
(c) Nonsolicitation. During the Executive's employment with the Company
and, except as may be otherwise herein provided, for a period of two (2) years
following the termination of the Executive's employment with the Company,
regardless of the reason for such termination, the Executive agrees the
Executive will refrain from and will not, directly or indirectly, as an
individual, partner, officer, director, stockholder, employee, advisor,
independent contractor, joint venturer, consultant, agent, representative,
salesman or otherwise solicit any of the employees of the Company to terminate
their employment.
(d) Term Extended or Suspended. The period of time during which the
Executive is prohibited from engaging in certain business practices pursuant to
Sections 11(b) or (c) shall be extended by any length of time during which the
Executive is in breach of such covenants.
(e) Essential Element. It is understood by and between the parties hereto
that the foregoing restrictive covenants set forth in Sections 11(a) through (c)
are essential elements of this Agreement, and that, but for the agreement of the
Executive to comply with such covenants, the Company would not have agreed to
enter into this Agreement. Such covenants by the Executive shall be construed as
agreements independent of any other provision in this Agreement. The existence
of any claim or cause of action of the Executive against the Company, whether
predicated on this Agreement, or otherwise, shall not constitute a defense to
the enforcement by the Company of such covenants.
(f) Severability. It is agreed by the Company and Executive that if any
portion of the covenants set forth in this Section 11 are held to be invalid,
unreasonable, arbitrary or against public policy, then such portion of such
covenants shall be considered divisible both as to time and geographical area.
The Company and Executive agree that, if any court of competent jurisdiction
determines the specified time period or the specified geographical area
applicable to this Section 11 to be invalid, unreasonable, arbitrary or against
public policy, a lesser time period or geographical area which is determined to
be reasonable, non-arbitrary and not against public policy may be enforced
against the Executive. The Company and the Executive agree that the foregoing
covenants are appropriate and reasonable when considered in light of the nature
and extent of the business conducted by the Company.
11.
<PAGE>
12. SPECIFIC PERFORMANCE
The Executive agrees that damages at law will be an insufficient remedy to
the Company if the Executive violates the terms of Sections 9, 10 or 11 of this
Agreement and that the Company would suffer irreparable damage as a result of
such violation. Accordingly, it is agreed that the Company shall be entitled,
upon application to a court of competent jurisdiction, to obtain injunctive
relief to enforce the provisions of such Sections, which injunctive relief shall
be in addition to any other rights or remedies available to the Company. The
Executive agrees to pay to the Company all reasonable costs and expenses
incurred by the Company relating to the enforcement of the terms of Sections 9,
10 or 11 of this Agreement, including reasonable fees and reasonable
disbursements of counsel selected by the Company (during investigation and
before and at trial and in appellate proceedings).
13. PAYMENT OF EXCISE TAXES
(a) Payment of Excise Taxes. If the Executive is to receive any (1) Change
of Control Payment under Section 8(d), (2) any benefit or payment under Section
7 as a result of or following the death or Permanent Disability of the
Executive, (3) any benefit or payment under Section 8(c) as a result of or
following any termination of employment hereunder Without Good Cause, (4) any
benefit or payment under the Plans as a result of a Change of Control, following
the death of Permanent Disability of the Executive or following the termination
of employment hereunder Without Good Cause (such sections being referred to as
the "Covered Sections" and the benefits and payments to be received thereunder
being referred to as the "Covered Payments"), the Executive shall be entitled to
receive the amount described below to the extent applicable: If any Covered
Payment(s) under any of the Covered Sections or by the Company under another
plan or agreement (collectively, the "Payments") are subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986 (as amended from
time to time, the "Code"), or any successor or similar provision of the Code
(the "Excise Tax"), the Company shall pay the Executive an additional amount
(the "Gross Up") such that the net amount retained by the Executive after
deduction of any Excise Tax on the Payments and the federal income tax on any
amounts paid under this Section 13 shall be equal to the Payments.
(b) Certain Adjustment Payments. For purposes of determining the Gross Up,
the Executive shall be deemed to pay the federal income tax at the highest
marginal rate of taxation (currently 39.5%) in the calendar year in which the
payment to which the Gross Up applies is to be made. The determination of
whether such Excise Tax is payable and the amount thereof shall be made upon the
opinion of tax counsel selected by the Company and reasonably acceptable to the
Executive. The Gross Up, if any, that is due as a result of such determination
shall be paid to the Executive in cash in a lump sum within thirty (30) days of
such computation. If such opinion is not finally accepted by the Internal
Revenue Service upon audit or otherwise, then appropriate adjustments shall be
computed (without interest but with Gross Up, if applicable) by such tax counsel
based upon the final amount of the Excise Tax so determined; any additional
amount due the Executive as a result of such adjustment shall be paid to the
Executive by his or her Company in
12.
<PAGE>
cash in a lump sum within thirty (30) days of such computation, or any amount
due the Executive's Company as a result of such adjustment shall be paid to the
Company by the Executive in cash in a lump sum within thirty (30) days of such
computation.
14. MISCELLANEOUS
(a) Waiver of Breach. The waiver by either party to this Agreement of a
breach of any of the provisions of this Agreement by the other party shall not
be construed as a waiver of any subsequent breach by such other party.
(b) No Right to Continued Employment. Notwithstanding the fact that
certain provisions of this Agreement and Exhibit A reference a three year cycle
or provide for benefits upon a third year of employment, this Agreement shall
have a two year term with annual one year renewal terms subject to the
termination provisions contained herein.
(c) Compliance With Other Agreements. The Executive represents and
warrants that the execution of this Agreement by him and the Executive's
performance of the Executive's obligations hereunder will not conflict with,
result in the breach of any provision of or the termination of or constitute a
default under any Agreement to which the Executive is a party or by which the
Executive is or may be bound.
(d) Binding Effect; Assignment. The rights and obligations of the Company
under this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of the Company. This Agreement is a personal employment
contract and the rights, obligations and interests of the Executive hereunder
may not be sold, assigned, transferred, pledged or hypothecated.
(e) Entire Agreement. This Agreement contains the entire agreement and
supersedes all prior agreements and understandings, oral or written, with
respect to the subject matter hereof. This Agreement may be changed only by an
agreement in writing signed by the party against whom any waiver, change,
amendment, modification or discharge is sought.
(f) Headings. The headings contained in this Agreement are for reference
purposes only and shall not affect the meaning or interpretation of this
Agreement.
(g) No Duty to Mitigate. The Executive shall be under no duty to mitigate
any loss of income as result of the termination of his employment hereunder and
any payments due the Executive upon termination of employment shall not be
reduced in respect of any other employment compensation received by the
Executive following such termination.
(h) Florida Law. This Agreement shall be construed pursuant to and
governed by the substantive laws of the State of Florida (except that any
provision of Florida law shall not apply if the law of a state or jurisdiction
other than Florida would otherwise apply).
13.
<PAGE>
(i) Venue; Process. The parties to this Agreement agree that jurisdiction
and venue in any action brought pursuant to this Agreement to enforce its terms
or otherwise with respect to the relationships between the parties shall
properly lie in and only in the Circuit Court of the Sixth Judicial Circuit of
the State of Florida in and for Pinellas County (the "Circuit Court") and the
parties agree that jurisdiction shall not properly lie in any other jurisdiction
provided, however, if jurisdiction does not properly lie with the Circuit Court,
the parties agree that jurisdiction and venue shall properly lie in and only in
the United States District Court for the Middle District of Florida, Tampa
Division. The parties hereby waive any objections which they may now or
hereafter have based on venue and/or forum non conveniens and irrevocably submit
to the jurisdiction of any such court in any legal suit, action or proceeding
arising out of or relating to this Agreement. The parties further agree that the
mailing by certified or registered mail, return receipt requested, of any
process required by any such court shall constitute valid and lawful service of
process against them, without the necessity for service by any other means
provided by statute or rule of court.
(j) Severability. Any provision of this Agreement which is determined by a
court of competent jurisdiction to be prohibited, unenforceable or not
authorized in any jurisdiction shall, as to such jurisdiction, be ineffective to
the extent of such prohibition, unenforceability or non-authorization without
invalidating the remaining provisions hereof or affecting the validity,
enforceability or legality of such provision in any other jurisdiction. In any
such case, such determination shall not affect any other provision of this
Agreement, and the remaining provisions of this Agreement shall remain in full
force and effect. If any provision or term of this Agreement is susceptible to
two or more constructions or interpretations, one or more of which would render
the provision or term void or unenforceable, the parties agree that a
construction or interpretation which renders the term or provision valid shall
be favored.
(k) Deduction for Tax Purposes. The Company's obligations to make payments
under this Agreement are independent of whether any or all of such payments are
deductible expenses of the Company for federal income tax purposes.
(l) Enforcement. If, within 10 days after demand to comply with the
obligations of one of the parties to this Agreement served in writing on the
other, compliance or reasonable assurance of compliance is not forthcoming, and
the party demanding compliance engages the services of an attorney to enforce
rights under this Agreement, the prevailing party in any action shall be
entitled to recover all reasonable costs and expenses of enforcement (including
reasonable attorneys' fees and reasonable expenses during investigation, before
and at trial and in appellate proceedings). In addition, each of the parties
agrees to indemnify the other in respect of any and all claims, losses, costs,
liabilities and expenses, including reasonable fees and reasonable disbursements
of counsel (during investigation prior to initiation of litigation and at trial
and in appellate proceedings if litigation ensues), directly or indirectly
resulting from or arising out of a breach by the other party of their respective
obligations hereunder. The parties' costs of enforcing this Agreement shall
include prejudgment interest. Additionally, if any party incurs any
out-of-pocket expenses in connection with the enforcement of this Agreement, all
such amounts shall accrue interest at 18%
14.
<PAGE>
per annum (or such lower rate as may be required to avoid any limit imposed by
applicable law) commencing 30 days after any such expenses are incurred.
(m) Notices. All notices which are required or may be given under this
Agreement shall be in writing and shall be deemed to have been duly given when
received if personally delivered; when transmitted if transmitted by telecopy or
similar electronic transmission method; one working day after it is sent, if
sent by recognized expedited delivery service; and three days after it is sent,
if mailed, first class mail, certified mail, return receipt requested, with
postage prepaid. In each case notice shall be sent to:
To the Company: Echelon International Corporation
One Progress Plaza
St. Petersburg, FL 33701
Attn: Chairman of the Board
Telecopy: (813) 824-6536
To the Executive at the Executive's address herein first above written, or
to such other address as either party may specify by written notice to the
other.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
ATTEST: ECHELON INTERNATIONAL CORPORATION
(Corporate Seal)
________________________________ By:____________________________________
Secretary Darryl A. LeClair, President
EXECUTIVE
Witnesses:
________________________________ _______________________________________
Larry J. Newsome
________________________________
As to Executive
15.
<PAGE>
EXHIBIT A
TO
EMPLOYMENT AGREEMENT WITH LARRY J. NEWSOME
DATED NOVEMBER 20, 1996
The Company will establish a Management Incentive Compensation Plan
("MICP") and Long Term Incentive Plan ("LTIP") for its senior management in
which the Executive will participate. During the first two full fiscal years of
the Company's operation following the completion of the Spinoff ending on
December 31, 1997, and December 31, 1998, respectively (the "Covered Years"),
the MICP will provide for annual cash bonuses based upon the Company's net
income for each of the Covered Years. The LTIP will provide the opportunity to
earn restricted shares based upon the Company's cumulative results of operation
for three year cycles, beginning with the three year cycle including the Covered
Years and the year ending December 31, 1999 (the "Cycle Years") provided that
the Executive continues to be employed by the Company under this Agreement. The
Executive's participation in the MICP and the LTIP during the Covered Years and
the Cycle Years shall be based upon the criteria and shall include awards with
the values indicated in the tables set forth below and as more fully described
in this Exhibit A.
MICP
During each of the Covered Years, (i) all MICP bonuses shall be paid in
cash; (ii) if Threshold Net Income is not achieved, no MICP cash bonus will be
paid; (iii) if actual net income exceeds Threshold Net Income, but is less than
Target Net Income, or exceeds Target Net Income but is less than Maximum Net
Income, the percentage of the MICP bonus shall be proportionately increased
above the Threshold bonus amount or the Target Bonus amount, as the case may be,
and (iv) if actual net income equals or exceeds Maximum Net Income, the Maximum
MICP cash bonus will be paid, but no additional cash bonus will be payable under
the MICP regardless of the amount by which actual net income in that Covered
Year exceeds Maximum Net Income. The following table sets forth information
regarding the MICP Net Income Threshold, Target and Maximum and cash bonuses.
----------------------------------------------
MICP 1997 1998
----------------------------------------------
THRESHOLD
----------------------------------------------
Net Income $1,584,274 $1,768,816
----------------------------------------------
MICP Cash Bonus $29,750 $29,750
(% of Target Bonus) (50%) (50%)
----------------------------------------------
TARGET
----------------------------------------------
Net Income $2,112,366 $2,358,422
----------------------------------------------
MICP Cash Bonus $59,500 $59,500
(% of Base Salary) (35%) (35%)
----------------------------------------------
MAXIMUM
----------------------------------------------
Net Income $2,640,457 $2,948,027
----------------------------------------------
MICP Cash Bonus $89,250 $89,250
<PAGE>
----------------------------------------------
MICP 1997 1998
----------------------------------------------
(% of Target Bonus) (150%) (150)%
----------------------------------------------
LTIP
The sum of each year's Threshold Net Income for the three Cycle Years
shall be referred to as the "Threshold LTIP Net Income"; the sum of each year's
Target Net Income for the three Cycle Years shall be referred to as "Target LTIP
Net Income"; and the sum of each year's Maximum Net Income for the three Cycle
Years shall be referred to as "Maximum LTIP Net Income," in each case, as set
forth in the following tables:
- --------------------------------------------------------------------------------
LTIP 1997 1998 1999 LTIP NET INCOME
- --------------------------------------------------------------------------------
THRESHOLD THRESHOLD
- --------------------------------------------------------------------------------
Net Income $1,584,274.00 $1,768,816.00 $2,132,640.00 $5,485,730.00
- --------------------------------------------------------------------------------
TARGET TARGET
- --------------------------------------------------------------------------------
Net Income $2,112,366.00 $2,358,422.00 $2,843,521.00 $7,314,309.00
- --------------------------------------------------------------------------------
MAXIMUM MAXIMUM
- --------------------------------------------------------------------------------
Net Income $2,640,457.00 $2,948,027.00 $3,554,401.00 $9,142,885.00
- --------------------------------------------------------------------------------
The following table sets for information regarding the Threshold, Target
and Maximum LTIP Net income and values associated with achieving such levels of
cumulative net income:
---------------------------------------------
LTIP Three Years Ending
December 31, 1999
---------------------------------------------
THRESHOLD
---------------------------------------------
Cumulative Net Income $5,485,730.00
---------------------------------------------
LTIP Value $102,000
(% of Target Bonus) (50%)
---------------------------------------------
TARGET
---------------------------------------------
Cumulative Net Income $7,314,309.00
---------------------------------------------
LTIP Value $204,000
(% of Base Salary) (40%)
---------------------------------------------
MAXIMUM
---------------------------------------------
Cumulative Net Income $9,142,885.00
---------------------------------------------
LTIP Value $306,000
(% of Target Bonus) (150%)
---------------------------------------------
<PAGE>
For purposes of administering the LTIP, during the first three-year cycle,
(i) all LTIP awards shall be paid in the form of restricted shares; (ii) the
number of restricted shares shall be determined by dividing the dollar value of
the Maximum LTIP Value $306,000 by the closing price on January 1, 1998, or the
first trading day thereafter, on the New York Stock Exchange (or such other
market on which the Company's stock trades if it is not listed on the New York
Stock Exchange); (iii) the restricted shares, among other things, shall be
subject to a risk of forfeiture if and to the extent that the performance
criteria set forth in this Exhibit A are not met; (iv) if actual cumulative net
income for the three-year period ending December 31, 1999, does not equal or
exceed Threshold LTIP Net Income, all restricted shares shall be forfeited, and
no LTIP bonus will have been earned; (v) if actual cumulative net income for the
three year period ending December 31, 1999, exceeds Threshold LTIP Net Income,
but is less than Target LTIP Net Income, or exceeds Target LTIP Net Income but
is less than Maximum LTIP Net Income, the percentage of the LTIP restricted
shares as to which the risks on forfeiture shall lapse shall be proportionately
increased above the Threshold bonus amount or the Target Bonus amount, as the
case may be; and (vi) if cumulative net income for the three-year period ending
December 31, 1999 equals or exceeds Maximum LTIP Net Income, the risks of
forfeiture shall lapse as to all restricted shares, but no additional restricted
shares will be issuable under the LTIP regardless of the amount by which actual
cumulative net income for the three years ending December 31, 1999 exceeds
Maximum LTIP Net Income.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into this 20th day of
November, 1996, but is effective for all purposes as of the date specified below
in Section 2, by and between ECHELON INTERNATIONAL CORPORATION, a Florida
corporation (the "Company"), and THOMAS D. WILSON, residing at 1488 40th Avenue
NE, St. Petersburg, Florida 33703 (the "Executive").
W I T N E S S E T H:
1. EMPLOYMENT
The Company hereby employs the Executive, and the Executive hereby accepts
such employment, upon the terms and subject to the conditions set forth in this
Agreement.
2. TERM
Subject to the provisions for termination as hereinafter provided, the
term of employment under this Agreement shall begin as of the completion of the
"Distribution" as that term is defined in the Company's Registration Statement
on Form 10, as amended (the "Distribution"), and shall continue through December
31, 1998, provided, however, that this Employment Agreement shall automatically
be renewed for successive one year terms unless either party gives the other
written notice of termination at least ninety (90) days prior to the end of any
such term.
3. COMPENSATION
(a) Base Salary. The Company shall pay to the Executive as basic
compensation for all services rendered by the Executive during the term of this
Agreement a basic annualized salary of $106,860 per year, or such other sum in
excess of that amount as the parties may agree on from time to time or as
provided in the next sentence (as in effect from time to time, the "Base
Salary"), payable monthly or in other more frequent installments, as determined
by the Company. The Board of Directors shall have no authority to reduce the
Executive's Base Salary in effect from time to time. In addition, the Board of
Directors, in its discretion, may award a bonus or bonuses to the Executive in
addition to the bonuses provided for in Section 3(b).
(b) Bonuses. In addition to the Base Salary to be paid pursuant to Section
3(a), for each of the Company's two fiscal years ending December 31, 1997 and
December 31, 1998 during the term of this Agreement, the Company shall pay as
incentive compensation the annual bonuses, to the extent earned, specified on
Exhibit A to this Agreement. For each fiscal year ending after December 31,
1998, provided the Executive continues to be employed by the Company under this
Agreement, the Executive shall be eligible for incentive compensation annual
bonus plan(s) adopted by the Board of Directors of the Company from time to time
in accordance with the terms of such plans.
<PAGE>
(c) Certain Plans and Initial Award. (i) It is anticipated that the
Company will adopt certain incentive compensation plans including a long term
incentive plan (the "LTIP"), providing for annual or other periodic awards to
key employees, among other things, of restricted stock and a stock option plan
(the "ISO/NSO Plan"), providing for the annual or other periodic issuance of
options to purchase the Company's common stock. The LTIP and ISO/NSO are
referred to collectively in this Agreement as the "Plans." The Executive will be
given an opportunity to participate in the Plans, in accordance with and subject
to the terms of the Plans as they may be adopted, amended and administered from
time to time.
(ii) In addition to the incentive compensation referred to in
Section 3(c)(i), the Company hereby agrees to issue to the Executive under the
LTIP, effective immediately following the completion of the Distribution, that
number of shares of the Company's common stock (the "Initial Restricted Stock")
as will equal two-tenths of one percent (0.20%) of the shares of the Company's
common stock distributed in the Distribution, which Initial Restricted Stock
shall be subject to risk of forfeiture, which risk will lapse as to one-fourth
of the shares of the Initial Restricted Stock on January 31, 1998, and as to an
additional one-fourth of the Initial Restricted Stock on each of January 31,
1999, January 31, 2000 and January 31, 2001.
(iii) In addition to the incentive compensation referred to in
Section 3(c)(i) and the Initial Restricted Stock, the Company hereby agrees to
grant to the Executive under the LTIP, effective immediately following the
completion of the Distribution, options to purchase one thousand (1,000) shares
of the Company's common stock (the "Initial Options"), which Initial Options
shall be exercisable as to one-fourth of the shares of common stock covered by
the Initial Options on January 31, 1998, and as to an additional one-fourth of
such shares on each of January 31, 1999, January 31, 2000 and January 31, 2001.
The exercise price for the Initial Options shall be the closing price on the New
York Stock Exchange (or such other market on which the Company's stock trades if
it is not listed on the New York Stock Exchange) on the trading day which is the
eighth month anniversary of the day of the completion of the Distribution (the
"Option Pricing Date"), or if the Option Pricing Date is not a trading day, the
first trading day thereafter.
(iv) Any and all risks of forfeiture shall lapse as to all of the
Initial Restricted Stock and the Initial Options shall be fully vested and shall
be exercisable as to all of the shares of common stock covered by the Initial
Options upon (i) the death of the Executive or termination of employment upon
the "Permanent Disability" (as that term is defined in Section 7(b)(ii) of this
Agreement) of the Executive, (ii) the termination of employment of the Executive
by the Company "Without Good Cause" (as that term is defined in Section 8(b)(ii)
of this Agreement) or (iii) the exercise by the Executive of his rights to
terminate his employment under Section 8(d)(ii) following a "Change of Control"
(as that term is defined in Section 8(d)(i) of this Agreement).
(d) Reimbursement. The Company shall reimburse the Executive, in
accordance with the Company's policies and practices for senior management, for
all reasonable expenses incurred by the Executive in the performance of the
Executive's duties under this Agreement, provided,
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however, that the Executive must furnish to the Company an itemized account,
satisfactory to the Company, in substantiation of such expenditures.
(e) Certain Benefits. The Executive shall be entitled to such fringe
benefits including, but not limited to, medical and other insurance benefits as
may be provided from time to time by the Company to other senior officers of the
Company. In addition, without restricting the foregoing, the Company shall
provide the Executive at the Company's sole cost and expense with (i) a policy
or policies of term life insurance (the "Basic Life Insurance") providing, among
other things, basic death benefits of not less than two times the Base Salary in
effect from time to time, (ii) directors and officers liability insurance with
coverage, terms and limits suitable for a vice president of a New York Stock
Exchange listed company comparable in financial size and wherewithal to that of
the Company and (iii) a monthly allowance of $500 cash to reimburse the
Executive for the use and maintenance of his automobile in furtherance of the
business and affairs of the Company, provided that the Executive shall at all
times insure the Executive and the Company in such amounts as may be reasonably
requested by the Company against claims for bodily injury, death and property
damages occurring as a result of its use. The Company shall use its reasonable
best efforts to make available to the Executive in connection with providing and
paying for the Basic Life Insurance the opportunity to purchase at the
Executive's sole cost and expense additional life insurance with a basic death
benefit (the "Optional Life Insurance") equal to two times the Executive's Base
Salary in effect from time to time (affording the Executive the opportunity to
have basic death benefit life insurance coverage equal to four times such Base
Salary). The Company shall use its reasonable best efforts to effect the
transfer of the ownership to the Executive of the policy or policies for the
Basic Life Insurance and the Optional Life Insurance, if any, upon the
termination of the Executive's employment by the Company. After the Executive's
termination, payment of any premiums would be the obliga (f) Other Incentive and
Benefit Plans. The Executive shall be eligible to participate, in accordance
with the terms of such plans as they may be adopted, amended and administered
from time to time, in incentive, bonus, benefit or similar plans, including
without limitation, any stock option, bonus or other equity ownership plan, any
short, mid or long term incentive plan and any other bonus, pension or profit
sharing plans established by the Company from time to time.
4. DUTIES
(a) General. The Executive is engaged as a Vice President of the Company.
In addition, at the request of the Board of Directors, the Executive shall serve
in the same positions in any wholly owned subsidiary of the Company, without any
additional compensation. The Executive shall have such duties and hold such
other offices as may from time to time be reasonably assigned to him by the
Board of Directors of the Company.
(b) Indemnification. To the fullest extent permitted by law, the Company
shall indemnify and hold harmless the Executive for all liabilities, costs,
expenses and damages arising out of or in connection with the Executive's
service to the Company under this Agreement. In furtherance of this indemnity,
the Company shall enter into an indemnification agreement, in form and substance
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reasonably satisfactory to the Executive and the Company. In addition, the
indemnity provided hereunder shall extend to service by the Executive as an
officer or director, or service in a similar capacity, for any civic, community
or charitable organization, provided such service is undertaken at the request
of or with the knowledge and acquiescence of the Company. The foregoing
indemnification shall be in addition to any rights or benefits the Executive may
have under statute, the Bylaws or Articles of Incorporation of the Company,
under a policy of insurance, or otherwise.
5. EXTENT OF SERVICES; VACATIONS AND DAYS OFF
(a) Extent of Services. During the term of the Executive's employment
under this Agreement, except during customary vacation periods and periods of
illness, the Executive shall devote full-time energy and attention during
regular business hours to the benefit and business of the Company as may be
reasonably necessary in performing the Executive's duties pursuant to this
Agreement.
(b) Vacations. The Executive shall be entitled to vacations with pay and
to such personal and sick leave with pay in accordance with the policy of the
Company as may be established from time to time by the Company and applied to
other senior officers of the Company. In no event shall the Executive be
entitled to fewer than four weeks' annual vacation. Unused vacation days may be
carried over from one year to the next for a period of up to two years. Any
vacation days which remain unused on the second anniversary of the end of the
fiscal year to which they originally related shall expire and shall thereafter
no longer be useable by the Executive.
6. FACILITIES
The Company shall provide the Executive with a fully furnished office, and
the facilities of the Company shall be generally available to the Executive in
the performance of the Executive's duties pursuant to this Agreement, it being
understood and contemplated by the parties that all equipment, supplies and
office personnel required in the performance of the Executive's duties under
this Agreement shall be supplied by and at the sole expense of the Company.
7. ILLNESS OR INCAPACITY, TERMINATION ON DEATH, ETC.
(a) Death. If the Executive dies during the term of the Executive's
employment, the Company shall pay to the estate of the Executive within 30 days
after the date of death such Base Salary and any cash bonus compensation earned
pursuant to the provisions of any incentive compensation plan then in effect but
not yet paid, as would otherwise have been payable to the Executive up to the
end of the month in which the Executive's death occurs. After receiving the
payments provided in this Section 7(a) the Executive and the Executive's estate
shall have no further rights under this Agreement (other than those rights
already accrued).
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(b) Disability. (i) During any period of disability, illness or incapacity
during the term of this Agreement which renders the Executive at least
temporarily unable to perform the services required under this Agreement, the
Executive shall receive the Base Salary payable under Section 3(a) of this
Agreement plus any cash bonus compensation earned pursuant to the provisions of
any incentive compensation plan then in effect but not yet paid, less any cash
benefits received by him under any disability insurance carried by or provided
by the Company. Upon the Executive's "Permanent Disability" (as defined below),
which Permanent Disability continues during the payment periods specified
herein, the Company shall pay to the Executive for the period of time specified
below an amount (the "Disability Payment") equal to the (i) sum of (A) the Base
Salary, paid in the same monthly or other periodic installments as in effect at
the time of the Executive's Permanent Disability plus (B) an amount equal to the
target level of the annual cash bonus payable to the Executive under the
Company's Management Incentive Compensation Plan as described on Exhibit A or
any similar bonus or incentive plans or programs then in effect (the "MICP
Target Amount"), in respect of the fiscal during which the Executive's Permanent
Disability occurred, which MICP Target Amount shall be paid in pro rata equal
monthly installments over the period of time specified below (ii) reduced by the
amount of any monthly payments under any policy of disability income insurance
paid for by the Company which payments are received during the time when any
Disability Payment is being made to the Executive following the Executive's
Permanent Disability. For so long as the Executive's Permanent Disability
continues, the Disability Payment shall be paid by the Company to the Executive
at the same time or times as would have been the case for payment of Base Salary
over the unexpired term of this Agreement if the Executive had not become
permanently disabled and had remained employed by the Company hereunder, but in
no case shall such period exceed 24 months. The Executive may be entitled to
receive payments under any disability income insurance which may be carried by
or provided by the Company from time to time. Upon "Permanent Disability" (as
that term is defined in Section 7(b)(ii) below) of the Executive, except as
provided in this Section 7(b) all rights of the Executive under this Agreement
(other than rights already accrued) shall terminate.
(ii) The term "Permanent Disability" as used in this Agreement shall
mean, in the event a disability insurance policy is maintained by the Company
covering the Executive at such time and is in full force and effect, the
definition of permanent disability set forth in such policy. In the event no
disability insurance policy is maintained at such time and in full force and
effect, "Permanent Disability" shall mean the inability of the Executive, as
determined by the Board of Directors of the Company, by reason of physical or
mental disability to perform the duties required of him under this Agreement for
a period of one hundred and eighty (180) days in any one-year period. Successive
periods of disability, illness or incapacity will be considered separate periods
unless the later period of disability, illness or incapacity is due to the same
or related cause and commences less than six months from the ending of the
previous period of disability. Upon such determination, the Board of Directors
may terminate the Executive's employment under this Agreement upon ten (10)
days' prior written notice. If any determination of the Board of Directors with
respect to permanent disability is disputed by the Executive, the parties hereto
agree to abide by the decision of a panel of three physicians. The Executive and
Company shall each appoint one member, and the third member of the panel shall
be appointed by the other two members. The Executive agrees to make himself
available for and submit to examinations by such physicians as
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may be directed by the Company. Failure to submit to any such examination shall
constitute a breach of a material part of this Agreement.
8. OTHER TERMINATIONS
(a) By the Executive. (i) The Executive may terminate the Executive's
employment hereunder upon giving at least ninety (90) days' prior written
notice. In addition, the Executive shall have the right to terminate the
Executive's employment hereunder on the conditions and at the times provided for
in Section 8(d) of this Agreement.
(ii) If the Executive gives notice pursuant to Section 8(a)(i)
above, the Company shall have the right (but not the obligation) to relieve the
Executive, in whole or in part, of the Executive's duties under this Agreement,
or direct the Executive to no longer perform such duties, or direct that the
Executive should no longer report to work, or any combination of the foregoing.
In any such event, the Executive shall be entitled to receive only the Base
Salary not yet paid, as would otherwise have been payable to the Executive up to
the end of the month specified as the month of termination in the termination
notice. In the event the Executive gives notice pursuant to Section 8(a)(i)
above but specifies a termination date in excess of ninety (90) days from the
date of such notice, the Company shall have the right (but not the obligation)
to accelerate the termination date to any date prior to the date specified in
the notice that is in excess of ninety (90) days from the date of the notice,
and the Company shall have the right (but not the obligation) to relieve the
Executive, in whole or in part, of the Executive's duties under this Agreement,
or direct the Executive to no longer perform such duties, or direct that the
Executive should no longer report to work, or any combination of the foregoing;
provided, however, that in any such event the Executive shall be entitled to
receive the Base Salary, as would otherwise have been payable to the Executive
up to the end of the month of the termination date properly selected by the
Company. Upon receiving the payments provided for under this Section 8(a), all
rights of the Executive under this Agreement (other than rights already accrued)
shall terminate.
(b) Termination for "Good Cause". (i) Except as otherwise provided in this
Agreement, the Company may terminate the employment of the Executive hereunder
only for "good cause," which shall mean: (A) the Executive's conviction of
either a felony involving moral turpitude or any crime in connection with the
Executive's employment by the Company which causes the Company a substantial
detriment, but specifically shall not include traffic offenses; (B) actions by
the Executive as an executive officer of the Company which clearly are contrary
to the best interests of the Company; (C) the Executive's willful failure to
take actions permitted by law and necessary to implement policies of the
Company's Board of Directors which the Board of Directors has communicated to
him in writing, provided that minutes of a Board of Directors meeting attended
in its entirety by the Executive shall be deemed communicated to the Executive;
(D) the Executive's continued failure to attend to the Executive's duties as an
executive officer of the Company; or (E) any condition which either resulted
from the Executive's substantial dependence, as determined by the Board of
Directors of the Company, on alcohol, or any narcotic drug or other controlled
or illegal substance. If any determination of substantial dependence is disputed
by the Executive, the
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parties hereto agree to abide by the decision of a panel of three physicians
appointed in the manner and subject to the same penalties for noncompliance as
specified in Section 7(b)(ii) of this Agreement.
(ii) If the employment of the Executive is terminated for good cause
under Section 8(b)(i) of this Agreement, the Company shall pay to the Executive
any Base Salary earned prior to the effective date of termination but not yet
paid and any cash bonus compensation earned pursuant to the provisions of any
incentive compensation plan then in effect but not paid to the Executive prior
to the effective date of such termination. Under such circumstances, such
payments shall be in full and complete discharge of any and all liabilities or
obligations of the Company to the Executive hereunder, and the Executive shall
be entitled to no further benefits under this Agreement (other than rights
already accrued).
(iii) Notwithstanding the foregoing, each of the foregoing bases for
termination specified in (A) through (E) of Subsection 8(b)(i) shall constitute
"Good Cause" only if (1) the Executive has been provided with written notice of
any assertion that there is a basis for termination for good cause which notice
shall specify in reasonable detail specific facts regarding any such assertion
and the Executive has been given a reasonable period of time within which to
remedy or cure the problem or complaint, (2) such notice is provided to the
Executive a reasonable time before the Board of Directors meets to consider any
possible termination for cause, (3) at or prior to the meeting of the Board of
Directors to consider the matters described in the written notice, an
opportunity is provided to the Executive and his counsel to be heard by the
Board of Directors with respect to the matters described in the written notice,
before it acts with respect to such matter, (4) any resolution or other action
by the Board of Directors with respect to any deliberation regarding or decision
to terminate the Executive for good cause is duly adopted by a vote of a
majority of the entire Board of Directors of the Company at a meeting of the
Board duly called and held and (5) the Executive is promptly provided with a
copy of the resolution or other corporate action taken with respect to such
termination.
(iv) Termination of the employment of the Executive other than as
expressly specified above in this Section 8(b) for good cause shall be deemed to
be a termination of employment "Without Good Cause."
(c) Termination Without Good Cause. (i) Notwithstanding any other
provision of this Agreement, the Company shall have the right to terminate the
Executive's employment Without Good Cause pursuant to the provisions of this
Section 8(c). If the Company shall terminate the employment of the Executive
Without Good Cause effective on a date earlier than the termination date
provided for in Section 2 (with the effective date of termination as so
identified by the Company being referred to herein as the "Accelerated
Termination Date"), the Executive, until the end of the term of this Agreement
then in effect as provided for in Section 2 or until the date which is 12 months
after the Accelerated Termination Date, whichever is greater, shall continue to
receive (1) the Base Salary, paid in the same monthly or other periodic
installments as in effect prior to the Accelerated Termination Date (2) an equal
monthly pro rata portion of an amount of cash equal to the sum of the MICP
Target Amount (as that term is defined in Section 7(b)(i)) in respect of the
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year during which the Executive's employment terminates or, if greater, the MICP
Target Amount multiplied times the number of years (or fractions thereof)
remaining in the then unexpired term of this Agreement, and (3) any other cash
or other bonus compensation earned prior to the date of such termination
pursuant to the terms of all incentive compensation plans then in effect other
than the Company's Management Incentive Compensation Plan as described on
Exhibit A or any similar bonus or incentive plans or programs then in effect;
provided that, notwithstanding such termination of employment, the Executive's
covenants set forth in Section 10 and Section 11 are intended to and shall
remain in full force and effect and provided further that in the event of such
termination, the Company shall have the right (but not the obligation) to
relieve the Executive, in whole or in part, of the Executive's duties under this
Agreement, or direct the Executive to no longer perform such duties, or direct
that the Executive no longer be required to report to work, or any combination
of the foregoing.
(ii) The parties agree that, because there can be no exact measure of the
damage that would occur to the Executive as a result of a termination by the
Company of the Executive's employment Without Good Cause, the payments and
benefits paid and provided pursuant to this Section 8(c) shall be deemed to
constitute liquidated damages and not a penalty for the Company's termination of
the Executive's employment Without Good Cause.
(d) Change of Control. (i) For purposes of this Agreement, a "Change in
Control" shall mean the first to occur of:
(1) a change in control of the Company of a nature that is required,
pursuant to the Securities Exchange Act of 1934 (the "1934 Act"), to be reported
in response to Item 1(a) of a Current Report on Form 8-K or Item 6(e) of
Schedule 14A under the 1934 Act (in each case under this Agreement, references
to provisions of the 1934 Act and the rules and regulations promulgated
thereunder being understood to refer to such law, rules and regulations as the
same are in effect on November 1, 1996); or
(2) the acquisition of "Beneficial Ownership" (as defined in Rule
13d-3 under the 1934 Act) of the Company's securities comprising 35% or more of
the combined voting power of the Company's outstanding securities by any
"person" (as that term is used in Sections 13(d) and 14(d)(2) of the 1934 Act
and the rules and regulations promulgated thereunder, but not including any
trustee or fiduciary acting in that capacity for an employee benefit plan
sponsored by the Company) and such person's "affiliates" and "associates" (as
those terms are defined under the 1934 Act), but excluding any ownership by the
Executive and his affiliates and associates; or
(3) the failure of the "Incumbent Directors" (as defined below) to
constitute at least a majority of all directors of the Company (for these
purposes, "Incumbent Directors" means individuals who were the directors of the
Company on November 1, 1996, and, after his or her election, any individual
becoming a director subsequent to November 1, 1996, whose election, or
nomination for election by the Company's stockholders, is approved by a vote of
at least two-thirds of the directors then comprising the Incumbent Directors,
except that no individual shall be considered an Incumbent Director who is not
recommended by management and whose initial
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assumption of office as a director is in connection with an actual or threatened
"election contest" relating to the "election of directors" of the Company, as
such terms are used in Rule 14a-11 of Regulation 14A under the 1934 Act); or
(4) the closing of a sale of all or substantially all of the assets
of the Company;
(5) the Company's adoption of a plan of dissolution or liquidation;
or
(6) the closing of a merger or consolidation involving the Company
in which the Company is not the surviving corporation or if, immediately
following such merger or consolidation, less than seventy-five percent (75%) of
the surviving corporation's outstanding voting stock is held or is anticipated
to be held by persons who are stockholders of the Company immediately prior to
such merger or consolidation.
(ii) If a Change in Control of the Company occurs, the Executive
shall have the right, exercisable for a period of one year thereafter by
delivering a written statement to that effect to the Company, to immediately
terminate this Agreement and upon such a determination the Executive shall have
the right to receive and the Company shall be obligated to pay to Executive in
cash a lump sum payment in an amount equal to the sum of (1) two times the
annual Base Salary then in effect, (2) two times the MICP Target Amount (as that
term is defined in Section 7(b)(i)) in the year in which employment terminates
and (3) the additional payments necessary to discharge certain tax liabilities
(the "Gross Up") as that term is defined in Section 13 of this Agreement (the
sum of the foregoing amounts other than the Gross Up being referred to as the
"Change in Control Payment"). If the Executive fails to exercise his rights
under this Section 8(d) within one year following a Change in Control, such
rights shall expire and be of no further force or effect.
(e) Intentions Regarding Certain Stock and Benefit Plans. Except as
otherwise provided herein, upon any termination of the Executive's employment
Without Good Cause or upon the exercise by the Executive of his rights to
terminate his employment following a Change of Control, it is the intention of
the parties that any and all vesting or performance requirements or conditions
affecting any outstanding restricted stock, performance stock, stock option,
stock appreciation right, bonus, award, right, grant or any other incentive
compensation under any of the Plans, under this Agreement, or otherwise
received, shall be deemed to be fully satisfied and any risk of forfeiture with
respect thereto shall be deemed to have lapsed.
(f) Certain Rights Mutually Exclusive. The provisions of Section 8(c) and
Section 8(d) are mutually exclusive, provided, however, that if within one year
following commencement of an 8(c) payout there shall be a Change in Control as
defined in Section 8(d)(i), then the Executive shall be entitled to the amount
payable to the Executive under Section 8(d)(ii) and Section 8(d)(iii) reduced by
the amount that the Executive has received under Section 8(c) up to the date of
the change in control. The triggering of the lump sum payment requirement of
Section 8(d) shall cause the provisions of Section 8(c) to become inoperative.
9.
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9. DISCLOSURE
The Executive agrees that during the term of the Executive's employment by
the Company, the Executive will disclose and disclose only to the Company all
ideas, methods, plans, developments or improvements known by him which relate
directly or indirectly to the business of the Company, whether acquired by the
Executive before or during the Executive's employment by the Company. Nothing in
this Section 9 shall be construed as requiring any such communication where the
idea, plan, method or development is lawfully protected from disclosure as a
trade secret of a third party or by any other lawful prohibition against such
communication. The covenants of this Section 9 shall not be violated by ordinary
and customary communications with reporters, bankers and securities analysts and
other members of the investment community.
10. CONFIDENTIALITY
The Executive agrees to keep in strict secrecy and confidence any and all
information the Executive assimilates or to which the Executive has access
during the Executive's employment by the Company and which has not been publicly
disclosed and is not a matter of common knowledge in the fields of work of the
Company. The Executive agrees that both during and after the term of the
Executive's employment by the Company, the Executive will not, without the prior
written consent of the Company, disclose any such confidential information to
any third person, partnership, joint venture, company, corporation or other
organization. The foregoing covenants shall not be breached to the extent that
any such confidential information becomes a matter of general knowledge other
than through a breach by the Executive of the Executive's obligations under this
Section 10.
11. NONCOMPETITION AND NONSOLICITATION
(a) General. The Executive hereby acknowledges that, during and solely as
a result of the Executive's employment by the Company, the Executive has
received and shall continue to receive: (1) special training and education with
respect to the operations of the Company's real estate development and
management businesses and its leasing, lending and financing activities, and
other related matters, and (2) access to confidential information and business
and professional contacts. In consideration of the special and unique
opportunities afforded to the Executive by the Company as a result of the
Executive's employment, as outlined in the previous sentence, the Executive
hereby agrees to the restrictive covenants in this Section 11.
(b) Noncompetition. During the term of the Executive's employment, whether
pursuant to this Agreement, any automatic or other renewal hereof or otherwise,
and, except as may be otherwise herein provided, for a period of two (2) years
after the termination of the Executive's employment with the Company, regardless
of the reason for such termination, the Executive shall not, directly or
indirectly, enter into, engage in, be employed by or consult with any business
which competes with the Company's real estate lending, leasing, development or
management businesses
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in Florida. The Executive shall not engage in such prohibited activities, either
as an individual, partner, officer, director, stockholder, employee, advisor,
independent contractor, joint venturer, consultant, agent, or representative or
salesman for any person, firm, partnership, corporation or other entity so
competing with the Company. The restrictions of this Section 11 shall not be
violated by (i) the ownership of no more than 2% of the outstanding securities
of any company whose stock is traded on a national securities exchange or is
quoted in the Automated Quotation System of the National Association of
Securities Dealers (NASDAQ), or (ii) other outside business investments that do
not in any manner conflict with the services to be rendered by the Executive for
the Company and that do not diminish or detract from the Executive's ability to
render the Executive's required attention to the business of the Company.
(c) Nonsolicitation. During the Executive's employment with the Company
and, except as may be otherwise herein provided, for a period of two (2) years
following the termination of the Executive's employment with the Company,
regardless of the reason for such termination, the Executive agrees the
Executive will refrain from and will not, directly or indirectly, as an
individual, partner, officer, director, stockholder, employee, advisor,
independent contractor, joint venturer, consultant, agent, representative,
salesman or otherwise solicit any of the employees of the Company to terminate
their employment.
(d) Term Extended or Suspended. The period of time during which the
Executive is prohibited from engaging in certain business practices pursuant to
Sections 11(b) or (c) shall be extended by any length of time during which the
Executive is in breach of such covenants.
(e) Essential Element. It is understood by and between the parties hereto
that the foregoing restrictive covenants set forth in Sections 11(a) through (c)
are essential elements of this Agreement, and that, but for the agreement of the
Executive to comply with such covenants, the Company would not have agreed to
enter into this Agreement. Such covenants by the Executive shall be construed as
agreements independent of any other provision in this Agreement. The existence
of any claim or cause of action of the Executive against the Company, whether
predicated on this Agreement, or otherwise, shall not constitute a defense to
the enforcement by the Company of such covenants.
(f) Severability. It is agreed by the Company and Executive that if any
portion of the covenants set forth in this Section 11 are held to be invalid,
unreasonable, arbitrary or against public policy, then such portion of such
covenants shall be considered divisible both as to time and geographical area.
The Company and Executive agree that, if any court of competent jurisdiction
determines the specified time period or the specified geographical area
applicable to this Section 11 to be invalid, unreasonable, arbitrary or against
public policy, a lesser time period or geographical area which is determined to
be reasonable, non-arbitrary and not against public policy may be enforced
against the Executive. The Company and the Executive agree that the foregoing
covenants are appropriate and reasonable when considered in light of the nature
and extent of the business conducted by the Company.
11.
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12. SPECIFIC PERFORMANCE
The Executive agrees that damages at law will be an insufficient remedy to
the Company if the Executive violates the terms of Sections 9, 10 or 11 of this
Agreement and that the Company would suffer irreparable damage as a result of
such violation. Accordingly, it is agreed that the Company shall be entitled,
upon application to a court of competent jurisdiction, to obtain injunctive
relief to enforce the provisions of such Sections, which injunctive relief shall
be in addition to any other rights or remedies available to the Company. The
Executive agrees to pay to the Company all reasonable costs and expenses
incurred by the Company relating to the enforcement of the terms of Sections 9,
10 or 11 of this Agreement, including reasonable fees and reasonable
disbursements of counsel selected by the Company (during investigation and
before and at trial and in appellate proceedings).
12.
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13. PAYMENT OF EXCISE TAXES
(a) Payment of Excise Taxes. If the Executive is to receive any (1) Change
of Control Payment under Section 8(d), (2) any benefit or payment under Section
7 as a result of or following the death or Permanent Disability of the
Executive, (3) any benefit or payment under Section 8(c) as a result of or
following any termination of employment hereunder Without Good Cause, (4) any
benefit or payment under the Plans as a result of a Change of Control, following
the death of Permanent Disability of the Executive or following the termination
of employment hereunder Without Good Cause (such sections being referred to as
the "Covered Sections" and the benefits and payments to be received thereunder
being referred to as the "Covered Payments"), the Executive shall be entitled to
receive the amount described below to the extent applicable: If any Covered
Payment(s) under any of the Covered Sections or by the Company under another
plan or agreement (collectively, the "Payments") are subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986 (as amended from
time to time, the "Code"), or any successor or similar provision of the Code
(the "Excise Tax"), the Company shall pay the Executive an additional amount
(the "Gross Up") such that the net amount retained by the Executive after
deduction of any Excise Tax on the Payments and the federal income tax on any
amounts paid under this Section 13 shall be equal to the Payments.
(b) Certain Adjustment Payments. For purposes of determining the Gross Up,
the Executive shall be deemed to pay the federal income tax at the highest
marginal rate of taxation (currently 39.5%) in the calendar year in which the
payment to which the Gross Up applies is to be made. The determination of
whether such Excise Tax is payable and the amount thereof shall be made upon the
opinion of tax counsel selected by the Company and reasonably acceptable to the
Executive. The Gross Up, if any, that is due as a result of such determination
shall be paid to the Executive in cash in a lump sum within thirty (30) days of
such computation. If such opinion is not finally accepted by the Internal
Revenue Service upon audit or otherwise, then appropriate adjustments shall be
computed (without interest but with Gross Up, if applicable) by such tax counsel
based upon the final amount of the Excise Tax so determined; any additional
amount due the Executive as a result of such adjustment shall be paid to the
Executive by his or her Company in cash in a lump sum within thirty (30) days of
such computation, or any amount due the Executive's Company as a result of such
adjustment shall be paid to the Company by the Executive in cash in a lump sum
within thirty (30) days of such computation.
14. MISCELLANEOUS
(a) Waiver of Breach. The waiver by either party to this Agreement of a
breach of any of the provisions of this Agreement by the other party shall not
be construed as a waiver of any subsequent breach by such other party.
(b) No Right to Continued Employment. Notwithstanding the fact that
certain provisions of this Agreement and/or Exhibit A reference a three year
cycle or provide for benefits upon a third year of employment, this Agreement
shall have a two year term with annual one year renewal terms subject to the
termination provisions contained herein.
13.
<PAGE>
(c) Compliance With Other Agreements. The Executive represents and
warrants that the execution of this Agreement by him and the Executive's
performance of the Executive's obligations hereunder will not conflict with,
result in the breach of any provision of or the termination of or constitute a
default under any Agreement to which the Executive is a party or by which the
Executive is or may be bound.
(d) Binding Effect; Assignment. The rights and obligations of the Company
under this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of the Company. This Agreement is a personal employment
contract and the rights, obligations and interests of the Executive hereunder
may not be sold, assigned, transferred, pledged or hypothecated.
(e) Entire Agreement. This Agreement contains the entire agreement and
supersedes all prior agreements and understandings, oral or written, with
respect to the subject matter hereof. This Agreement may be changed only by an
agreement in writing signed by the party against whom any waiver, change,
amendment, modification or discharge is sought.
(f) No Duty to Mitigate. The Executive shall be under no duty to mitigate
any loss of income as result of the termination of his employment hereunder and
any payments due the Executive upon termination of employment shall not be
reduced in respect of any other employment compensation received by the
Executive following such termination.
(g) Florida Law. This Agreement shall be construed pursuant to and
governed by the substantive laws of the State of Florida (except that any
provision of Florida law shall not apply if the law of a state or jurisdiction
other than Florida would otherwise apply).
(h) Venue; Process. The parties to this Agreement agree that jurisdiction
and venue in any action brought pursuant to this Agreement to enforce its terms
or otherwise with respect to the relationships between the parties shall
properly lie in and only in the Circuit Court of the Sixth Judicial Circuit of
the State of Florida in and for Pinellas County (the "Circuit Court") and the
parties agree that jurisdiction shall not properly lie in any other jurisdiction
provided, however, if jurisdiction does not properly lie with the Circuit Court,
the parties agree that jurisdiction and venue shall properly lie in and only in
the United States District Court for the Middle District of Florida, Tampa
Division. The parties hereby waive any objections which they may now or
hereafter have based on venue and/or forum non conveniens and irrevocably submit
to the jurisdiction of any such court in any legal suit, action or proceeding
arising out of or relating to this Agreement. The parties further agree that the
mailing by certified or registered mail, return receipt requested, of any
process required by any such court shall constitute valid and lawful service of
process against them, without the necessity for service by any other means
provided by statute or rule of court.
(i) Headings. The headings of the various sections in this Agreement are
inserted for the convenience of the parties and shall not affect the meaning,
construction or interpretation of this Agreement.
14.
<PAGE>
(j) Severability. Any provision of this Agreement which is determined by a
court of competent jurisdiction to be prohibited, unenforceable or not
authorized in any jurisdiction shall, as to such jurisdiction, be ineffective to
the extent of such prohibition, unenforceability or non-authorization without
invalidating the remaining provisions hereof or affecting the validity,
enforceability or legality of such provision in any other jurisdiction. In any
such case, such determination shall not affect any other provision of this
Agreement, and the remaining provisions of this Agreement shall remain in full
force and effect. If any provision or term of this Agreement is susceptible to
two or more constructions or interpretations, one or more of which would render
the provision or term void or unenforceable, the parties agree that a
construction or interpretation which renders the term or provision valid shall
be favored.
(k) Deduction for Tax Purposes. The Company's obligations to make payments
under this Agreement are independent of whether any or all of such payments are
deductible expenses of the Company for federal income tax purposes.
(l) Enforcement. If, within 10 days after demand to comply with the
obligations of one of the parties to this Agreement served in writing on the
other, compliance or reasonable assurance of compliance is not forthcoming, and
the party demanding compliance engages the services of an attorney to enforce
rights under this Agreement, the prevailing party in any action shall be
entitled to recover all reasonable costs and expenses of enforcement (including
reasonable attorneys' fees and reasonable expenses during investigation, before
and at trial and in appellate proceedings). In addition, each of the parties
agrees to indemnify the other in respect of any and all claims, losses, costs,
liabilities and expenses, including reasonable fees and reasonable disbursements
of counsel (during investigation prior to initiation of litigation and at trial
and in appellate proceedings if litigation ensues), directly or indirectly
resulting from or arising out of a breach by the other party of their respective
obligations hereunder. The parties' costs of enforcing this Agreement shall
include prejudgment interest. Additionally, if any party incurs any
out-of-pocket expenses in connection with the enforcement of this Agreement, all
such amounts shall accrue interest at 18% per annum (or such lower rate as may
be required to avoid any limit imposed by applicable law) commencing 30 days
after any such expenses are incurred.
(m) Notices. All notices which are required or may be given under this
Agreement shall be in writing and shall be deemed to have been duly given when
received if personally delivered; when transmitted if transmitted by telecopy or
similar electronic transmission method; one working day after it is sent, if
sent by recognized expedited delivery service; and three days after it is sent,
if mailed, first class mail, certified mail, return receipt requested, with
postage prepaid. In each case notice shall be sent to:
To the Company: Echelon International Corporation
One Progress Plaza
St. Petersburg, FL 33701
Attn: Chairman of the Board
Telecopy: (813) 824-6536
To the Executive at the Executive's address herein first above written, or
to such other address as either party may specify by written notice to the
other.
15.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
ATTEST: ECHELON INTERNATIONAL CORPORATION
(Corporate Seal)
________________________________ By:____________________________________
Secretary Darryl A. LeClair, President
EXECUTIVE
Witnesses:
________________________________ _______________________________________
Thomas D. Wilson
________________________________
As to Executive
<PAGE>
EXHIBIT A
TO
EMPLOYMENT AGREEMENT WITH THOMAS D. WILSON
DATED NOVEMBER 20, 1996
The Company will establish a Management Incentive Compensation Plan
("MICP") for its senior management in which the Executive will participate.
During the first two full fiscal years of the Company's operation following the
completion of the Spinoff ending on December 31, 1997, and December 31, 1998,
respectively (the "Covered Years"), the MICP will provide for annual cash
bonuses based upon the Company's net income for each of the Covered Years. The
Executive's participation in the MICP during the Covered Years shall be based
upon the criteria and shall include awards with the values indicated in the
tables set forth below and as more fully described in this Exhibit A.
MICP
During each of the Covered Years, (i) all MICP bonuses shall be paid in
cash; (ii) if Threshold Net Income is not achieved, no MICP cash bonus will be
paid; (iii) if actual net income exceeds Threshold Net Income, but is less than
Target Net Income, or exceeds Target Net Income but is less than Maximum Net
Income, the percentage of the MICP bonus shall be proportionately increased
above the Threshold bonus amount or the Target Bonus amount, as the case may be,
and (iv) if actual net income equals or exceeds Maximum Net Income, the Maximum
MICP cash bonus will be paid, but no additional cash bonus will be payable under
the MICP regardless of the amount by which actual net income in that Covered
Year exceeds Maximum Net Income. The following table sets forth information
regarding the MICP Net Income Threshold, Target and Maximum and cash bonuses.
----------------------------------------------------------
MICP 1997 1998
----------------------------------------------------------
THRESHOLD
----------------------------------------------------------
Net Income $1,584,274 $1,768,816
----------------------------------------------------------
MICP Cash Bonus $8,014.50 $8,014.50
(% of Target Bonus) (50%) (50%)
----------------------------------------------------------
TARGET
----------------------------------------------------------
Net Income $2,112,366 $2,358,422
----------------------------------------------------------
MICP Cash Bonus $16,029 $16,029
(% of Base Salary) (15%) (15%)
----------------------------------------------------------
MAXIMUM
----------------------------------------------------------
Net Income $2,640,457 $2,948,027
----------------------------------------------------------
MICP Cash Bonus $24,043.50 $24,043.50
(% of Target Bonus) (150%) (150)%
----------------------------------------------------------
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into this 20th day of
November, 1996, but is effective for all purposes as of the date specified below
in Section 2, by and between ECHELON INTERNATIONAL CORPORATION, a Florida
corporation (the "Company"), and RAYMOND F. HIGGINS, residing at 16901 Filly
Lane, Odessa, Florida 33556 (the "Executive").
W I T N E S S E T H:
1. EMPLOYMENT
The Company hereby employs the Executive, and the Executive hereby accepts
such employment, upon the terms and subject to the conditions set forth in this
Agreement.
2. TERM
Subject to the provisions for termination as hereinafter provided, the
term of employment under this Agreement shall begin as of the completion of the
"Distribution" as that term is defined in the Company's Registration Statement
on Form 10, as amended (the "Distribution"), and shall continue through December
31, 1998, provided, however, that this Employment Agreement shall automatically
be renewed for successive one year terms unless either party gives the other
written notice of termination at least ninety (90) days prior to the end of any
such term.
3. COMPENSATION
(a) Base Salary. The Company shall pay to the Executive as basic
compensation for all services rendered by the Executive during the term of this
Agreement a basic annualized salary of $100,000 per year, or such other sum in
excess of that amount as the parties may agree on from time to time or as
provided in the next sentence (as in effect from time to time, the "Base
Salary"), payable monthly or in other more frequent installments, as determined
by the Company. The Board of Directors shall have no authority to reduce the
Executive's Base Salary in effect from time to time. In addition, the Board of
Directors, in its discretion, may award a bonus or bonuses to the Executive in
addition to the bonuses provided for in Section 3(b).
(b) Bonuses. In addition to the Base Salary to be paid pursuant to Section
3(a), for each of the Company's two fiscal years ending December 31, 1997 and
December 31, 1998 during the term of this Agreement, the Company shall pay as
incentive compensation the annual bonuses, to the extent earned, specified on
Exhibit A to this Agreement. For each fiscal year ending after December 31,
1998, provided the Executive continues to be employed by the Company under this
Agreement, the Executive shall be eligible for incentive compensation annual
bonus plan(s) adopted by the Board of Directors of the Company from time to time
in accordance with the terms of such plans.
(c) Certain Plans and Initial Award. (i) It is anticipated that the
Company will adopt certain incentive compensation plans including a long term
incentive plan (the "LTIP"), providing for annual or other periodic awards to
key employees, among other things, of restricted stock and a stock option plan
(the "ISO/NSO Plan"), providing for the annual or other periodic issuance of
options to purchase the Company's common stock. The LTIP and ISO/NSO are
referred to collectively in this Agreement as the "Plans." The Executive will be
given an opportunity to participate in the Plans, in accordance with and subject
to the terms of the Plans as they may be adopted, amended and administered from
time to time.
<PAGE>
(ii) In addition to the incentive compensation referred to in
Section 3(c)(i), the Company hereby agrees to issue to the Executive under the
LTIP, effective immediately following the completion of the Distribution, that
number of shares of the Company's common stock (the "Initial Restricted Stock")
as will equal two-tenths of one percent (0.20%) of the shares of the Company's
common stock distributed in the Distribution, which Initial Restricted Stock
shall be subject to risk of forfeiture, which risk will lapse as to one-fourth
of the shares of the Initial Restricted Stock on January 31, 1998, and as to an
additional one-fourth of the Initial Restricted Stock on each of January 31,
1999, January 31, 2000 and January 31, 2001. Accordingly, as of January 31,
2001, all risks of forfeiture shall have lapsed as to all the Initial Restricted
Stock.
(iii) In addition to the incentive compensation referred to in
Section 3(c)(i) and the Initial Restricted Stock, the Company hereby agrees to
grant to the Executive under the LTIP, effective immediately following the
completion of the Distribution, options to purchase one thousand (1,000) shares
of the Company's common stock (the "Initial Options"), which Initial Options
shall be exercisable as to one-fourth of the shares of common stock covered by
the Initial Options on January 31, 1998, and as to an additional one-fourth of
such shares on each of January 31, 1999, January 31, 2000 and January 31, 2001.
The exercise price for the Initial Options shall be the closing price on the New
York Stock Exchange (or such other market on which the Company's stock trades if
it is not listed on the New York Stock Exchange) on the trading day which is the
eighth month anniversary of the day of the completion of the Distribution (the
"Option Pricing Date"), or if the Option Pricing Date is not a trading day, the
first trading day thereafter.
(iv) Any and all risks of forfeiture shall lapse as to all of the
Initial Restricted Stock and the Initial Options shall be fully vested and shall
be exercisable as to all of the shares of common stock covered by the Initial
Options upon (i) the death of the Executive or termination of employment upon
the "Permanent Disability" (as that term is defined in Section 7(b)(ii) of this
Agreement) of the Executive, (ii) the termination of employment of the Executive
by the Company"Without Good Cause" (as that term is defined in Section 8(b)(ii)
of this Agreement) or (iii) the exercise by the Executive of his rights to
terminate his employment under Section 8(d)(ii) following a "Change of Control"
(as that term is defined in Section 8(d)(i) of this Agreement).
(d) Reimbursement. The Company shall reimburse the Executive, in
accordance with the Company's policies and practices for senior management, for
all reasonable expenses incurred by the Executive in the performance of the
Executive's duties under this Agreement, provided, however, that the Executive
must furnish to the Company an itemized account, satisfactory to the Company, in
substantiation of such expenditures.
(e) Certain Benefits. The Executive shall be entitled to such fringe
benefits including, but not limited to, medical and other insurance benefits as
may be provided from time to time by the Company to other senior officers of the
Company. In addition, without restricting the foregoing, the Company shall
provide the Executive at the Company's sole cost and expense with (i) a policy
or policies of term life insurance (the "Basic Life Insurance") providing, among
other things, basic death benefits of not less than two times the Base Salary in
effect from time to time, (ii) directors and officers liability insurance with
coverage, terms and limits suitable for a vice president of a New York Stock
Exchange listed company comparable in financial size and wherewithal to that of
the Company and (iii) a monthly allowance of $500 cash to reimburse the
Executive for the use and maintenance of his automobile in furtherance of the
business and affairs of the Company, provided that the Executive shall at all
times insure the Executive and the Company in such amounts as may be reasonably
requested by the Company against claims for bodily injury, death and property
damages occurring as a result of its use. The Company shall use its reasonable
2.
<PAGE>
best efforts to make available to the Executive in connection with providing and
paying for the Basic Life Insurance the opportunity to purchase at the
Executive's sole cost and expense additional life insurance with a basic death
benefit (the "Optional Life Insurance") equal to two times the Executive's Base
Salary in effect from time to time (affording the Executive the opportunity to
have basic death benefit life insurance coverage equal to four times such Base
Salary). The Company shall use its reasonable best efforts to effect the
transfer of the ownership to the Executive of the policy or policies for the
Basic Life Insurance and the Optional Life Insurance, if any, upon the
termination of the Executive's employment by the Company. After the Executive's
termination, payment of any premiums would be the obliga (f) Other Incentive and
Benefit Plans. The Executive shall be eligible to participate, in accordance
with the terms of such plans as they may be adopted, amended and administered
from time to time, in incentive, bonus, benefit or similar plans, including
without limitation, any stock option, bonus or other equity ownership plan, any
short, mid or long term incentive plan and any other bonus, pension or profit
sharing plans established by the Company from time to time.
4. DUTIES
(a) General. The Executive is engaged as a Vice President of the Company.
In addition, at the request of the Board of Directors, the Executive shall serve
in the same positions in any wholly owned subsidiary of the Company, without any
additional compensation. The Executive shall have such duties and hold such
other offices as may from time to time be reasonably assigned to him by the
Board of Directors of the Company.
(b) Indemnification. To the fullest extent permitted by law, the Company
shall indemnify and hold harmless the Executive for all liabilities, costs,
expenses and damages arising out of or in connection with the Executive's
service to the Company under this Agreement. In furtherance of this indemnity,
the Company shall enter into an indemnification agreement, in form and substance
reasonably satisfactory to the Executive and the Company. In addition, the
indemnity provided hereunder shall extend to service by the Executive as an
officer or director, or service in a similar capacity, for any civic, community
or charitable organization, provided such service is undertaken at the request
of or with the knowledge and acquiescence of the Company. The foregoing
indemnification shall be in addition to any rights or benefits the Executive may
have under statute, the Bylaws or Articles of Incorporation of the Company,
under a policy of insurance, or otherwise.
5. EXTENT OF SERVICES; VACATIONS AND DAYS OFF
(a) Extent of Services. During the term of the Executive's employment
under this Agreement, except during customary vacation periods and periods of
illness, the Executive shall devote full-time energy and attention during
regular business hours to the benefit and business of the Company as may be
reasonably necessary in performing the Executive's duties pursuant to this
Agreement.
(b) Vacations. The Executive shall be entitled to vacations with pay and
to such personal and sick leave with pay in accordance with the policy of the
Company as may be established from time to time by the Company and applied to
other senior officers of the Company. In no event shall the Executive be
entitled to fewer than four weeks' annual vacation. Unused vacation days may be
carried over from one year to the next for a period of up to two years. Any
vacation days which remain unused on the second anniversary of the end of the
fiscal year to which they originally related shall expire and shall thereafter
no longer be useable by the Executive.
3.
<PAGE>
6. FACILITIES
The Company shall provide the Executive with a fully furnished office, and
the facilities of the Company shall be generally available to the Executive in
the performance of the Executive's duties pursuant to this Agreement, it being
understood and contemplated by the parties that all equipment, supplies and
office personnel required in the performance of the Executive's duties under
this Agreement shall be supplied by and at the sole expense of the Company.
7. ILLNESS OR INCAPACITY, TERMINATION ON DEATH, ETC.
(a) Death. If the Executive dies during the term of the Executive's
employment, the Company shall pay to the estate of the Executive within 30 days
after the date of death such Base Salary and any cash bonus compensation earned
pursuant to the provisions of any incentive compensation plan then in effect but
not yet paid, as would otherwise have been payable to the Executive up to the
end of the month in which the Executive's death occurs. After receiving the
payments provided in this Section 7(a) the Executive and the Executive's estate
shall have no further rights under this Agreement (other than those rights
already accrued).
(b) Disability. (i) During any period of disability, illness or incapacity
during the term of this Agreement which renders the Executive at least
temporarily unable to perform the services required under this Agreement, the
Executive shall receive the Base Salary payable under Section 3(a) of this
Agreement plus any cash bonus compensation earned pursuant to the provisions of
any incentive compensation plan then in effect but not yet paid, less any cash
benefits received by him under any disability insurance carried by or provided
by the Company. Upon the Executive's "Permanent Disability" (as defined below),
which Permanent Disability continues during the payment periods specified
herein, the Company shall pay to the Executive for the period of time specified
below an amount (the "Disability Payment") equal to the (i) sum of (A) the Base
Salary paid in the same monthly or other periodic installments as in effect at
the time of the Executive's Permanent Disability plus (B) an amount equal to the
target level of the annual cash bonus payable to the Executive under the
Company's Management Incentive Compensation Plan as described on Exhibit A or
any similar bonus or incentive plans or programs then in effect (the "MICP
Target Amount"), in respect of the fiscal during which the Executive's Permanent
Disability occurred, which MICP Target Amount shall be paid in pro rata equal
monthly installments over the period of time specified below (ii) reduced by the
amount of any monthly payments under any policy of disability income insurance
paid for by the Company which payments are received during the time when any
Disability Payment is being made to the Executive following the Executive's
Permanent Disability. For so long as the Executive's Permanent Disability
continues, the Disability Payment shall be paid by the Company to the Executive
at the same time or times as would have been the case for payment of Base Salary
over the unexpired term of this Agreement if the Executive had not become
permanently disabled and had remained employed by the Company hereunder, but in
no case shall such period exceed 24 months. The Executive may be entitled to
receive payments under any disability income insurance which may be carried by
or provided by the Company fs that term is defined in Section 7(b)(ii) below) of
the Executive, except as provided in this Section 7(b) all rights of the
Executive under this Agreement (other than rights already accrued) shall
terminate.
(ii) The term "Permanent Disability" as used in this Agreement shall
mean, in the event a disability insurance policy is maintained by the Company
covering the Executive at such time and is in full force and effect, the
definition of permanent disability set forth in such policy. In the event no
disability insurance policy is maintained at such time and in full force and
effect, "Permanent Disability" shall mean the inability of the Executive, as
determined by the Board of Directors of the Company, by reason of
4.
<PAGE>
physical or mental disability to perform the duties required of him under this
Agreement for a period of one hundred and eighty (180) days in any one-year
period. Successive periods of disability, illness or incapacity will be
considered separate periods unless the later period of disability, illness or
incapacity is due to the same or related cause and commences less than six
months from the ending of the previous period of disability. Upon such
determination, the Board of Directors may terminate the Executive's employment
under this Agreement upon ten (10) days' prior written notice. If any
determination of the Board of Directors with respect to permanent disability is
disputed by the Executive, the parties hereto agree to abide by the decision of
a panel of three physicians. The Executive and Company shall each appoint one
member, and the third member of the panel shall be appointed by the other two
members. The Executive agrees to make himself available for and submit to
examinations by such physicians as may be directed by the Company. Failure to
submit to any such examination shall constitute a breach of a material part of
this Agreement.
8. OTHER TERMINATIONS
(a) By the Executive. (i) The Executive may terminate the Executive's
employment hereunder upon giving at least ninety (90) days' prior written
notice. In addition, the Executive shall have the right to terminate the
Executive's employment hereunder on the conditions and at the times provided for
in Section 8(d) of this Agreement.
(ii) If the Executive gives notice pursuant to Section 8(a)(i)
above, the Company shall have the right (but not the obligation) to relieve the
Executive, in whole or in part, of the Executive's duties under this Agreement,
or direct the Executive to no longer perform such duties, or direct that the
Executive should no longer report to work, or any combination of the foregoing.
In any such event, the Executive shall be entitled to receive only the Base
Salary not yet paid, as would otherwise have been payable to the Executive up to
the end of the month specified as the month of termination in the termination
notice. In the event the Executive gives notice pursuant to Section 8(a)(i)
above but specifies a termination date in excess of ninety (90) days from the
date of such notice, the Company shall have the right (but not the obligation)
to accelerate the termination date to any date prior to the date specified in
the notice that is in excess of ninety (90) days from the date of the notice,
and the Company shall have the right (but not the obligation) to relieve the
Executive, in whole or in part, of the Executive's duties under this Agreement,
or direct the Executive to no longer perform such duties, or direct that the
Executive should no longer report to work, or any combination of the foregoing;
provided, however, that in any such event the Executive shall be entitled to
receive the Base Salary, as would otherwise have been payable to the Executive
up to the end of the month of the termination date properly selected by the
Company. Upon receiving the payments provided for under this Section 8(a), all
rights of the Executive under this Agreement (other than rights already accrued)
shall terminate.
(b) Termination for "Good Cause". (i) Except as otherwise provided in this
Agreement, the Company may terminate the employment of the Executive hereunder
only for "good cause," which shall mean: (A) the Executive's conviction of
either a felony involving moral turpitude or any crime in connection with the
Executive's employment by the Company which causes the Company a substantial
detriment, but specifically shall not include traffic offenses; (B) actions by
the Executive as an executive officer of the Company which clearly are contrary
to the best interests of the Company; (C) the Executive's willful failure to
take actions permitted by law and necessary to implement policies of the
Company's Board of Directors which the Board of Directors has communicated to
him in writing, provided that minutes of a Board of Directors meeting attended
in its entirety by the Executive shall be deemed communicated to the Executive;
(D) the Executive's continued failure to attend to the Executive's duties as an
executive officer of the Company; or (E) any condition which either resulted
from the Executive's substantial dependence, as determined by the Board of
Directors of the Company, on alcohol, or any
5.
<PAGE>
narcotic drug or other controlled or illegal substance. If any determination of
substantial dependence is disputed by the Executive, the parties hereto agree to
abide by the decision of a panel of three physicians appointed in the manner and
subject to the same penalties for noncompliance as specified in Section 7(b)(ii)
of this Agreement.
(ii) Notwithstanding the foregoing, each of the foregoing bases for
termination specified in (A) through (E) of Subsection 8(b)(i) shall constitute
"Good Cause" only if (1) the Executive has been provided with written notice of
any assertion that there is a basis for termination for good cause which notice
shall specify in reasonable detail specific facts regarding any such assertion
and the Executive has been given a reasonable period of time within which to
remedy or cure the problem or complaint, (2) such notice is provided to the
Executive a reasonable time before the Board of Directors meets to consider any
possible termination for cause, (3) at or prior to the meeting of the Board of
Directors to consider the matters described in the written notice, an
opportunity is provided to the Executive and his counsel to be heard by the
Board of Directors with respect to the matters described in the written notice,
before it acts with respect to such matter, (4) any resolution or other action
by the Board of Directors with respect to any deliberation regarding or decision
to terminate the Executive for good cause is duly adopted by a vote of a
majority of the entire Board of Directors of the Company at a meeting of the
Board duly called and held and (5) the Executive is promptly provided with a
copy of the resolution or other corporate action taken with respect to such
termination.
(iii) If the employment of the Executive is terminated for good
cause under Section 8(b)(i) of this Agreement, the Company shall pay to the
Executive any Base Salary earned prior to the effective date of termination but
not yet paid and any cash bonus compensation earned pursuant to the provisions
of any incentive compensation plan then in effect but not paid to the Executive
prior to the effective date of such termination. Under such circumstances, such
payments shall be in full and complete discharge of any and all liabilities or
obligations of the Company to the Executive hereunder, and the Executive shall
be entitled to no further benefits under this Agreement (other than rights
already accrued).
(iv) Termination of the employment of the Executive other than as
expressly specified above in this Section 8(b) for good cause shall be deemed to
be a termination of employment "Without Good Cause."
(c) Termination Without Good Cause. (i) Notwithstanding any other
provision of this Agreement, the Company shall have the right to terminate the
Executive's employment Without Good Cause pursuant to the provisions of this
Section 8(c). If the Company shall terminate the employment of the Executive
Without Good Cause effective on a date earlier than the termination date
provided for in Section 2 (with the effective date of termination as so
identified by the Company being referred to herein as the "Accelerated
Termination Date"), the Executive, until the end of the term of this Agreement
then in effect as provided for in Section 2 or until the date which is 12 months
after the Accelerated Termination Date, whichever is greater, shall continue to
receive (1) the Base Salary, paid in the same monthly or other periodic
installments as in effect prior to the Accelerated Termination Date (2) an equal
monthly pro rata portion of an amount of cash equal to the sum of the MICP
Target Amount (as that term is defined in Section 7(b)(i)) in respect of the
year during which the Executive's employment terminates or, if greater, the MICP
Target Amount multiplied times the number of years (or fractions thereof)
remaining in the then unexpired term of
6.
<PAGE>
this Agreement, and (3) any other cash or other bonus compensation earned prior
to the date of such termination pursuant to the terms of all incentive
compensation plans then in effect other than the Company's Management Incentive
Compensation Plan as described on Exhibit A or any similar bonus on incentive
plans or programs then in effect; provided that, notwithstanding such
termination of employment, the Executive's covenants set forth in Section 10 and
Section 11 are intended to and shall remain in full force and effect and
provided further that in the event of such termination, the Company shall have
the right (but not the obligation) to relieve the Executive, in whole or in
part, of the Executive's duties under this Agreement, or direct the Executive to
no longer perform such duties, or direct that the Executive no longer be
required to report to work, or any combination of the foregoing.
(ii) The parties agree that, because there can be no exact measure
of the damage that would occur to the Executive as a result of a termination by
the Company of the Executive's employment Without Good Cause, the payments and
benefits paid and provided pursuant to this Section 8(c) shall be deemed to
constitute liquidated damages and not a penalty for the Company's termination of
the Executive's employment Without Good Cause.
(d) Change of Control. (i) For purposes of this Agreement, a "Change in
Control" shall mean the first to occur of:
(1) a change in control of the Company of a nature that is required,
pursuant to the Securities Exchange Act of 1934 (the "1934 Act"), to be reported
in response to Item 1(a) of a Current Report on Form 8-K or Item 6(e) of
Schedule 14A under the 1934 Act (in each case under this Agreement, references
to provisions of the 1934 Act and the rules and regulations promulgated
thereunder being understood to refer to such law, rules and regulations as the
same are in effect on November 1, 1996); or
(2) the acquisition of "Beneficial Ownership" (as defined in Rule
13d-3 under the 1934 Act) of the Company's securities comprising 35% or more of
the combined voting power of the Company's outstanding securities by any
"person" (as that term is used in Sections 13(d) and 14(d)(2) of the 1934 Act
and the rules and regulations promulgated thereunder, but not including any
trustee or fiduciary acting in that capacity for an employee benefit plan
sponsored by the Company) and such person's "affiliates" and "associates" (as
those terms are defined under the 1934 Act), but excluding any ownership by the
Executive and his affiliates and associates; or
(3) the failure of the "Incumbent Directors" (as defined below) to
constitute at least a majority of all directors of the Company (for these
purposes, "Incumbent Directors" means individuals who were the directors of the
Company on November 1, 1996, and, after his or her election, any individual
becoming a director subsequent to November 1, 1996, whose election, or
nomination for election by the Company's stockholders, is approved by a vote of
at least two-thirds of the directors then comprising the Incumbent Directors,
except that no individual shall be considered an Incumbent Director who is not
recommended by management and whose initial assumption of office as a director
is in connection with an actual or threatened "election contest" relating to the
"election of directors" of the Company, as such terms are used in Rule 14a-11 of
Regulation 14A under the 1934 Act); or
7.
<PAGE>
(4) the closing of a sale of all or substantially all of the assets
of the Company;
(5) the Company's adoption of a plan of dissolution or liquidation;
or
(6) the closing of a merger or consolidation involving the Company
in which the Company is not the surviving corporation or if, immediately
following such merger or consolidation, less than seventy-five percent (75%) of
the surviving corporation's outstanding voting stock is held or is anticipated
to be held by persons who are stockholders of the Company immediately prior to
such merger or consolidation.
(ii) If a Change in Control of the Company occurs, the Executive
shall have the right, exercisable for a period of one year thereafter by
delivering a written statement to that effect to the Company, to immediately
terminate this Agreement and upon such a determination the Executive shall have
the right to receive and the Company shall be obligated to pay to Executive in
cash a lump sum payment in an amount equal to the sum of (1) two times the
annual Base Salary then in effect, (2) two times the MICP Target Amount (as that
term is defined in Section 7(b)(i)) in the year in which employment terminates
and (3) the additional payments necessary to discharge certain tax liabilities
(the "Gross Up") as that term is defined in Section 13 of this Agreement (the
sum of the foregoing amounts other than the Gross Up being referred to as the
"Change in Control Payment"). If the Executive fails to exercise his rights
under this Section 8(d) within one year following a Change in Control, such
rights shall expire and be of no further force or effect.
(e) Intentions Regarding Certain Stock and Benefit Plans. Except as
otherwise provided herein, upon any termination of the Executive's employment
Without Good Cause or upon the exercise by the Executive of his rights to
terminate his employment following a Change of Control, it is the intention of
the parties that any and all vesting or performance requirements or conditions
affecting any outstanding restricted stock, performance stock, stock option,
stock appreciation right, bonus, award, right, grant or any other incentive
compensation under any of the Plans, under this Agreement, or otherwise
received, shall be deemed to be fully satisfied and any risk of forfeiture with
respect thereto shall be deemed to have lapsed.
(f) Certain Rights Mutually Exclusive. The provisions of Section 8(c) and
Section 8(d) are mutually exclusive, provided, however, that if within one year
following commencement of an 8(c) payout there shall be a Change in Control as
defined in Section 8(d)(i), then the Executive shall be entitled to the amount
payable to the Executive under Section 8(d)(ii) and Section 8(d)(iii) reduced by
the amount that the Executive has received under Section 8(c) up to the date of
the change in control. The triggering of the lump sum payment requirement of
Section 8(d) shall cause the provisions of Section 8(c) to become inoperative.
9. DISCLOSURE
The Executive agrees that during the term of the Executive's employment by
the Company, the Executive will disclose and disclose only to the Company all
ideas, methods, plans, developments or improvements known by him which relate
directly or indirectly to the business of the Company, whether acquired by the
Executive before or during the Executive's employment by
8.
<PAGE>
the Company. Nothing in this Section 9 shall be construed as requiring any such
communication where the idea, plan, method or development is lawfully protected
from disclosure as a trade secret of a third party or by any other lawful
prohibition against such communication. The covenants of this Section 9 shall
not be violated by ordinary and customary communications with reporters, bankers
and securities analysts and other members of the investment community.
10. CONFIDENTIALITY
The Executive agrees to keep in strict secrecy and confidence any and all
information the Executive assimilates or to which the Executive has access
during the Executive's employment by the Company and which has not been publicly
disclosed and is not a matter of common knowledge in the fields of work of the
Company. The Executive agrees that both during and after the term of the
Executive's employment by the Company, the Executive will not, without the prior
written consent of the Company, disclose any such confidential information to
any third person, partnership, joint venture, company, corporation or other
organization. The foregoing covenants shall not be breached to the extent that
any such confidential information becomes a matter of general knowledge other
than through a breach by the Executive of the Executive's obligations under this
Section 10.
11. NONCOMPETITION AND NONSOLICITATION
(a) General. The Executive hereby acknowledges that, during and solely as
a result of the Executive's employment by the Company, the Executive has
received and shall continue to receive: (1) special training and education with
respect to the operations of the Company's real estate development and
management businesses and its leasing, lending and financing activities, and
other related matters, and (2) access to confidential information and business
and professional contacts. In consideration of the special and unique
opportunities afforded to the Executive by the Company as a result of the
Executive's employment, as outlined in the previous sentence, the Executive
hereby agrees to the restrictive covenants in this Section 11.
(b) Noncompetition. During the term of the Executive's employment, whether
pursuant to this Agreement, any automatic or other renewal hereof or otherwise,
and, except as may be otherwise herein provided, for a period of two (2) years
after the termination of the Executive's employment with the Company, regardless
of the reason for such termination, the Executive shall not, directly or
indirectly, enter into, engage in, be employed by or consult with any business
which competes with the Company's real estate lending, leasing, development or
management businesses in Florida. The Executive shall not engage in such
prohibited activities, either as an individual, partner, officer, director,
stockholder, employee, advisor, independent contractor, joint venturer,
consultant, agent, or representative or salesman for any person, firm,
partnership, corporation or other entity so competing with the Company. The
restrictions of this Section 11 shall not be violated by (i) the ownership of no
more than 2% of the outstanding securities of any company whose stock is traded
on a national securities exchange or is quoted in the Automated Quotation System
of the National Association of Securities Dealers (NASDAQ), or (ii) other
outside business investments that do not in any manner conflict with the
services to be rendered by the Executive for
9.
<PAGE>
the Company and that do not diminish or detract from the Executive's ability to
render the Executive's required attention to the business of the Company.
(c) Nonsolicitation. During the Executive's employment with the Company
and, except as may be otherwise herein provided, for a period of two (2) years
following the termination of the Executive's employment with the Company,
regardless of the reason for such termination, the Executive agrees the
Executive will refrain from and will not, directly or indirectly, as an
individual, partner, officer, director, stockholder, employee, advisor,
independent contractor, joint venturer, consultant, agent, representative,
salesman or otherwise solicit any of the employees of the Company to terminate
their employment.
(d) Term Extended or Suspended. The period of time during which the
Executive is prohibited from engaging in certain business practices pursuant to
Sections 11(b) or (c) shall be extended by any length of time during which the
Executive is in breach of such covenants.
(e) Essential Element. It is understood by and between the parties hereto
that the foregoing restrictive covenants set forth in Sections 11(a) through (c)
are essential elements of this Agreement, and that, but for the agreement of the
Executive to comply with such covenants, the Company would not have agreed to
enter into this Agreement. Such covenants by the Executive shall be construed as
agreements independent of any other provision in this Agreement. The existence
of any claim or cause of action of the Executive against the Company, whether
predicated on this Agreement, or otherwise, shall not constitute a defense to
the enforcement by the Company of such covenants.
(f) Severability. It is agreed by the Company and Executive that if any
portion of the covenants set forth in this Section 11 are held to be invalid,
unreasonable, arbitrary or against public policy, then such portion of such
covenants shall be considered divisible both as to time and geographical area.
The Company and Executive agree that, if any court of competent jurisdiction
determines the specified time period or the specified geographical area
applicable to this Section 11 to be invalid, unreasonable, arbitrary or against
public policy, a lesser time period or geographical area which is determined to
be reasonable, non-arbitrary and not against public policy may be enforced
against the Executive. The Company and the Executive agree that the foregoing
covenants are appropriate and reasonable when considered in light of the nature
and extent of the business conducted by the Company.
10.
<PAGE>
12. SPECIFIC PERFORMANCE
The Executive agrees that damages at law will be an insufficient remedy to
the Company if the Executive violates the terms of Sections 9, 10 or 11 of this
Agreement and that the Company would suffer irreparable damage as a result of
such violation. Accordingly, it is agreed that the Company shall be entitled,
upon application to a court of competent jurisdiction, to obtain injunctive
relief to enforce the provisions of such Sections, which injunctive relief shall
be in addition to any other rights or remedies available to the Company. The
Executive agrees to pay to the Company all reasonable costs and expenses
incurred by the Company relating to the enforcement of the terms of Sections 9,
10 or 11 of this Agreement, including reasonable fees and reasonable
disbursements of counsel selected by the Company (during investigation and
before and at trial and in appellate proceedings).
13. PAYMENT OF EXCISE TAXES
(a) Payment of Excise Taxes. If the Executive is to receive any (1)
Change of Control Payment under Section 8(d), (2) any benefit or payment under
Section 7 as a result of or following the death or Permanent Disability of the
Executive, (3) any benefit or payment under Section 8(c) as a result of or
following any termination of employment hereunder Without Good Cause, (4) any
benefit or payment under the Plans as a result of a Change of Control, following
the death of Permanent Disability of the Executive or following the termination
of employment hereunder Without Good Cause (such sections being referred to as
the "Covered Sections" and the benefits and payments to be received thereunder
being referred to as the "Covered Payments"), the Executive shall be entitled to
receive the amount described below to the extent applicable: If any Covered
Payment(s) under any of the Covered Sections or by the Company under another
plan or agreement (collectively, the "Payments") are subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986 (as amended from
time to time, the "Code"), or any successor or similar provision of the Code
(the "Excise Tax"), the Company shall pay the Executive an additional amount
(the "Gross Up") such that the net amount retained by the Executive after
deduction of any Excise Tax on the Payments and the federal income tax on any
amounts paid under this Section 13 shall be equal to the Payments.
(b) Certain Adjustment Payments. For purposes of determining the Gross Up,
the Executive shall be deemed to pay the federal income tax at the highest
marginal rate of taxation (currently 39.5%) in the calendar year in which the
payment to which the Gross Up applies is to be made. The determination of
whether such Excise Tax is payable and the amount thereof shall be made upon the
opinion of tax counsel selected by the Company and reasonably acceptable to the
Executive. The Gross Up, if any, that is due as a result of such determination
shall be paid to the Executive in cash in a lump sum within thirty (30) days of
such computation. If such opinion is not finally accepted by the Internal
Revenue Service upon audit or otherwise, then appropriate adjustments shall be
computed (without interest but with Gross Up, if applicable) by such tax counsel
based upon the final amount of the Excise Tax so determined; any additional
amount due the Executive as a result of such adjustment shall be paid to the
Executive by his or her Company in cash in a lump sum within thirty (30) days of
such computation, or any amount due the Executive's Company as a result of such
adjustment shall be paid to the Company by the Executive in cash in a lump sum
within thirty (30) days of such computation.
11.
<PAGE>
14. MISCELLANEOUS
(a) Waiver of Breach. The waiver by either party to this Agreement of a
breach of any of the provisions of this Agreement by the other party shall not
be construed as a waiver of any subsequent breach by such other party.
(b) No Right to Continued Employment. Notwithstanding the fact that
certain provisions of this Agreement and/or Exhibit A reference a three year
cycle or provide for benefits upon a third year of employment, this Agreement
shall have a two year term with annual one year renewal terms subject to the
termination provisions contained herein.
(c) Compliance With Other Agreements. The Executive represents and
warrants that the execution of this Agreement by him and the Executive's
performance of the Executive's obligations hereunder will not conflict with,
result in the breach of any provision of or the termination of or constitute a
default under any Agreement to which the Executive is a party or by which the
Executive is or may be bound.
(d) Binding Effect; Assignment. The rights and obligations of the Company
under this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of the Company. This Agreement is a personal employment
contract and the rights, obligations and interests of the Executive hereunder
may not be sold, assigned, transferred, pledged or hypothecated.
(e) Entire Agreement. This Agreement contains the entire agreement and
supersedes all prior agreements and understandings, oral or written, with
respect to the subject matter hereof. This Agreement may be changed only by an
agreement in writing signed by the party against whom any waiver, change,
amendment, modification or discharge is sought.
(f) No Duty to Mitigate. The Executive shall be under no duty to mitigate
any loss of income as result of the termination of his employment hereunder and
any payments due the Executive upon termination of employment shall not be
reduced in respect of any other employment compensation received by the
Executive following such termination.
(g) Florida Law. This Agreement shall be construed pursuant to and
governed by the substantive laws of the State of Florida (except that any
provision of Florida law shall not apply if the law of a state or jurisdiction
other than Florida would otherwise apply).
(h) Venue; Process. The parties to this Agreement agree that jurisdiction
and venue in any action brought pursuant to this Agreement to enforce its terms
or otherwise with respect to the relationships between the parties shall
properly lie in and only in the Circuit Court of the Sixth Judicial Circuit of
the State of Florida in and for Pinellas County (the "Circuit Court") and the
parties agree that jurisdiction shall not properly lie in any other jurisdiction
provided, however, if jurisdiction does not properly lie with the Circuit Court,
the parties agree that jurisdiction and venue shall properly lie in and only in
the United States District Court for the Middle District of Florida,
12.
<PAGE>
Tampa Division. The parties hereby waive any objections which they may now or
hereafter have based on venue and/or forum non conveniens and irrevocably submit
to the jurisdiction of any such court in any legal suit, action or proceeding
arising out of or relating to this Agreement. The parties further agree that the
mailing by certified or registered mail, return receipt requested, of any
process required by any such court shall constitute valid and lawful service of
process against them, without the necessity for ser vice by any other means
provided by statute or rule of court.
(i) Headings. The headings of the various sections in this Agreement are
inserted for the convenience of the parties and shall not affect the meaning,
construction or interpretation of this Agreement.
(j) Severability. Any provision of this Agreement which is determined by a
court of competent jurisdiction to be prohibited, unenforceable or not
authorized in any jurisdiction shall, as to such jurisdiction, be ineffective to
the extent of such prohibition, unenforceability or non-authorization without
invalidating the remaining provisions hereof or affecting the validity,
enforceability or legality of such provision in any other jurisdiction. In any
such case, such determination shall not affect any other provision of this
Agreement, and the remaining provisions of this Agreement shall remain in full
force and effect. If any provision or term of this Agreement is susceptible to
two or more constructions or interpretations, one or more of which would render
the provision or term void or unenforceable, the parties agree that a
construction or interpretation which renders the term or provision valid shall
be favored.
(k) Deduction for Tax Purposes. The Company's obligations to make payments
under this Agreement are independent of whether any or all of such payments are
deductible expenses of the Company for federal income tax purposes.
(l) Enforcement. If, within 10 days after demand to comply with the
obligations of one of the parties to this Agreement served in writing on the
other, compliance or reasonable assurance of compliance is not forthcoming, and
the party demanding compliance engages the services of an attorney to enforce
rights under this Agreement, the prevailing party in any action shall be
entitled to recover all reasonable costs and expenses of enforcement (including
reasonable attorneys' fees and reasonable expenses during investigation, before
and at trial and in appellate proceedings). In addition, each of the parties
agrees to indemnify the other in respect of any and all claims, losses, costs,
liabilities and expenses, including reasonable fees and reasonable disbursements
of counsel (during investigation prior to initiation of litigation and at trial
and in appellate proceedings if litigation ensues), directly or indirectly
resulting from or arising out of a breach by the other party of their respective
obligations hereunder. The parties' costs of enforcing this Agreement shall
include prejudgment interest. Additionally, if any party incurs any
out-of-pocket expenses in connection with the enforcement of this Agreement, all
such amounts shall accrue interest at 18% per annum (or such lower rate as may
be required to avoid any limit imposed by applicable law) commencing 30 days
after any such expenses are incurred.
13.
<PAGE>
(m) Notices. All notices which are required or may be given under this
Agreement shall be in writing and shall be deemed to have been duly given when
received if personally delivered; when transmitted if transmitted by telecopy or
similar electronic transmission method; one working day after it is sent, if
sent by recognized expedited delivery service; and three days after it is sent,
if mailed, first class mail, certified mail, return receipt requested, with
postage prepaid. In each case notice shall be sent to:
To the Company: Echelon International Corporation
One Progress Plaza
St. Petersburg, FL 33701
Attn: Chairman of the Board
Telecopy: (813) 824-6536
To the Executive at the Executive's address herein first above written, or
to such other address as either party may specify by written notice to the
other.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
ATTEST: ECHELON INTERNATIONAL CORPORATION
(Corporate Seal)
________________________________ By:____________________________________
Secretary Darryl A. LeClair, President
EXECUTIVE
Witnesses:
________________________________ _______________________________________
Raymond F. Higgins
________________________________
As to Executive
14.
<PAGE>
EXHIBIT A
TO
EMPLOYMENT AGREEMENT WITH RAYMOND F. HIGGINS
DATED NOVEMBER 20, 1996
The Company will establish a Management Incentive Compensation Plan
("MICP") for its senior management in which the Executive will participate.
During the first two full fiscal years of the Company's operation following the
completion of the Spinoff ending on December 31, 1997, and December 31, 1998,
respectively (the "Covered Years"), the MICP will provide for annual cash
bonuses based upon the Company's net income for each of the Covered Years. The
Executive's participation in the MICP during the Covered Years shall be based
upon the criteria and shall include awards with the values indicated in the
tables set forth below and as more fully described in this Exhibit A.
MICP
During each of the Covered Years, (i) all MICP bonuses shall be paid in
cash; (ii) if Threshold Net Income is not achieved, no MICP cash bonus will be
paid; (iii) if actual net income exceeds Threshold Net Income, but is less than
Target Net Income, or exceeds Target Net Income but is less than Maximum Net
Income, the percentage of the MICP bonus shall be proportionately increased
above the Threshold bonus amount or the Target Bonus amount, as the case may be,
and (iv) if actual net income equals or exceeds Maximum Net Income, the Maximum
MICP cash bonus will be paid, but no additional cash bonus will be payable under
the MICP regardless of the amount by which actual net income in that Covered
Year exceeds Maximum Net Income. The following table sets forth information
regarding the MICP Net Income Threshold, Target and Maximum and cash bonuses.
- --------------------------------------------
MICP 1997 1998
- --------------------------------------------
THRESHOLD
- --------------------------------------------
Net Income $1,584,274 $1,768,816
- --------------------------------------------
MICP Cash Bonus $7,500 $7,500
(% of Target Bonus) (50%) (50%)
- --------------------------------------------
TARGET
- --------------------------------------------
Net Income $2,112,366 $2,358,422
- --------------------------------------------
MICP Cash Bonus $15,000 $15,000
(% of Base Salary) (15%) (15%)
- --------------------------------------------
MAXIMUM
- --------------------------------------------
Net Income $2,640,457 $2,948,027
- --------------------------------------------
MICP Cash Bonus $22,500 $22,500
(% of Target Bonus) (150%) (150)%
- --------------------------------------------
15.
<PAGE>
- --------------------------------------------------------------------------------
16.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into this 20th day of
November, 1996, but is effective for all purposes as of the date specified below
in Section 2, by and between ECHELON INTERNATIONAL CORPORATION, a Florida
corporation (the "Company"), and JAMES R. HOBBS, residing at 2151 76th Street
N., St. Petersburg, Florida 33710 (the "Executive").
W I T N E S S E T H:
1. EMPLOYMENT
The Company hereby employs the Executive, and the Executive hereby accepts
such employment, upon the terms and subject to the conditions set forth in this
Agreement.
2. TERM
Subject to the provisions for termination as hereinafter provided, the
term of employment under this Agreement shall begin as of the completion of the
"Distribution" as that term is defined in the Company's Registration Statement
on Form 10, as amended (the "Distribution"), and shall continue through December
31, 1998, provided, however, that this Employment Agreement shall automatically
be renewed for successive one year terms unless either party gives the other
written notice of termination at least ninety (90) days prior to the end of any
such term.
3. COMPENSATION
(a) Base Salary. The Company shall pay to the Executive as basic
compensation for all services rendered by the Executive during the term of this
Agreement a basic annualized salary of $100,000 per year, or such other sum in
excess of that amount as the parties may agree on from time to time or as
provided in the next sentence (as in effect from time to time, the "Base
Salary"), payable monthly or in other more frequent installments, as determined
by the Company. The Board of Directors shall have no authority to reduce the
Executive's Base Salary in effect from time to time. In addition, the Board of
Directors, in its discretion, may award a bonus or bonuses to the Executive in
addition to the bonuses provided for in Section 3(b).
(b) Bonuses. In addition to the Base Salary to be paid pursuant to Section
3(a), for each of the Company's two fiscal years ending December 31, 1997 and
December 31, 1998 during the term of this Agreement, the Company shall pay as
incentive compensation the annual bonuses, to the extent earned, specified on
Exhibit A to this Agreement. For each fiscal year ending after December 31,
1998, provided the Executive continues to be employed by the Company under this
Agreement, the Executive shall be eligible for incentive compensation annual
bonus plan(s) adopted by the Board of Directors of the Company from time to time
in accordance with the terms of such plans.
(c) Certain Plans and Initial Award. (i) It is anticipated that the
Company will adopt certain incentive compensation plans including a long term
incentive plan (the "LTIP"), providing for annual or other periodic awards to
key employees, among other things, of restricted stock and a stock option plan
(the "ISO/NSO Plan"), providing for the annual or other periodic issuance of
options to purchase the Company's common stock. The LTIP and ISO/NSO are
referred to collectively in this Agreement as the "Plans." The Executive will be
given an opportunity to participate in the Plans, in accordance with and subject
to the terms of the Plans as they may be adopted, amended and administered from
time to time.
<PAGE>
(ii) In addition to the incentive compensation referred to in
Section 3(c)(i), the Company hereby agrees to issue to the Executive under the
LTIP, effective immediately following the completion of the Distribution, that
number of shares of the Company's common stock (the "Initial Restricted Stock")
as will equal two-tenths of one percent (0.20%) of the shares of the Company's
common stock distributed in the Distribution, which Initial Restricted Stock
shall be subject to risk of forfeiture, which risk will lapse as to one-fourth
of the shares of the Initial Restricted Stock on January 31, 1998, and as to an
additional one-fourth of the Initial Restricted Stock on each of January 31,
1999, January 31, 2000 and January 31, 2001.
(iii) In addition to the incentive compensation referred to in
Section 3(c)(i) and the Initial Restricted Stock, the Company hereby agrees to
grant to the Executive under the LTIP, effective immediately following the
completion of the Distribution, options to purchase one thousand (1,000) shares
of the Company's common stock (the "Initial Options"), which Initial Options
shall be exercisable as to one-fourth of the shares of common stock covered by
the Initial Options on January 31, 1998, and as to an additional one-fourth of
such shares on each of January 31, 1999, January 31, 2000 and January 31, 2001.
The exercise price for the Initial Options shall be the closing price on the New
York Stock Exchange (or such other market on which the Company's stock trades if
it is not listed on the New York Stock Exchange) on the trading day which is the
eighth month anniversary of the day of the completion of the Distribution (the
"Option Pricing Date"), or if the Option Pricing Date is not a trading day, the
first trading day thereafter.
(iv) Any and all risks of forfeiture shall lapse as to all of the
Initial Restricted Stock and the Initial Options shall be fully vested and shall
be exercisable as to all of the shares of common stock covered by the Initial
Options upon (i) the death of the Executive or termination of employment upon
the "Permanent Disability" (as that term is defined in Section 7(b)(ii) of this
Agreement) of the Executive, (ii) the termination of employment of the Executive
by the Company"Without Good Cause" (as that term is defined in Section 8(b)(ii)
of this Agreement) or (iii) the exercise by the Executive of his rights to
terminate his employment under Section 8(d)(ii) following a "Change of Control"
(as that term is defined in Section 8(d)(i) of this Agreement).
(d) Reimbursement. The Company shall reimburse the Executive, in
accordance with the Company's policies and practices for senior management, for
all reasonable expenses incurred by the Executive in the performance of the
Executive's duties under this Agreement, provided, however, that the Executive
must furnish to the Company an itemized account, satisfactory to the Company, in
substantiation of such expenditures.
(e) Certain Benefits. The Executive shall be entitled to such fringe
benefits including, but not limited to, medical and other insurance benefits as
may be provided from time to time by the Company to other senior officers of the
Company. In addition, without restricting the foregoing, the Company shall
provide the Executive at the Company's sole cost and expense with (i) a policy
or policies of term life insurance (the "Basic Life Insurance") providing, among
other things, basic death benefits of not less than two times the Base Salary in
effect from time to time, (ii) directors and officers liability insurance with
coverage, terms and limits suitable for a vice president of a New York Stock
Exchange listed company comparable in financial size and wherewithal to that of
the Company and (iii) a monthly allowance of $500 cash to reimburse the
Executive for the use and maintenance of his automobile in furtherance of the
business and affairs of the Company, provided that the Executive shall at all
times insure the Executive and the Company in such amounts as may be reasonably
requested by the Company against claims for bodily injury, death and property
damages occurring as a result of its use. The Company shall use its reasonable
best efforts to make available to the Executive in connection with providing and
paying for the Basic Life Insurance the opportunity to purchase at the
Executive's sole cost and expense additional life insurance with
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a basic death benefit (the "Optional Life Insurance") equal to two times the
Executive's Base Salary in effect from time to time (affording the Executive the
opportunity to have basic death benefit life insurance coverage equal to four
times such Base Salary). The Company shall use its reasonable best efforts to
effect the transfer of the ownership to the Executive of the policy or policies
for the Basic Life Insurance and the Optional Life Insurance, if any, upon the
termination of the Executive's employment by the Company. After the Executive's
termination, payment of any premiums would be the obliga (f) Other Incentive and
Benefit Plans. The Executive shall be eligible to participate, in accordance
with the terms of such plans as they may be adopted, amended and administered
from time to time, in incentive, bonus, benefit or similar plans, including
without limitation, any stock option, bonus or other equity ownership plan, any
short, mid or long term incentive plan and any other bonus, pension or profit
sharing plans established by the Company from time to time.
4. DUTIES
(a) General. The Executive is engaged as a Vice President of the Company.
In addition, at the request of the Board of Directors, the Executive shall serve
in the same positions in any wholly owned subsidiary of the Company, without any
additional compensation. The Executive shall have such duties and hold such
other offices as may from time to time be reasonably assigned to him by the
Board of Directors of the Company.
(b) Indemnification. To the fullest extent permitted by law, the Company
shall indemnify and hold harmless the Executive for all liabilities, costs,
expenses and damages arising out of or in connection with the Executive's
service to the Company under this Agreement. In furtherance of this indemnity,
the Company shall enter into an indemnification agreement, in form and substance
reasonably satisfactory to the Executive and the Company. In addition, the
indemnity provided hereunder shall extend to service by the Executive as an
officer or director, or service in a similar capacity, for any civic, community
or charitable organization, provided such service is undertaken at the request
of or with the knowledge and acquiescence of the Company. The foregoing
indemnification shall be in addition to any rights or benefits the Executive may
have under statute, the Bylaws or Articles of Incorporation of the Company,
under a policy of insurance, or otherwise.
5. EXTENT OF SERVICES; VACATIONS AND DAYS OFF
(a) Extent of Services. During the term of the Executive's employment
under this Agreement, except during customary vacation periods and periods of
illness, the Executive shall devote full-time energy and attention during
regular business hours to the benefit and business of the Company as may be
reasonably necessary in performing the Executive's duties pursuant to this
Agreement.
(b) Vacations. The Executive shall be entitled to vacations with pay and
to such personal and sick leave with pay in accordance with the policy of the
Company as may be established from time to time by the Company and applied to
other senior officers of the Company. In no event shall the Executive be
entitled to fewer than four weeks' annual vacation. Unused vacation days may be
carried over from one year to the next for a period of up to two years. Any
vacation days which remain unused on the second anniversary of the end of the
fiscal year to which they originally related shall expire and shall thereafter
no longer be useable by the Executive.
6. FACILITIES
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The Company shall provide the Executive with a fully furnished office, and
the facilities of the Company shall be generally available to the Executive in
the performance of the Executive's duties pursuant to this Agreement, it being
understood and contemplated by the parties that all equipment, supplies and
office personnel required in the performance of the Executive's duties under
this Agreement shall be supplied by and at the sole expense of the Company.
7. ILLNESS OR INCAPACITY, TERMINATION ON DEATH, ETC.
(a) Death. If the Executive dies during the term of the Executive's
employment, the Company shall pay to the estate of the Executive within 30 days
after the date of death such Base Salary and any cash bonus compensation earned
pursuant to the provisions of any incentive compensation plan then in effect but
not yet paid, as would otherwise have been payable to the Executive up to the
end of the month in which the Executive's death occurs. After receiving the
payments provided in this Section 7(a) and the benefits provided in Section 8(e)
of this Agreement, the Executive and the Executive's estate shall have no
further rights under this Agreement (other than those rights already accrued).
(b) Disability. (i) During any period of disability, illness or
incapacity during the term of this Agreement which renders the Executive at
least temporarily unable to perform the services required under this Agreement,
the Executive shall receive the Base Salary payable under Section 3(a) of this
Agreement plus any cash bonus compensation earned pursuant to the provisions of
any incentive compensation plan then in effect but not yet paid, less any cash
benefits received by him under any disability insurance carried by or provided
by the Company. Upon the Executive's "Permanent Disability" (as defined below),
which Permanent Disability continues during the payment periods specified
herein, the Company shall pay to the Executive for the period of time specified
below an amount (the "Disability Payment") equal to the (i) sum of (A) the Base
Salary, paid in the same monthly or other periodic installments as in effect at
the time of the Executive's Permanent Disability plus (B) an amount equal to the
target level of the annual cash bonus payable to the Executive under the
Company's Management Incentive Compensation Plan as described on Exhibit A or
any similar bonus or incentive plans or programs then in effect (the "MICP
Target Amount"), in respect of the fiscal during which the Executive's Permanent
Disability occurred, which MICP Target Amount shall be paid in pro rata equal
monthly installments over the period of time specified below (ii) reduced by the
amount of any monthly payments under any policy of disability income insurance
paid for by the Company which payments are received during the time when any
Disability Payment is being made to the Executive following the Executive's
Permanent Disability. For so long as the Executive's Permanent Disability
continues, the Disability Payment shall be paid by the Company to the Executive
at the same time or times as would have been the case for payment of Base Salary
over the unexpired term of this Agreement if the Executive had not become
permanently disabled and had remained employed by the Company hereunder, but in
no case shall such period exceed 24 months. The Executive may be entitled to
receive payments under any disability income insurance which may be carried by
or provided by the Company from time to time. Upon "Permanent Disability" (as
that term is defined in Section 7(b)(ii) below) of the Executive, except as
provided in this Section 7(b) all rights of the Executive under this Agreement
(other than rights already accrued) shall terminate.
(ii) The term "Permanent Disability" as used in this Agreement shall
mean, in the event a disability insurance policy is maintained by the Company
covering the Executive at such time and is in full force and effect, the
definition of permanent disability set forth in such policy. In the event no
disability insurance policy is maintained at such time and in full force and
effect,
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"Permanent Disability" shall mean the inability of the Executive, as determined
by the Board of Directors of the Company, by reason of physical or mental
disability to perform the duties required of him under this Agreement for a
period of one hundred and eighty (180) days in any one-year period. Successive
periods of disability, illness or incapacity will be considered separate periods
unless the later period of disability, illness or incapacity is due to the same
or related cause and commences less than six months from the ending of the
previous period of disability. Upon such determination, the Board of Directors
may terminate the Executive's employment under this Agreement upon ten (10)
days' prior written notice. If any determination of the Board of Directors with
respect to permanent disability is disputed by the Executive, the parties hereto
agree to abide by the decision of a panel of three physicians. The Executive and
Company shall each appoint one member, and the third member of the panel shall
be appointed by the other two members. The Executive agrees to make himself
available for and submit to examinations by such physicians as may be directed
by the Company. Failure to submit to any such examination shall constitute a
breach of a material part of this Agreement.
8. OTHER TERMINATIONS
(a) By the Executive. (i) The Executive may terminate the Executive's
employment hereunder upon giving at least ninety (90) days' prior written
notice. In addition, the Executive shall have the right to terminate the
Executive's employment hereunder on the conditions and at the times provided for
in Section 8(d) of this Agreement.
(ii) If the Executive gives notice pursuant to Section 8(a)(i)
above, the Company shall have the right (but not the obligation) to relieve the
Executive, in whole or in part, of the Executive's duties under this Agreement,
or direct the Executive to no longer perform such duties, or direct that the
Executive should no longer report to work, or any combination of the foregoing.
In any such event, the Executive shall be entitled to receive only the Base
Salary not yet paid, as would otherwise have been payable to the Executive up to
the end of the month specified as the month of termination in the termination
notice. In the event the Executive gives notice pursuant to Section 8(a)(i)
above but specifies a termination date in excess of ninety (90) days from the
date of such notice, the Company shall have the right (but not the obligation)
to accelerate the termination date to any date prior to the date specified in
the notice that is in excess of ninety (90) days from the date of the notice,
and the Company shall have the right (but not the obligation) to relieve the
Executive, in whole or in part, of the Executive's duties under this Agreement,
or direct the Executive to no longer perform such duties, or direct that the
Executive should no longer report to work, or any combination of the foregoing;
provided, however, that in any such event the Executive shall be entitled to
receive the Base Salary, as would otherwise have been payable to the Executive
up to the end of the month of the termination date properly selected by the
Company. Upon receiving the payments provided for under this Section 8(a), all
rights of the Executive under this Agreement (other than rights already accrued)
shall terminate.
(b) Termination for "Good Cause". (i) Except as otherwise provided in this
Agreement, the Company may terminate the employment of the Executive hereunder
only for "good cause," which shall mean: (A) the Executive's conviction of
either a felony involving moral turpitude or any crime in connection with the
Executive's employment by the Company which causes the Company
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a substantial detriment, but specifically shall not include traffic offenses;
(B) actions by the Executive as an executive officer of the Company which
clearly are contrary to the best interests of the Company; (C) the Executive's
willful failure to take actions permitted by law and necessary to implement
policies of the Company's Board of Directors which the Board of Directors has
communicated to him in writing, provided that minutes of a Board of Directors
meeting attended in its entirety by the Executive shall be deemed communicated
to the Executive; (D) the Executive's continued failure to attend to the
Executive's duties as an executive officer of the Company; or (E) any condition
which either resulted from the Executive's substantial dependence, as determined
by the Board of Directors of the Company, on alcohol, or any narcotic drug or
other controlled or illegal substance. If any determination of substantial
dependence is disputed by the Executive, the parties hereto agree to abide by
the decision of a panel of three physicians appointed in the manner and subject
to the same penalties for noncompliance as specified in Section 7(b)(ii) of this
Agreement.
(ii) Notwithstanding the foregoing, each of the foregoing bases for
termination specified in (A) through (E) of Subsection 8(b)(i) shall constitute
"Good Cause" only if (1) the Executive has been provided with written notice of
any assertion that there is a basis for termination for good cause which notice
shall specify in reasonable detail specific facts regarding any such assertion
and the Executive has been given a reasonable period of time within which to
remedy or cure the problem or complaint, (2) such notice is provided to the
Executive a reasonable time before the Board of Directors meets to consider any
possible termination for cause, (3) at or prior to the meeting of the Board of
Directors to consider the matters described in the written notice, an
opportunity is provided to the Executive and his counsel to be heard by the
Board of Directors with respect to the matters described in the written notice,
before it acts with respect to such matter, (4) any resolution or other action
by the Board of Directors with respect to any deliberation regarding or decision
to terminate the Executive for good cause is duly adopted by a vote of a
majority of the entire Board of Directors of the Company at a meeting of the
Board duly called and held and (5) the Executive is promptly provided with a
copy of the resolution or other corporate action taken with respect to such
termination.
(iii) If the employment of the Executive is terminated for good
cause under Section 8(b)(i) of this Agreement, the Company shall pay to the
Executive any Base Salary earned prior to the effective date of termination but
not yet paid and any cash bonus compensation earned pursuant to the provisions
of any incentive compensation plan then in effect but not paid to the Executive
prior to the effective date of such termination. Under such circumstances, such
payments shall be in full and complete discharge of any and all liabilities or
obligations of the Company to the Executive hereunder, and the Executive shall
be entitled to no further benefits under this Agreement (other than rights
already accrued).
(iv) Termination of the employment of the Executive other than as
expressly specified above in this Section 8(b) for good cause shall be deemed to
be a termination of employment "Without Good Cause."
(c) Termination Without Good Cause. (i) Notwithstanding any other
provision of this Agreement, the Company shall have the right to terminate the
Executive's employment Without Good Cause pursuant to the provisions of this
Section 8(c). If the Company shall terminate the
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employment of the Executive Without Good Cause effective on a date earlier than
the termination date provided for in Section 2 (with the effective date of
termination as so identified by the Company being referred to herein as the
"Accelerated Termination Date"), the Executive, until the end of the term of
this Agreement then in effect as provided for in Section 2 or until the date
which is 12 months after the Accelerated Termination Date, whichever is greater,
shall continue to receive (1) the Base Salary, paid in the same monthly or other
periodic installments as in effect prior to the Accelerated Termination Date (2)
an equal monthly pro rata portion of an amount of cash equal to the sum of the
MICP Target Amount (as that term is defined in Section 7(b)(i)) in respect of
the year during which the Executive's employment terminates or, if greater, the
MICP Target Amount multiplied times the number of years (or fractions thereof)
remaining in the then unexpired term of this Agreement, and (3) any other cash
or other bonus compensation earned prior to the date of such termination
pursuant to the terms of all incentive compensation plans then in effect other
than the Company's Management Incentive Plan as described on Exhibit A or any
similar bonus on incentive plans or programs then in effect; provided that,
notwithstanding such termination of employment, the Executive's covenants set
forth in Section 10 and Section 11 are intended to and shall remain in full
force and effect and provided further that in the event of such termination, the
Company shall have the right (but not the obligation) to relieve the Executive,
in whole or in part, of the Executive's duties under this Agreement, or direct
the Executive to no longer perform such duties, or direct that the Executive no
longer be required to report to work, or any combination of the foregoing.
(ii) The parties agree that, because there can be no exact measure
of the damage that would occur to the Executive as a result of a termination by
the Company of the Executive's employment Without Good Cause, the payments and
benefits paid and provided pursuant to this Section 8(c) shall be deemed to
constitute liquidated damages and not a penalty for the Company's termination of
the Executive's employment Without Good Cause.
(d) Change of Control. (i) For purposes of this Agreement, a "Change in
Control" shall mean the first to occur of:
(1) a change in control of the Company of a nature that is required,
pursuant to the Securities Exchange Act of 1934 (the "1934 Act"), to be reported
in response to Item 1(a) of a Current Report on Form 8-K or Item 6(e) of
Schedule 14A under the 1934 Act (in each case under this Agreement, references
to provisions of the 1934 Act and the rules and regulations promulgated
thereunder being understood to refer to such law, rules and regulations as the
same are in effect on November 1, 1996); or
(2) the acquisition of "Beneficial Ownership" (as defined in Rule
13d-3 under the 1934 Act) of the Company's securities comprising 35% or more of
the combined voting power of the Company's outstanding securities by any
"person" (as that term is used in Sections 13(d) and 14(d)(2) of the 1934 Act
and the rules and regulations promulgated thereunder, but not including any
trustee or fiduciary acting in that capacity for an employee benefit plan
sponsored by the Company) and such person's "affiliates" and "associates" (as
those terms are defined under the 1934 Act), but excluding any ownership by the
Executive and his affiliates and associates; or
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(3) the failure of the "Incumbent Directors" (as defined below) to
constitute at least a majority of all directors of the Company (for these
purposes, "Incumbent Directors" means individuals who were the directors of the
Company on November 1, 1996, and, after his or her election, any individual
becoming a director subsequent to November 1, 1996, whose election, or
nomination for election by the Company's stockholders, is approved by a vote of
at least two-thirds of the directors then comprising the Incumbent Directors,
except that no individual shall be considered an Incumbent Director who is not
recommended by management and whose initial assumption of office as a director
is in connection with an actual or threatened "election contest" relating to the
"election of directors" of the Company, as such terms are used in Rule 14a-11 of
Regulation 14A under the 1934 Act); or
(4) the closing of a sale of all or substantially all of the assets
of the Company;
(5) the Company's adoption of a plan of dissolution or liquidation;
or
(6) the closing of a merger or consolidation involving the Company
in which the Company is not the surviving corporation or if, immediately
following such merger or consolidation, less than seventy-five percent (75%) of
the surviving corporation's outstanding voting stock is held or is anticipated
to be held by persons who are stockholders of the Company immediately prior to
such merger or consolidation.
(ii) If a Change in Control of the Company occurs, the Executive
shall have the right, exercisable for a period of one year thereafter by
delivering a written statement to that effect to the Company, to immediately
terminate this Agreement and upon such a determination the Executive shall have
the right to receive and the Company shall be obligated to pay to Executive in
cash a lump sum payment in an amount equal to the sum of (1) two times the
annual Base Salary then in effect, (2) two times the MICP Target Amount (as that
term is defined in Section 7(b)(i)) in the year in which employment terminates
and (3) the additional payments necessary to discharge certain tax liabilities
(the "Gross Up") as that term is defined in Section 13 of this Agreement (the
sum of the foregoing amounts other than the Gross Up being referred to as the
"Change in Control Payment"). If the Executive fails to exercise his rights
under this Section 8(d) within one year following a Change in Control, such
rights shall expire and be of no further force or effect.
(e) Intentions Regarding Certain Stock and Benefit Plans. Except as
otherwise provided herein, upon any termination of the Executive's employment
Without Good Cause, or upon the exercise by the Executive of his rights to
terminate his employment following a Change of Control, it is the intention of
the parties that any and all vesting or performance requirements or conditions
affecting any outstanding restricted stock, performance stock, stock option,
stock appreciation right, bonus, award, right, grant or any other incentive
compensation under any of the Plans, under this Agreement, or otherwise
received, shall be deemed to be fully satisfied and any risk of forfeiture with
respect thereto shall be deemed to have lapsed.
(f) Certain Rights Mutually Exclusive. The provisions of Section 8(c) and
Section 8(d) are mutually exclusive, provided, however, that if within one year
following commencement of an 8(c) payout there shall be a Change in Control as
defined in Section 8(d)(i), then the Executive shall be entitled to the amount
payable to the Executive under Section 8(d)(ii) and Section 8(d)(iii) reduced
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by the amount that the Executive has received under Section 8(c) up to the date
of the change in control. The triggering of the lump sum payment requirement of
Section 8(d) shall cause the provisions of Section 8(c) to become inoperative.
9. DISCLOSURE
The Executive agrees that during the term of the Executive's employment by
the Company, the Executive will disclose and disclose only to the Company all
ideas, methods, plans, developments or improvements known by him which relate
directly or indirectly to the business of the Company, whether acquired by the
Executive before or during the Executive's employment by the Company. Nothing in
this Section 9 shall be construed as requiring any such communication where the
idea, plan, method or development is lawfully protected from disclosure as a
trade secret of a third party or by any other lawful prohibition against such
communication. The covenants of this Section 9 shall not be violated by ordinary
and customary communications with reporters, bankers and securities analysts and
other members of the investment community.
10. CONFIDENTIALITY
The Executive agrees to keep in strict secrecy and confidence any and all
information the Executive assimilates or to which the Executive has access
during the Executive's employment by the Company and which has not been publicly
disclosed and is not a matter of common knowledge in the fields of work of the
Company. The Executive agrees that both during and after the term of the
Executive's employment by the Company, the Executive will not, without the prior
written consent of the Company, disclose any such confidential information to
any third person, partnership, joint venture, company, corporation or other
organization. The foregoing covenants shall not be breached to the extent that
any such confidential information becomes a matter of general knowledge other
than through a breach by the Executive of the Executive's obligations under this
Section 10.
11. NONCOMPETITION AND NONSOLICITATION
(a) General. The Executive hereby acknowledges that, during and solely as
a result of the Executive's employment by the Company, the Executive has
received and shall continue to receive: (1) special training and education with
respect to the operations of the Company's real estate development and
management businesses and its leasing, lending and financing activities, and
other related matters, and (2) access to confidential information and business
and professional contacts. In consideration of the special and unique
opportunities afforded to the Executive by the Company as a result of the
Executive's employment, as outlined in the previous sentence, the Executive
hereby agrees to the restrictive covenants in this Section 11.
(b) Noncompetition. During the term of the Executive's employment, whether
pursuant to this Agreement, any automatic or other renewal hereof or otherwise,
and, except as may be otherwise herein provided, for a period of two (2) years
after the termination of the Executive's
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employment with the Company, regardless of the reason for such termination, the
Executive shall not, directly or indirectly, enter into, engage in, be employed
by or consult with any business which competes with the Company's real estate
lending, leasing, development or management businesses in Florida. The Executive
shall not engage in such prohibited activities, either as an individual,
partner, officer, director, stockholder, employee, advisor, independent
contractor, joint venturer, consultant, agent, or representative or salesman for
any person, firm, partnership, corporation or other entity so competing with the
Company. The restrictions of this Section 11 shall not be violated by (i) the
ownership of no more than 2% of the outstanding securities of any company whose
stock is traded on a national securities exchange or is quoted in the Automated
Quotation System of the National Association of Securities Dealers (NASDAQ), or
(ii) other outside business investments that do not in any manner conflict with
the services to be rendered by the Executive for the Company and that do not
diminish or detract from the Executive's ability to render the Executive's
required attention to the business of the Company.
(c) Nonsolicitation. During the Executive's employment with the Company
and, except as may be otherwise herein provided, for a period of two (2) years
following the termination of the Executive's employment with the Company,
regardless of the reason for such termination, the Executive agrees the
Executive will refrain from and will not, directly or indirectly, as an
individual, partner, officer, director, stockholder, employee, advisor,
independent contractor, joint venturer, consultant, agent, representative,
salesman or otherwise solicit any of the employees of the Company to terminate
their employment.
(d) Term Extended or Suspended. The period of time during which the
Executive is prohibited from engaging in certain business practices pursuant to
Sections 11(b) or (c) shall be extended by any length of time during which the
Executive is in breach of such covenants.
(e) Essential Element. It is understood by and between the parties hereto
that the foregoing restrictive covenants set forth in Sections 11(a) through (c)
are essential elements of this Agreement, and that, but for the agreement of the
Executive to comply with such covenants, the Company would not have agreed to
enter into this Agreement. Such covenants by the Executive shall be construed as
agreements independent of any other provision in this Agreement. The existence
of any claim or cause of action of the Executive against the Company, whether
predicated on this Agreement, or otherwise, shall not constitute a defense to
the enforcement by the Company of such covenants.
(f) Severability. It is agreed by the Company and Executive that if any
portion of the covenants set forth in this Section 11 are held to be invalid,
unreasonable, arbitrary or against public policy, then such portion of such
covenants shall be considered divisible both as to time and geographical area.
The Company and Executive agree that, if any court of competent jurisdiction
determines the specified time period or the specified geographical area
applicable to this Section 11 to be invalid, unreasonable, arbitrary or against
public policy, a lesser time period or geographical area which is determined to
be reasonable, non-arbitrary and not against public policy may be enforced
against the Executive. The Company and the Executive agree that the foregoing
covenants are appropriate and reasonable when considered in light of the nature
and extent of the business conducted by the Company.
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12. SPECIFIC PERFORMANCE
The Executive agrees that damages at law will be an insufficient remedy to
the Company if the Executive violates the terms of Sections 9, 10 or 11 of this
Agreement and that the Company would suffer irreparable damage as a result of
such violation. Accordingly, it is agreed that the Company shall be entitled,
upon application to a court of competent jurisdiction, to obtain injunctive
relief to enforce the provisions of such Sections, which injunctive relief shall
be in addition to any other rights or remedies available to the Company. The
Executive agrees to pay to the Company all reasonable costs and expenses
incurred by the Company relating to the enforcement of the terms of Sections 9,
10 or 11 of this Agreement, including reasonable fees and reasonable
disbursements of counsel selected by the Company (during investigation and
before and at trial and in appellate proceedings).
13. PAYMENT OF EXCISE TAXES
(a) Payment of Excise Taxes. If the Executive is to receive any (1) Change
of Control Payment under Section 8(d), (2) any benefit or payment under Section
7 as a result of or following the death or Permanent Disability of the
Executive, (3) any benefit or payment under Section 8(c) as a result of or
following any termination of employment hereunder Without Good Cause, (4) any
benefit or payment under the Plans as a result of a Change of Control, following
the death of Permanent Disability of the Executive or following the termination
of employment hereunder Without Good Cause (such sections being referred to as
the "Covered Sections" and the benefits and payments to be received thereunder
being referred to as the "Covered Payments"), the Executive shall be entitled to
receive the amount described below to the extent applicable: If any Covered
Payment(s) under any of the Covered Sections or by the Company under another
plan or agreement (collectively, the "Payments") are subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986 (as amended from
time to time, the "Code"), or any successor or similar provision of the Code
(the "Excise Tax"), the Company shall pay the Executive an additional amount
(the "Gross Up") such that the net amount retained by the Executive after
deduction of any Excise Tax on the Payments and the federal income tax on any
amounts paid under this Section 13 shall be equal to the Payments.
(b) Certain Adjustment Payments. For purposes of determining the Gross Up,
the Executive shall be deemed to pay the federal income tax at the highest
marginal rate of taxation (currently 39.5%) in the calendar year in which the
payment to which the Gross Up applies is to be made. The determination of
whether such Excise Tax is payable and the amount thereof shall be made upon the
opinion of tax counsel selected by the Company and reasonably acceptable to the
Executive. The Gross Up, if any, that is due as a result of such determination
shall be paid to the Executive in cash in a lump sum within thirty (30) days of
such computation. If such opinion is not finally accepted by the Internal
Revenue Service upon audit or otherwise, then appropriate adjustments shall be
computed (without interest but with Gross Up, if applicable) by such tax counsel
based upon the final amount of the Excise Tax so determined; any additional
amount due the Executive as a result of such adjustment shall be paid to the
Executive by his or her Company in cash in a lump sum within thirty (30) days of
such computation, or any amount due the Executive's
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Company as a result of such adjustment shall be paid to the Company by the
Executive in cash in a lump sum within thirty (30) days of such computation.
14. MISCELLANEOUS
(a) Waiver of Breach. The waiver by either party to this Agreement of a
breach of any of the provisions of this Agreement by the other party shall not
be construed as a waiver of any subsequent breach by such other party.
(b) No Right to Continued Employment. Notwithstanding the fact that
certain provisions of this Agreement and/or Exhibit A reference a three year
cycle or provide for benefits upon a third year of employment, this Agreement
shall have a two year term with annual one year renewal terms subject to the
termination provisions contained herein.
(c) Compliance With Other Agreements. The Executive represents and
warrants that the execution of this Agreement by him and the Executive's
performance of the Executive's obligations hereunder will not conflict with,
result in the breach of any provision of or the termination of or constitute a
default under any Agreement to which the Executive is a party or by which the
Executive is or may be bound.
(d) Binding Effect; Assignment. The rights and obligations of the Company
under this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of the Company. This Agreement is a personal employment
contract and the rights, obligations and interests of the Executive hereunder
may not be sold, assigned, transferred, pledged or hypothecated.
(e) Entire Agreement. This Agreement contains the entire agreement and
supersedes all prior agreements and understandings, oral or written, with
respect to the subject matter hereof. This Agreement may be changed only by an
agreement in writing signed by the party against whom any waiver, change,
amendment, modification or discharge is sought.
(f) No Duty to Mitigate. The Executive shall be under no duty to mitigate
any loss of income as result of the termination of his employment hereunder and
any payments due the Executive upon termination of employment shall not be
reduced in respect of any other employment compensation received by the
Executive following such termination.
(g) Florida Law. This Agreement shall be construed pursuant to and
governed by the substantive laws of the State of Florida (except that any
provision of Florida law shall not apply if the law of a state or jurisdiction
other than Florida would otherwise apply).
(h) Venue; Process. The parties to this Agreement agree that jurisdiction
and venue in any action brought pursuant to this Agreement to enforce its terms
or otherwise with respect to the relationships between the parties shall
properly lie in and only in the Circuit Court of the Sixth Judicial Circuit of
the State of Florida in and for Pinellas County (the "Circuit Court") and the
parties agree that jurisdiction shall not properly lie in any other jurisdiction
provided, however, if
12.
<PAGE>
jurisdiction does not properly lie with the Circuit Court, the parties agree
that jurisdiction and venue shall properly lie in and only in the United States
District Court for the Middle District of Florida, Tampa Division. The parties
hereby waive any objections which they may now or hereafter have based on venue
and/or forum non conveniens and irrevocably submit to the jurisdiction of any
such court in any legal suit, action or proceeding arising out of or relating to
this Agreement. The parties further agree that the mailing by certified or
registered mail, return receipt requested, of any process required by any such
court shall constitute valid and lawful service of process against them, without
the necessity for ser vice by any other means provided by statute or rule of
court.
(i) Headings. The headings of the various sections in this Agreement are
inserted for the convenience of the parties and shall not affect the meaning,
construction or interpretation of this Agreement.
(j) Severability. Any provision of this Agreement which is determined by a
court of competent jurisdiction to be prohibited, unenforceable or not
authorized in any jurisdiction shall, as to such jurisdiction, be ineffective to
the extent of such prohibition, unenforceability or non-authorization without
invalidating the remaining provisions hereof or affecting the validity,
enforceability or legality of such provision in any other jurisdiction. In any
such case, such determination shall not affect any other provision of this
Agreement, and the remaining provisions of this Agreement shall remain in full
force and effect. If any provision or term of this Agreement is susceptible to
two or more constructions or interpretations, one or more of which would render
the provision or term void or unenforceable, the parties agree that a
construction or interpretation which renders the term or provision valid shall
be favored.
(k) Deduction for Tax Purposes. The Company's obligations to make payments
under this Agreement are independent of whether any or all of such payments are
deductible expenses of the Company for federal income tax purposes.
(l) Enforcement. If, within 10 days after demand to comply with the
obligations of one of the parties to this Agreement served in writing on the
other, compliance or reasonable assurance of compliance is not forthcoming, and
the party demanding compliance engages the services of an attorney to enforce
rights under this Agreement, the prevailing party in any action shall be
entitled to recover all reasonable costs and expenses of enforcement (including
reasonable attorneys' fees and reasonable expenses during investigation, before
and at trial and in appellate proceedings). In addition, each of the parties
agrees to indemnify the other in respect of any and all claims, losses, costs,
liabilities and expenses, including reasonable fees and reasonable disbursements
of counsel (during investigation prior to initiation of litigation and at trial
and in appellate proceedings if litigation ensues), directly or indirectly
resulting from or arising out of a breach by the other party of their respective
obligations hereunder. The parties' costs of enforcing this Agreement shall
include prejudgment interest. Additionally, if any party incurs any
out-of-pocket expenses in connection with the enforcement of this Agreement, all
such amounts shall accrue interest at 18% per annum (or such lower rate as may
be required to avoid any limit imposed by applicable law) commencing 30 days
after any such expenses are incurred.
13.
<PAGE>
(m) Notices. All notices which are required or may be given under this
Agreement shall be in writing and shall be deemed to have been duly given when
received if personally delivered; when transmitted if transmitted by telecopy or
similar electronic transmission method; one working day after it is sent, if
sent by recognized expedited delivery service; and three days after it is sent,
if mailed, first class mail, certified mail, return receipt requested, with
postage prepaid. In each case notice shall be sent to:
To the Company: Echelon International Corporation
One Progress Plaza
St. Petersburg, FL 33701
Attn: Chairman of the Board
Telecopy: (813) 824-6536
To the Executive at the Executive's address herein first above written, or
to such other address as either party may specify by written notice to the
other.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
ATTEST: ECHELON INTERNATIONAL CORPORATION
(Corporate Seal)
________________________________ By:____________________________________
Secretary Darryl A. LeClair, President
EXECUTIVE
Witnesses:
________________________________ _______________________________________
James R. Hobbs
________________________________
As to Executive
14.
<PAGE>
EXHIBIT A
TO
EMPLOYMENT AGREEMENT WITH JAMES R. HOBBS
DATED NOVEMBER 20, 1996
The Company will establish a Management Incentive Compensation Plan
("MICP") for its senior management in which the Executive will participate.
During the first two full fiscal years of the Company's operation following the
completion of the Spinoff ending on December 31, 1997, and December 31, 1998,
respectively (the "Covered Years"), the MICP will provide for annual cash
bonuses based upon the Company's net income for each of the Covered Years. The
Executive's participation in the MICP during the Covered Years shall be based
upon the criteria and shall include awards with the values indicated in the
tables set forth below and as more fully described in this Exhibit A.
MICP
During each of the Covered Years, (i) all MICP bonuses shall be paid in
cash; (ii) if Threshold Net Income is not achieved, no MICP cash bonus will be
paid; (iii) if actual net income exceeds Threshold Net Income, but is less than
Target Net Income, or exceeds Target Net Income but is less than Maximum Net
Income, the percentage of the MICP bonus shall be proportionately increased
above the Threshold bonus amount or the Target Bonus amount, as the case may be,
and (iv) if actual net income equals or exceeds Maximum Net Income, the Maximum
MICP cash bonus will be paid, but no additional cash bonus will be payable under
the MICP regardless of the amount by which actual net income in that Covered
Year exceeds Maximum Net Income. The following table sets forth information
regarding the MICP Net Income Threshold, Target and Maximum and cash bonuses.
MICP 1997 1998
THRESHOLD
Net Income $1,584,274 $1,768,816
MICP Cash Bonus $ 7,500 $ 7,500
(% of Target Bonus) (50%) (50%)
TARGET
Net Income $2,112,366 $2,358,422
MICP Cash Bonus $ 15,000 $ 15,000
(% of Base Salary) (15%) (15%)
MAXIMUM
Net Income $2,640,457 $2,948,027
MICP Cash Bonus $ 22,500 $ 22,500
15.
<PAGE>
- --------------------------------------------------------------------------------
(% of Target Bonus) (150%) (150)%
16.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into this 3rd day of
February, 1997, but is effective for all purposes as of the date specified below
in Section 2, by and between ECHELON INTERNATIONAL CORPORATION, a Florida
corporation (the "Company"), and MICHAEL S. TALMADGE, residing at 8573 West Gulf
Blvd, Treasure Island, Florida 33706 (the "Executive").
W I T N E S S E T H:
1. EMPLOYMENT
The Company hereby employs the Executive, and the Executive hereby accepts
such employment, upon the terms and subject to the conditions set forth in this
Agreement.
2. TERM
Subject to the provisions for termination as hereinafter provided, the
term of employment under this Agreement shall begin as of January 1, 1997, and
shall continue through December 31, 1998, provided, however, that this
Employment Agreement shall automatically be renewed for successive one year
terms unless either party gives the other written notice of termination at least
ninety (90) days prior to the end of any such term.
3. COMPENSATION
(a) Base Salary. The Company shall pay to the Executive as basic
compensation for all services rendered by the Executive during the term of this
Agreement a basic annualized salary of $50,000 per year, or such other sum in
excess of that amount as the parties may agree on from time to time or as
provided in the next sentence (as in effect from time to time, the "Base
Salary"), payable monthly or in other more frequent installments, as determined
by the Company. The Board of Directors shall have no authority to reduce the
Executive's Base Salary in effect from time to time. In addition, the Board of
Directors, in its discretion, may award a bonus or bonuses to the Executive in
addition to the bonuses provided for in Section 3(b).
(b) Bonuses. In addition to the Base Salary to be paid pursuant to Section
3(a), for each of the Company's two fiscal years ending December 31, 1997 and
December 31, 1998 during the term of this Agreement, the Company shall pay as
incentive compensation the commissions, to the extent earned, specified on
Exhibit A to this Agreement. For each fiscal year ending after December 31,
1998, provided the Executive continues to be employed by the Company under this
Agreement, the Executive shall be eligible for incentive compensation annual
bonus plan(s) adopted by the Board of Directors of the Company from time to time
in accordance with the terms of such plans.
(c) Certain Plans and Initial Award. (i) It is anticipated that the
Company will adopt certain incentive compensation plans including a long term
incentive plan (the "LTIP"), providing for annual or other periodic awards to
key employees, among other things, of restricted stock and a stock option plan
(the "ISO/NSO Plan"), providing for the annual or other periodic issuance of
<PAGE>
options to purchase the Company's common stock. The LTIP and ISO/NSO are
referred to collectively in this Agreement as the "Plans." The Executive will be
given an opportunity to participate in the Plans, in accordance with and subject
to the terms of the Plans as they may be adopted, amended and administered from
time to time.
(ii) In addition to the incentive compensation referred to in
Section 3(c)(i), the Company hereby agrees to issue to the Executive under the
LTIP, effective immediately following the completion of the Distribution, 8,084
shares of the Company's common stock (the "Restricted Stock") which Restricted
Stock shall be subject to a risk of forfeiture, which risk will lapse as to
one-fifth of the shares of the Restricted Stock on January 31, 1998, and as to
an additional one-fifth of the Initial Restricted Stock on each of January 31,
1999, January 31, 2000, January 31, 2001 and January 31, 2002.
(d) Reimbursement. The Company shall reimburse the Executive, in
accordance with the Company's policies and practices for senior management, for
all reasonable expenses incurred by the Executive in the performance of the
Executive's duties under this Agreement, provided, however, that the Executive
must furnish to the Company an itemized account, satisfactory to the Company, in
substantiation of such expenditures.
(e) Certain Benefits. The Executive shall be entitled to such fringe
benefits including, but not limited to, medical and other insurance benefits as
may be provided from time to time by the Company to other senior officers of the
Company. In addition, without restricting the foregoing, the Company shall
provide the Executive at the Company's sole cost and expense with (i) a policy
or policies of term life insurance (the "Basic Life Insurance") providing, among
other things, basic death benefits of the greater of $150,000 or two times the
Base Salary in effect from time to time, (ii) directors and officers liability
insurance with coverage, terms and limits suitable for a vice president of a New
York Stock Exchange listed company comparable in financial size and wherewithal
to that of the Company (iii) a monthly allowance of $400 cash to reimburse the
Executive for the use and maintenance of his automobile in furtherance of the
business and affairs of the Company, provided that the Executive shall at all
times insure the Executive and the Company in such amounts as may be reasonably
requested by the Company against claims for bodily injury, death and property
damages occurring as a result of its use and (iv) a portable and car based
cellular telephone for which the Company will pay for all business telephone
calls made by the Executive. The Company shall use its reasonable best efforts
to make available to the Executive in connection with providing and paying for
the Basic Life Insurance the opportunity to purchase at the Executive's sole
cost and expense additional life insurance with a basic death benefit (the
"Optional Life Insurance") equal to the greater of $150,000 or two times the
Executive's Base Salary in effect from time to time. The Company shall use its
reasonable best efforts to effect the transfer of the ownership to the Executive
of the policy or policies for the Basic Life Insurance and the Optional Life
Insurance, if any, upon the termination of the Executive's employment by the
Company. After the Executive's termination,ation of the Executive.
(f) Other Incentive and Benefit Plans. The Executive shall be eligible to
participate, in accordance with the terms of such plans as they may be adopted,
amended and administered from time to time, in incentive, bonus, benefit or
similar plans, including without limitation, any stock option, bonus or other
equity ownership plan, any short, mid or long term incentive plan and any other
bonus, pension or profit sharing plans established by the Company from time to
time.
<PAGE>
4. DUTIES
(a) General. The Executive is engaged as a Vice President of the Company.
In addition, at the request of the Board of Directors, the Executive shall serve
in the same positions in any wholly owned subsidiary of the Company, without any
additional compensation. The Executive shall have such duties and hold such
other offices as may from time to time be reasonably assigned to him by the
Board of Directors of the Company.
(b) Indemnification. To the fullest extent permitted by law, the Company
shall indemnify and hold harmless the Executive for all liabilities, costs,
expenses and damages arising out of or in connection with the Executive's
service to the Company under this Agreement. In furtherance of this indemnity,
the Company shall enter into an indemnification agreement, in form and substance
reasonably satisfactory to the Executive and the Company. In addition, the
indemnity provided hereunder shall extend to service by the Executive as an
officer or director, or service in a similar capacity, for any civic, community
or charitable organization, provided such service is undertaken at the request
of or with the knowledge and acquiescence of the Company. The foregoing
indemnification shall be in addition to any rights or benefits the Executive may
have under statute, the Bylaws or Articles of Incorporation of the Company,
under a policy of insurance, or otherwise.
5. EXTENT OF SERVICES; VACATIONS AND DAYS OFF
(a) Extent of Services. During the term of the Executive's employment
under this Agreement, except during customary vacation periods and periods of
illness, the Executive shall devote full-time energy and attention during
regular business hours to the benefit and business of the Company as may be
reasonably necessary in performing the Executive's duties pursuant to this
Agreement.
(b) Vacations. The Executive shall be entitled to vacations with pay and
to such personal and sick leave with pay in accordance with the policy of the
Company as may be established from time to time by the Company and applied to
other senior officers of the Company. However, in no event shall the Executive
be entitled to less than three weeks vacation with pay. Unused vacation days may
be carried over from one year to the next for a period of up to two years. Any
vacation days which remain unused on the second anniversary of the end of the
fiscal year to which they originally related shall expire and shall thereafter
no longer be useable by the Executive.
6. FACILITIES
The Company shall provide the Executive with a fully furnished office, and
the facilities of the Company shall be generally available to the Executive in
the performance of the Executive's duties pursuant to this Agreement, it being
understood and contemplated by the parties that all equipment, supplies and
office personnel required in the performance of the Executive's duties under
this Agreement shall be supplied by and at the sole expense of the Company.
<PAGE>
7. ILLNESS OR INCAPACITY, TERMINATION ON DEATH, ETC.
(a) Death. If the Executive dies during the term of the Executive's
employment, the Company shall pay to the estate of the Executive within 30 days
after the date of death such Base Salary and any cash bonus compensation earned
pursuant to the provisions of any incentive compensation plan then in effect but
not yet paid, as would otherwise have been payable to the Executive up to the
end of the month in which the Executive's death occurs. After receiving the
payments provided in this Section 7(a) the Executive and the Executive's estate
shall have no further rights under this Agreement (other than those rights
already accrued).
(b) Disability. (i) During any period of disability, illness or incapacity
during the term of this Agreement which renders the Executive temporarily unable
to perform the services required under this Agreement, the Executive shall
receive the Base Salary payable under Section 3(a) of this Agreement plus any
cash bonus compensation earned pursuant to the provisions of any incentive
compensation plan then in effect but not yet paid, less any cash benefits
received by him under any disability insurance carried by or provided by the
Company. Upon the Executive's "Permanent Disability" (as defined below),the
Executive shall receive the Base Salary payable under Section 3(a) of this
Agreement plus any cash bonus compensation earned pursuant to the provisions of
any incentive compensation plan then in effect but not yet paid, as would
otherwise have been payable to the Executive up to the end of the month in which
the Executive's Permanent Disability occurs. Upon "Permanent Disability" (as
that term is defined in Section 7(b)(ii) below) of the Executive, except as
provided in this Section 7(b), all rights of the Executive under this Agreement
(other than rights already accrued) shall terminate.
(ii) The term "Permanent Disability" as used in this Agreement shall
mean, in the event a disability insurance policy is maintained by the Company
covering the Executive at such time and is in full force and effect, the
definition of permanent disability set forth in such policy. In the event no
disability insurance policy is maintained at such time and in full force and
effect, "Permanent Disability" shall mean the inability of the Executive, as
determined by the Board of Directors of the Company, by reason of physical or
mental disability to perform the duties required of him under this Agreement for
a period of one hundred and eighty (180) days in any one-year period. Successive
periods of disability, illness or incapacity will be considered separate periods
unless the later period of disability, illness or incapacity is due to the same
or related cause and commences less than six months from the ending of the
previous period of disability. Upon such determination, the Board of Directors
may terminate the Executive's employment under this Agreement upon ten (10)
days' prior written notice. If any determination of the Board of Directors with
respect to permanent disability is disputed by the Executive, the parties hereto
agree to abide by the decision of a panel of three physicians. The Executive and
Company shall each appoint one member, and the third member of the panel shall
be appointed by the other two members. The Executive agrees to make himself
available for and submit to examinations by such physicians as may be directed
by the Company. Failure to submit to any such examination shall constitute a
breach of a material part of this Agreement.
8. OTHER TERMINATIONS
(a) By the Executive. (i) The Executive may terminate the Executive's
employment hereunder upon giving at least ninety (90) days' prior written
notice. In addition, the Executive
<PAGE>
shall have the right to terminate the Executive's employment hereunder on the
conditions and at the times provided for in Section 8(d) of this Agreement.
(ii) If the Executive gives notice pursuant to Section 8(a)(i)
above, the Company shall have the right (but not the obligation) to relieve the
Executive, in whole or in part, of the Executive's duties under this Agreement,
or direct the Executive to no longer perform such duties, or direct that the
Executive should no longer report to work, or any combination of the foregoing.
In any such event, the Executive shall be entitled to receive only the Base
Salary not yet paid, as would otherwise have been payable to the Executive up to
the end of the month specified as the month of termination in the termination
notice. In the event the Executive gives notice pursuant to Section 8(a)(i)
above but specifies a termination date in excess of ninety (90) days from the
date of such notice, the Company shall have the right (but not the obligation)
to accelerate the termination date to any date prior to the date specified in
the notice that is in excess of ninety (90) days from the date of the notice,
and the Company shall have the right (but not the obligation) to relieve the
Executive, in whole or in part, of the Executive's duties under this Agreement,
or direct the Executive to no longer perform such duties, or direct that the
Executive should no longer report to work, or any combination of the foregoing;
provided, however, that in any such event the Executive shall be entitled to
receive the Base Salary, as would otherwise have been payable to the Executive
up to the end of the month of the termination date properly selected by the
Company. Upon receiving the payments provided for under this Section 8(a), all
rights of the Executive under this Agreement (other than rights already accrued)
shall terminate.
(b) Termination for "Good Cause". (i) Except as otherwise provided in this
Agreement, the Company may terminate the employment of the Executive hereunder
only for "good cause," which shall mean: (A) the Executive's conviction of
either a felony involving moral turpitude or any crime in connection with the
Executive's employment by the Company which causes the Company a substantial
detriment, but specifically shall not include traffic offenses; (B) actions by
the Executive as an executive officer of the Company which clearly are contrary
to the best interests of the Company; (C) the Executive's willful failure to
take actions permitted by law and necessary to implement policies of the
Company's Board of Directors which the Board of Directors has communicated to
him in writing, provided that minutes of a Board of Directors meeting attended
in its entirety by the Executive shall be deemed communicated to the Executive;
(D) the Executive's continued failure to attend to the Executive's duties as an
executive officer of the Company; or (E) any condition which either resulted
from the Executive's substantial dependence, as determined by the Board of
Directors of the Company, on alcohol, or any narcotic drug or other controlled
or illegal substance. If any determination of substantial dependence is disputed
by the Executive, the parties hereto agree to abide by the decision of a panel
of three physicians appointed in the manner and subject to the same penalties
for noncompliance as specified in Section 7(b)(ii) of this Agreement.
(ii) Notwithstanding the foregoing, each of the foregoing bases for
termination specified in (A) through (E) of Subsection 8(b)(i) shall constitute
"Good Cause" only if (1) the Executive has been provided with written notice of
any assertion that there is a basis for termination for good cause which notice
shall specify in reasonable detail specific facts regarding any such assertion
and the Executive has been given a reasonable period of time within which to
remedy r cure the problem or complaint, (2) such notice is provided to the
Executive a reasonable time before the Board of Directors meets to consider any
possible termination for cause, (3) at or prior to the meeting of the Board of
Directors to consider the matters described in the written notice, an
<PAGE>
opportunity is provided to the Executive and his counsel to be heard by the
Board of Directors with respect to the matters described in the written notice,
before it acts with respect to such matter, (4) any resolution or other action
by the Board of Directors with respect to any deliberation regarding or decision
to terminate the Executive for good cause is duly adopted by a vote of a
majority of the entire Board of Directors of the Company at a meeting of the
Board duly called and held and (5) the Executive is promptly provided with a
copy of the resolution or other corporate action taken with respect to such
termination.
(iii) If the employment of the Executive is terminated for good
cause under Section 8(b)(i) of this Agreement, the Company shall pay to the
Executive any Base Salary earned prior to the effective date of termination but
not yet paid and any cash bonus compensation earned pursuant to the provisions
of any incentive compensation plan then in effect but not paid to the Executive
prior to the effective date of such termination. Under such circumstances, such
payments shall be in full and complete discharge of any and all liabilities or
obligations of the Company to the Executive hereunder, and the Executive shall
be entitled to no further benefits under this Agreement (other than rights
already accrued).
(iv) Termination of the employment of the Executive other than as
expressly specified above in this Section 8(b) for good cause shall be deemed to
be a termination of employment "Without Good Cause."
(c) Termination Without Good Cause. (i) Notwithstanding any other
provision of this Agreement, the Company shall have the right to terminate the
Executive's employment Without Good Cause pursuant to the provisions of this
Section 8(c). If the Company shall terminate the employment of the Executive
Without Good Cause effective on a date earlier than the termination date
provided for in Section 2 (with the effective date of termination as so
identified by the Company being referred to herein as the "Accelerated
Termination Date"), the Executive, until the end of the term of this Agreement
then in effect as provided for in Section 2, or until the date which is 12
months after the Accelerated Termination Date, whichever is greater, shall
continue to receive (1) the Base Salary, paid in the same monthly on other
periodic installments ad in effect prior to the Accelerated Termination Date and
(2) any other cash or other bonus compensation earned prior to the date of such
termination pursuant to the terms of all incentive compensation plans then in
effect other than under the Management Incentive; provided that, notwithstanding
such termination of employment, the Executive's covenants set forth in Section
10 and Section 11 are intended to and shall remain in full force and effect and
provided further that in the event of such termination, the Company shall have
the right (but not the obligation) to relieve the Executive, in whole or in
part, of the Executive's duties under this Agreement, or direct the Executive to
no longer perform such duties, or direct that the Executive no longer be
required to report to work, or any combination of the foregoing.
(ii) The parties agree that, because there can be no exact measure of the
damage that would occur to the Executive as a result of a termination by the
Company of the Executive's employment Without Good Cause, the payments and
benefits paid and provided pursuant to this Section 8(c) shall be deemed to
constitute liquidated damages and not a penalty for the Company's termination of
the Executive's employment Without Good Cause.
(d) Change of Control. (i) For purposes of this Agreement, a "Change in
Control" shall mean the first to occur of:
<PAGE>
(1) a change in control of the Company of a nature that is required,
pursuant to the Securities Exchange Act of 1934 (the "1934 Act"), to be reported
in response to Item 1(a) of a Current Report on Form 8-K or Item 6(e) of
Schedule 14A under the 1934 Act (in each case under this Agreement, references
to provisions of the 1934 Act and the rules and regulations promulgated
thereunder being understood to refer to such law, rules and regulations as the
same are in effect on November 1, 1996); or
(2) the acquisition of "Beneficial Ownership" (as defined in Rule
13d-3 under the 1934 Act) of the Company's securities comprising 35% or more of
the combined voting power of the Company's outstanding securities by any
"person" (as that term is used in Sections 13(d) and 14(d)(2) of the 1934 Act
and the rules and regulations promulgated thereunder, but not including any
trustee or fiduciary acting in that capacity for an employee benefit plan
sponsored by the Company) and such person's "affiliates" and "associates" (as
those terms are defined under the 1934 Act), but excluding any ownership by the
Executive and his affiliates and associates; or
(3) the failure of the "Incumbent Directors" (as defined below) to
constitute at least a majority of all directors of the Company (for these
purposes, "Incumbent Directors" means individuals who were the directors of the
Company on November 1, 1996, and, after his or her election, any individual
becoming a director subsequent to November 1, 1996, whose election, or
nomination for election by the Company's stockholders, is approved by a vote of
at least two-thirds of the directors then comprising the Incumbent Directors,
except that no individual shall be considered an Incumbent Director who is not
recommended by management and whose initial assumption of office as a director
is in connection with an actual or threatened "election contest" relating to the
"election of directors" of the Company, as such terms are used in Rule 14a-11 of
Regulation 14A under the 1934 Act); or
(4) the closing of a sale of all or substantially all of the assets
of the Company;
(5) the Company's adoption of a plan of dissolution or liquidation;
or
(6) the closing of a merger or consolidation involving the Company
in which the Company is not the surviving corporation or if, immediately
following such merger or consolidation, less than seventy-five percent (75%) of
the surviving corporation's outstanding voting stock is held or is anticipated
to be held by persons who are stockholders of the Company immediately prior to
such merger or consolidation.
(ii) If a Change in Control of the Company occurs, the Executive
shall have the right, exercisable for a period of one year thereafter by
delivering a written statement to that effect to the Company, to immediately
terminate this Agreement and upon such a determination the Executive shall have
the right to receive and the Company shall be obligated to pay to Executive in
cash a lump sum payment in an amount equal to the sum of (1) two times the
annual Base Salary then in effect and (2) the additional payments necessary to
discharge certain tax liabilities (the "Gross Up") as that term is defined in
Section 13 of this Agreement (the sum of the foregoing amounts other than the
Gross Up being referred to as the "Change in Control Payment"). If the Executive
fails to exercise his rights under this Section 8(d) within one year following a
Change in Control, such rights shall expire and be of no further force or
effect.
<PAGE>
(e) Intentions Regarding Certain Stock and Benefit Plans. Except as
otherwise provided herein, upon any termination of the Executive's employment
Without Good Cause, or upon the exercise by the Executive of his rights to
terminate his employment following a Change of Control, it is the intention of
the parties that any and all vesting or performance requirements or conditions
affecting any outstanding restricted stock, performance stock, stock option,
stock appreciation right, bonus, award, right, grant or any other incentive
compensation under any of the Plans, under this Agreement, or otherwise
received, shall be deemed to be fully satisfied and any risk of forfeiture with
respect thereto shall be deemed to have lapsed.
(f) Certain Rights Mutually Exclusive. The provisions of Section 8(c) and
Section 8(d) are mutually exclusive, provided, however, that if within one year
following commencement of an 8(c) payout there shall be a Change in Control as
defined in Section 8(d)(i), then the Executive shall be entitled to the amount
payable to the Executive under Section 8(d)(ii) and Section 8(d)(iii) reduced by
the amount that the Executive has received under Section 8(c) up to the date of
the change in control. The triggering of the lump sum payment requirement of
Section 8(d) shall cause the provisions of Section 8(c) to become inoperative.
9. DISCLOSURE
The Executive agrees that during the term of the Executive's employment by
the Company, the Executive will disclose and disclose only to the Company all
ideas, methods, plans, developments or improvements known by him which relate
directly or indirectly to the business of the Company, whether acquired by the
Executive before or during the Executive's employment by the Company. Nothing in
this Section 9 shall be construed as requiring any such communication where the
idea, plan, method or development is lawfully protected from disclosure as a
trade secret of a third party or by any other lawful prohibition against such
communication. The covenants of this Section 9 shall not be violated by ordinary
and customary communications with reporters, bankers and securities analysts and
other members of the investment community.
10. CONFIDENTIALITY
The Executive agrees to keep in strict secrecy and confidence any and all
information the Executive assimilates or to which the Executive has access
during the Executive's employment by the Company and which has not been publicly
disclosed and is not a matter of common knowledge in the fields of work of the
Company. The Executive agrees that both during and after the term of the
Executive's employment by the Company, the Executive will not, without the prior
written consent of the Company, disclose any such confidential information to
any third person, partnership, joint venture, company, corporation or other
organization. The foregoing covenants shall not be breached to the extent that
any such confidential information becomes a matter of general knowledge other
than through a breach by the Executive of the Executive's obligations under this
Section 10.
11. NONCOMPETITION AND NONSOLICITATION
<PAGE>
(a) General. The Executive hereby acknowledges that, during and solely as
a result of the Executive's employment by the Company, the Executive has
received and shall continue to receive: (1) special training and education with
respect to the operations of the Company's real estate development and
management businesses and its leasing, lending and financing activities, and
other related matters, and (2) access to confidential information and business
and professional contacts. In consideration of the special and unique
opportunities afforded to the Executive by the Company as a result of the
Executive's employment, as outlined in the previous sentence, the Executive
hereby agrees to the restrictive covenants in this Section 11.
(b) Noncompetition. During the term of the Executive's employment, whether
pursuant to this Agreement, any automatic or other renewal hereof or otherwise,
and, except as may be otherwise herein provided, (i) for a period of one (1)
year after the termination of the Executive's employment with the Company,
regardless of the reason for such termination, the Executive shall not, directly
or indirectly, within Hillsborough or Pinellas County, Florida, enter into or
engage in any business with, be employed by or consult with any company listed
on Exhibit B attached hereto or any subsidiary or affiliate of such company and
(ii) for a period of two (2) years after the termination of the Executive's
employment with the Company, regardless of the reason for such termination, the
Executive shall not, directly or indirectly, with respect to any real estate
lending, leasing, financing, development or management business in Florida,
solicit, contract with or consult with (A) any person who, or entity which, is
at any time during the term of the Executive's employment a tenant of the
Company, (B) any third party for whom the Company manages or leases property or
(C) any tenants of any third party for whom the Company manages or leases
property; provided, however, notwithstanding anything contained herein to the
contrary, the provisions of this Section 11(b)(ii)(B) and (C) shall not apply to
the Executive if the Executive is terminated "Without Good Cause" (as defined in
this Agreement) or the Executive terminates this Agreement following the
substantial reduction by the Board of Directors of the bonus compensation that
may be earned by the Executive. The Executive shall not engage in such
prohibited activities, either as an individual, partner, officer, director,
stockholder, employee, advisor, independent contractor, joint venturer,
consultant, agent, or representative or salesman for any person, firm,
partnership, corporation or other entity. The restrictions of this Section 11
shall not be violated by (i) the ownership of no more than 2% of the outstanding
securities of any company whose stock is traded on a national securities
exchange or is quoted in the Automated Quotation System of the National
Association of Securities Dealers (NASDAQ), or (ii) other outside business
investments that do not in any manner conflict with the services to be rendered
by the Executive for the Company and that do not diminish or detract from the
Executive's ability to render the Executive's required attention to the business
of the Company.
(c) Nonsolicitation. During the Executive's employment with the Company
and, except as may be otherwise herein provided, for a period of two (2) years
following the termination of the Executive's employment with the Company,
regardless of the reason for such termination, the Executive agrees the
Executive will refrain from and will not, directly or indirectly, as an
individual, partner, officer, director, stockholder, employee, advisor,
independent contractor, joint venturer, consultant, agent, representative,
salesman or otherwise solicit any of the employees of the Company to terminate
their employment.
(d) Term Extended or Suspended. The period of time during which the
Executive is prohibited from engaging in certain business practices pursuant to
Sections 11(b) or (c) shall be extended by any length of time during which the
Executive is in breach of such covenants.
<PAGE>
(e) Essential Element. It is understood by and between the parties hereto
that the foregoing restrictive covenants set forth in Sections 11(a) through (c)
are essential elements of this Agreement, and that, but for the agreement of the
Executive to comply with such covenants, the Company would not have agreed to
enter into this Agreement. Such covenants by the Executive shall be construed as
agreements independent of any other provision in this Agreement. The existence
of any claim or cause of action of the Executive against the Company, whether
predicated on this Agreement, or otherwise, shall not constitute a defense to
the enforcement by the Company of such covenants.
(f) Severability. It is agreed by the Company and Executive that if any
portion of the covenants set forth in this Section 11 are held to be invalid,
unreasonable, arbitrary or against public policy, then such portion of such
covenants shall be considered divisible both as to time and geographical area.
The Company and Executive agree that, if any court of competent jurisdiction
determines the specified time period or the specified geographical area
applicable to this Section 11 to be invalid, unreasonable, arbitrary or against
public policy, a lesser time period or geographical area which is determined to
be reasonable, non-arbitrary and not against public policy may be enforced
against the Executive. The Company and the Executive agree that the foregoing
covenants are appropriate and reasonable when considered in light of the nature
and extent of the business conducted by the Company.
12. SPECIFIC PERFORMANCE
The Executive agrees that damages at law will be an insufficient remedy to
the Company if the Executive violates the terms of Sections 9, 10 or 11 of this
Agreement and that the Company would suffer irreparable damage as a result of
such violation. Accordingly, it is agreed that the Company shall be entitled,
upon application to a court of competent jurisdiction, to obtain injunctive
relief to enforce the provisions of such Sections, which injunctive relief shall
be in addition to any other rights or remedies available to the Company. The
Executive agrees to pay to the Company all reasonable costs and expenses
incurred by the Company relating to the enforcement of the terms of Sections 9,
10 or 11 of this Agreement, including reasonable fees and reasonable
disbursements of counsel selected by the Company (during investigation and
before and at trial and in appellate proceedings).
<PAGE>
13. PAYMENT OF EXCISE TAXES
(a) Payment of Excise Taxes. If the Executive is to receive any Change of
Control Payment under Section 8(d), or any benefit or payment under the Plans as
a result of a Change of Control, following the death of Permanent Disability of
the Executive or following the termination of employment hereunder Without Good
Cause (such sections being referred to as the "Covered Sections" and the
benefits and payments to be received thereunder being referred to as the
"Covered Payments"), the Executive shall be entitled to receive the amount
described below to the extent applicable: If any Covered Payment(s) under any of
the Covered Sections or by the Company under another plan or agreement
(collectively, the "Payments") are subject to the excise tax imposed by Section
4999 of the Internal Revenue Code of 1986 (as amended from time to time, the
"Code"), or any successor or similar provision of the Code (the "Excise Tax"),
the Company shall pay the Executive an additional amount (the "Gross Up") such
that the net amount retained by the Executive after deduction of any Excise Tax
on the Payments and the federal income tax on any amounts paid under this
Section 13 shall be equal to the Payments.
(b) Certain Adjustment Payments. For purposes of determining the Gross Up,
the Executive shall be deemed to pay the federal income tax at the highest
marginal rate of taxation (currently 39.5%) in the calendar year in which the
payment to which the Gross Up applies is to be made. The determination of
whether such Excise Tax is payable and the amount thereof shall be made upon the
opinion of tax counsel selected by the Company and reasonably acceptable to the
Executive. The Gross Up, if any, that is due as a result of such determination
shall be paid to the Executive in cash in a lump sum within thirty (30) days of
such computation. If such opinion is not finally accepted by the Internal
Revenue Service upon audit or otherwise, then appropriate adjustments shall be
computed (without interest but with Gross Up, if applicable) by such tax counsel
based upon the final amount of the Excise Tax so determined; any additional
amount due the Executive as a result of such adjustment shall be paid to the
Executive by his or her Company in cash in a lump sum within thirty (30) days of
such computation, or any amount due the Executive's Company as a result of such
adjustment shall be paid to the Company by the Executive in cash in a lump sum
within thirty (30) days of such computation.
14. MISCELLANEOUS
(a) Waiver of Breach. The waiver by either party to this Agreement of a
breach of any of the provisions of this Agreement by the other party shall not
be construed as a waiver of any subsequent breach by such other party.
(b) No Right to Continued Employment. Notwithstanding the fact that
certain provisions of this Agreement and/or Exhibit A reference a three year
cycle or provide for benefits upon a third year of employment, this Agreement
shall have a two year term with annual one year renewal terms subject to the
termination provisions contained herein.
(c) Compliance With Other Agreements. The Executive represents and
warrants that the execution of this Agreement by him and the Executive's
performance of the Executive's obligations hereunder will not conflict with,
result in the breach of any provision of or the termination of or constitute a
default under any Agreement to which the Executive is a party or by which the
Executive is or may be bound.
<PAGE>
(d) Binding Effect; Assignment. The rights and obligations of the Company
under this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of the Company. This Agreement is a personal employment
contract and the rights, obligations and interests of the Executive hereunder
may not be sold, assigned, transferred, pledged or hypothecated.
(e) Entire Agreement. This Agreement contains the entire agreement and
supersedes all prior agreements and understandings, oral or written, with
respect to the subject matter hereof. This Agreement may be changed only by an
agreement in writing signed by the party against whom any waiver, change,
amendment, modification or discharge is sought.
(f) No Duty to Mitigate. The Executive shall be under no duty to mitigate
any loss of income as result of the termination of his employment hereunder and
any payments due the Executive upon termination of employment shall not be
reduced in respect of any other employment compensation received by the
Executive following such termination.
(g) Florida Law. This Agreement shall be construed pursuant to and
governed by the substantive laws of the State of Florida (except that any
provision of Florida law shall not apply if the law of a state or jurisdiction
other than Florida would otherwise apply).
(h) Venue; Process. The parties to this Agreement agree that jurisdiction
and venue in any action brought pursuant to this Agreement to enforce its terms
or otherwise with respect to the relationships between the parties shall
properly lie in and only in the Circuit Court of the Sixth Judicial Circuit of
the State of Florida in and for Pinellas County (the "Circuit Court") and the
parties agree that jurisdiction shall not properly lie in any other jurisdiction
provided, however, if jurisdiction does not properly lie with the Circuit Court,
the parties agree that jurisdiction and venue shall properly lie in and only in
the United States District Court for the Middle District of Florida, Tampa
Division. The parties hereby waive any objections which they may now or
hereafter have based on venue and/or forum non conveniens and irrevocably submit
to the jurisdiction of any such court in any legal suit, action or proceeding
arising out of or relating to this Agreement. The parties further agree that the
mailing by certified or registered mail, return receipt requested, of any
process required by any such court shall constitute valid and lawful service of
process against them, without the necessity for service by any other means
provided by statute or rule of court.
(i) Headings. The headings of the various sections in this Agreement are
inserted for the convenience of the parties and shall not affect the meaning,
construction or interpretation of this Agreement.
(j) Severability. Any provision of this Agreement which is determined by a
court of competent jurisdiction to be prohibited, unenforceable or not
authorized in any jurisdiction shall, as to such jurisdiction, be ineffective to
the extent of such prohibition, unenforceability or non-authorization without
invalidating the remaining provisions hereof or affecting the validity,
enforceability or legality of such provision in any other jurisdiction. In any
such case, such determination shall not affect any other provision of this
Agreement, and the remaining provisions of this Agreement shall remain in full
force and effect. If any provision or term of this Agreement is susceptible to
two or more constructions or interpretations, one or more of which would render
<PAGE>
the provision or term void or unenforceable, the parties agree that a
construction or interpretation which renders the term or provision valid shall
be favored.
(k) Deduction for Tax Purposes. The Company's obligations to make payments
under this Agreement are independent of whether any or all of such payments are
deductible expenses of the Company for federal income tax purposes.
(l) Enforcement. If, within 10 days after demand to comply with the
obligations of one of the parties to this Agreement served in writing on the
other, compliance or reasonable assurance of compliance is not forthcoming, and
the party demanding compliance engages the services of an attorney to enforce
rights under this Agreement, the prevailing party in any action shall be
entitled to recover all reasonable costs and expenses of enforcement (including
reasonable attorneys' fees and reasonable expenses during investigation, before
and at trial and in appellate proceedings). In addition, each of the parties
agrees to indemnify the other in respect of any and all claims, losses, costs,
liabilities and expenses, including reasonable fees and reasonable disbursements
of counsel (during investigation prior to initiation of litigation and at trial
and in appellate proceedings if litigation ensues), directly or indirectly
resulting from or arising out of a breach by the other party of their respective
obligations hereunder. The parties' costs of enforcing this Agreement shall
include prejudgment interest. Additionally, if any party incurs any
out-of-pocket expenses in connection with the enforcement of this Agreement, all
such amounts shall accrue interest at 18% per annum (or such lower rate as may
be required to avoid any limit imposed by applicable law) commencing 30 days
after any such expenses are incurred.
(m) Notices. All notices which are required or may be given under this
Agreement shall be in writing and shall be deemed to have been duly given when
received if personally delivered; when transmitted if transmitted by telecopy or
similar electronic transmission method; one working day after it is sent, if
sent by recognized expedited delivery service; and three days after it is sent,
if mailed, first class mail, certified mail, return receipt requested, with
postage prepaid. In each case notice shall be sent to:
To the Company: Echelon International Corporation
One Progress Plaza
St. Petersburg, FL 33701
Attn:Chairman of the Board
Telecopy: (813) 824-6536
To the Executive at the Executive's address herein first above written, or
to such other address as either party may specify by written notice to the
other.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
ATTEST: ECHELON INTERNATIONAL
CORPORATION
(Corporate Seal)
________________________________ By:____________________________________
<PAGE>
Secretary Darryl A. LeClair, President
Witnesses: EXECUTIVE
________________________________ _______________________________________
Michael S. Talmadge
________________________________
As to Executive
<PAGE>
EXHIBIT A
TO
EMPLOYMENT AGREEMENT WITH MICHAEL S. TALMAGE (MST)
DATED _________________, 1997
Commission Split - Third Party Properties
Gross Commission Paid to Echelon MST
$0 to $150,000 43%
$150,001 to $250,000 48%
$250,000+ 53%
Commission Paid Echelon Owned Properties
Lease Term Gross Lease Value
1-60 months 2%
61+ 1%
Construction Management Fee
Third Party 50% of fee paid to Echelon
Echelon Owned Properties 1.5% of Total Construction Value
Management Commission Override Echelon Owned 3rd Party
Properties Properties
---------- ----------
First Tier (MST is Agent Manager) .28% of Gross 7% of Gross
Lease Value Commission
Paid to Echelon
Second Tier (MST is NOT Agent Manager and there is a Manager receiving First
Tier Override)
.14% of Gross 3.5% of Gross
Gross Lease Commission
Value Paid to Echelon
Listing to MST
Highpoint Center - Tallahassee
Barnett Tower - St. Petersburg
Barnett Center - Sarasota
McNulty Station - St. Petersburg
100 Carillon - St. Petersburg
Centres at Feathersound - Clearwater
Any 3rd party property secured or development opportunity created by MST will
become an MST listing.
<PAGE>
Current TRS Deals and MST related Commission Splits:
To MST
------
Mercantile Bank- 3,436 RSF, 5 year 4% of GLV
Raymond James 65,000 RSF, 5 year 2% of GLV
EnVision 3,704 RSF, 5 year 4% of GLV
Andersen Consulting 3,206 RSF, 58 months 4% of GLV
Allstate Renewal- Barnett Tower 2% of GLV
Florida Power- Tenant Rep. Assignment 50% of Gross
Commission Earned
Andersen Consulting Construction Management 45%of Total
Construction Value
KPMG Construction Management 1.5% of Total
Construction Value
Faour Bldg Sale or Lease 2% of Gross Sales Price 4% of GLV
Centres at Feathersound
Building sale $4,850,000 60% of Gross
Commission Earned
ML Direct 2218 RSF 36 months 4% of Gross
Commission Earned
Barnett Center
Riscorp Parking Lease $128,290 100% of Gross
Commission Earned
Dean Witter expansion 1,634 RSF 100% of Gross
Commission Earned
Smith Secmond Reed Lease 3,100 RSF, 5 year 100% of Gross
Commission Earned
Parking Garage Restoration $95,000 100% of Gross
Fee Earned
Building Exterior Paint $45,000 100% of Gross
Fee Earned
Highpoint Center - Tallahassee
Florida Power Lease 1% of GLV
GSA 673 RSF, 50 months 3% of GLV
Signed
ICUF expiration 525 RSF 48 months 3% of GLV
Letter of Intent
Joseph Mizereck 521 RSF 36 months 4% of GLV
Letter of Intent
Rumberger expansion 6366 RSF 3% of GLV
& Renewal
ndhf*
<PAGE>
EXHIBIT B
1. Cushman & Wakefield of Florida, Inc.
2. Faison & Associates, Inc.
3. Colliers Arnold
4. CLW Realty Group, Inc.
5. Insignia Commercial Group, Inc.
6. CB Commercial Real Estate Management Services, Inc.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into this 19th day of
December, 1996, but is effective for all purposes as of November 22, 1996, by
and between ECHELON INTERNATIONAL CORPORATION, a Florida corporation (the
"Company"), and SUSAN G. JOHNSON, residing at 2799 Feather Sound Drive,
Clearwater, Florida 34622 (the "Executive").
W I T N E S S E T H:
1. EMPLOYMENT
The Company hereby employs the Executive, and the Executive hereby accepts
such employment, upon the terms and subject to the conditions set forth in this
Agreement.
2. TERM
Subject to the provisions for termination as hereinafter provided, the
term of part-time employment under this Agreement shall begin as of November 22,
1996 and shall continue through June 1, 1997 (the "Part-Time Employment Term")
and the term of full-time employment shall begin as of June 2, 1997 (the
"Full-Time Employment Date") and shall continue through December 31, 1998,
provided, however, that this Employment Agreement shall automatically be renewed
for successive one year terms of full-time employment unless either party gives
the other written notice of termination at least ninety (90) days prior to the
end of any such term.
3. COMPENSATION
(a) Part-Time Compensation. The Company shall pay to the Executive as
basic compensation for all services rendered by the Executive during the
Part-Time Employment Term of this Agreement a basic salary of $2,400 per month.
Other than as provided in this Section, during the Part-Time Employment Term of
this Agreement the Executive shall be entitled to no further benefits under this
Agreement.
(b) Full-Time Base Salary. Effective as of the Full-Time Employment Date,
the Company shall pay to the Executive as basic compensation for all services
rendered by the Executive during the term of this Agreement a basic annualized
salary of $125,000 per year, or such other sum in excess of that amount as the
parties may agree on from time to time or as provided in the next sentence (as
in effect from time to time, the "Base Salary"), payable monthly or in other
more frequent installments, as determined by the Company. The Board of Directors
shall have no authority to reduce the Executive's Base Salary in effect from
time to time. In addition, the Board of Directors, in its discretion, may award
a bonus or bonuses to the Executive in addition to the bonuses provided for in
Section 3(b).
(c) Bonuses. In addition to the Base Salary to be paid pursuant to Section
3(a), for the seven months beginning as of the Full-Time Employment Date and
ending December 31, 1997 and for the the Company's fiscal year ending December
31, 1998 during the term of this Agreement, the Company shall pay as incentive
compensation the bonuses, to the extent earned, specified on Exhibit A to this
Agreement. For each fiscal year ending after December 31, 1998, provided the
Executive continues to be employed by the Company under this Agreement, the
Executive shall be eligible for incentive compensation annual bonus plan(s)
adopted by the Board of Directors of the Company from time to time in accordance
with the terms of such plans.
<PAGE>
(d) Certain Plans and Initial Award. (i) It is anticipated that the
Company will adopt certain incentive compensation plans including a long term
incentive plan (the "LTIP"), providing for annual or other periodic awards to
key employees, among other things, of restricted stock and a stock option plan
(the "ISO/NSO Plan"), providing for the annual or other periodic issuance of
options to purchase the Company's common stock. The LTIP and ISO/NSO are
referred to collectively in this Agreement as the "Plans." Effective as of the
Full-Time Employment Date, the Executive will be given an opportunity to
participate in the Plans, in accordance with and subject to the terms of the
Plans as they may be adopted, amended and administered from time to time.
(ii) In addition to the incentive compensation referred to in
Section 3(c)(i), the Company hereby agrees to issue to the Executive under the
LTIP, effective upon the Full-Time Employment Date, that number of shares of the
Company's common stock (the "Initial Restricted Stock") as will equal two tenths
of one percent (0.20%) of the shares of the Company's common stock distributed
in the Distribution (as that term is defined in the Company's Registration
Statement on Form 10, as amended), which Initial Restricted Stock shall be
subject to risk of forfeiture, which risk will lapse as to one-fifth of the
shares of the Initial Restricted Stock on June 2, 1998, and as to an additional
one-fifth of the Initial Restricted Stock on each of June 2, 1999, June 2, 2000,
June 2, 2001 and June 2, 2002.
(iii) In addition to the incentive compensation referred to in
Section 3(c)(i) and the Initial Restricted Stock, the Company hereby agrees to
grant to the Executive under the LTIP, effective as of the Full-Time Employment
Date, options to purchase one thousand (1,000) shares of the Company's common
stock (the "Initial Options"), which Initial Options shall be exercisable as to
one-fifth of the shares of common stock covered by the Initial Options on June
2, 1998, and as to an additional one-fifth of such shares on each of June 2,
1999, January 2, 2000, June 2, 2001 and June 2, 2002. The exercise price for the
Initial Options shall be the closing price on the New York Stock Exchange (or
such other market on which the Company's stock trades if it is not listed on the
New York Stock Exchange) on the trading day which is the eighth month
anniversary of the day of the completion of the Distribution (the "Option
Pricing Date") or if the Option Pricing Date is not a trading day, the first
trading day thereafter.
(iv) Any and all risks of forfeiture shall lapse as to all of the
Initial Restricted Stock and the Initial Options shall be fully vested and shall
be exercisable as to all of the shares of common stock covered by the Initial
Options upon (i) the death of the Executive or termination of employment upon
the "Permanent Disability" (as that term is defined in Section 7(b)(ii) of this
Agreement) of the Executive, (ii) the termination of employment of the Executive
by the Company"Without Good Cause" (as that term is defined in Section 8(b)(ii)
of this Agreement) or (iii) the exercise by the Executive of her rights to
terminate her employment under Section 8(d)(ii) following a "Change of Control"
(as that term is defined in Section 8(d)(i) of this Agreement).
(e) Reimbursement. The Company shall reimburse the Executive, in
accordance with the Company's policies and practices for senior management, for
all reasonable expenses incurred by the Executive in the performance of the
Executive's duties under this Agreement, provided, however, that the Executive
must furnish to the Company an itemized account, satisfactory to the Company, in
substantiation of such expenditures.
(f) Certain Benefits. Effective as of the effective date of this
Agreement, the Executive shall be entitled to such medical and other health
benefits as may be provided from to time to time to other senior officers of the
Company. Effective as of the Full-Time Employment Date the Executive shall be
entitled, in addition to medical and other health benefits, to such fringe
benefits including, but not limited to, life
2.
<PAGE>
insurance benefits and other benefits as may be provided from time to time by
the Company to other senior officers of the Company. In addition, without
restricting the foregoing, effective as of the Full-Time Employment Date the
Company shall provide the Executive at the Company's sole cost and expense with
(i) a policy or policies of term life insurance (the "Basic Life Insurance")
providing, among other things, basic death benefits of not less than two times
the Base Salary in effect from time to time, (ii) directors and officers
liability insurance with coverage, terms and limits suitable for a vice
president of a New York Stock Exchange listed company comparable in financial
size and wherewithal to that of the Company and (iii) a monthly allowance of
$500 cash to reimburse the Executive for the use and maintenance of her
automobile in furtherance of the business and affairs of the Company, provided
that the Executive shall at all times insure the Executive and the Company in
such amounts as may be reasonably requested by the Company against claims for
bodily injury, death and property damages occurring as a result of its use. The
Company shall use its reasonable best efforts to make available to the Executive
in connection with providing and paying for the Basic Life Insurance the
opportunity to purchase at the Executive's sole cost and expense additional life
insurance with a basic death benefit (the "Optional Life Insurance") equal to
two times the Executive's Base Salary in effect from time to time (affording the
Executive the opportunity to have basic death benefit life insurance coverage
equal to four times such Base Salary). The Company shall use its reasonable best
efforts to effect the transfer of the ownership to the Executive of the policy
or policies for the Basic Life Insurance and the Optional Life Insurance, if
any, upon the termination of the Executive's employment by the Company. After
the Executive's termination, payment of any premiums would be the obligation of
the Executive.
(g) Other Incentive and Benefit Plans. Effective as of the Full-Time
Employment Date the Executive shall be eligible to participate, in accordance
with the terms of such plans as they may be adopted, amended and administered
from time to time, in incentive, bonus, benefit or similar plans, including
without limitation, any stock option, bonus or other equity ownership plan, any
short, mid or long term incentive plan and any other bonus, pension or profit
sharing plans established by the Company from time to time.
4. DUTIES
(a) General. The Executive is engaged as a Vice President of the Company.
In addition, at the request of the Board of Directors, the Executive shall serve
in the same positions in any wholly owned subsidiary of the Company, without any
additional compensation. The Executive shall have such duties and hold such
other offices as may from time to time be reasonably assigned to her by the
Board of Directors of the Company.
(b) Indemnification. To the fullest extent permitted by law, the Company
shall indemnify and hold harmless the Executive for all liabilities, costs,
expenses and damages arising out of or in connection with the Executive's
service to the Company under this Agreement. In furtherance of this indemnity,
the Company shall enter into an indemnification agreement, in form and substance
reasonably satisfactory to the Executive and the Company. In addition, the
indemnity provided hereunder shall extend to service by the Executive as an
officer or director, or service in a similar capacity, for any civic, community
or charitable organization, provided such service is undertaken at the request
of or with the knowledge and acquiescence of the Company. The foregoing
indemnification shall be in addition to any rights or benefits the Executive may
have under statute, the Bylaws or Articles of Incorporation of the Company,
under a policy of insurance, or otherwise.
3.
<PAGE>
5. EXTENT OF SERVICES; VACATIONS AND DAYS OFF
(a) Extent of Services. Effective as of the Full-Time Employment Date,
except during customary vacation periods and periods of illness, the Executive
shall devote full-time energy and attention during regular business hours to the
benefit and business of the Company as may be reasonably necessary in performing
the Executive's duties pursuant to this Agreement. Notwithstanding the
foregoing, during the Part-Time Employment Term of this Agreement, the Executive
shall be required to devote only ten (10) hours a week to the benefit and
business of the Company in performing the Executive's duties pursuant to this
Agreement.
(b) Vacations. Effective as of the Full-Time Employment Date the Executive
shall be entitled to vacations with pay and to such personal and sick leave with
pay in accordance with the policy of the Company as may be established from time
to time by the Company and applied to other senior officers of the Company.
However, in no event shall the Executive be entitled to less than one week
vacation with pay after the first six months of full-time employment, two weeks
vacation with pay per year after the first 12 months of full-time employment and
three weeks of vacation with pay per year after three years of full-time
employment. Unused vacation days may be carried over from one year to the next
for a period of up to two years. Any vacation days which remain unused on the
second anniversary of the end of the fiscal year to which they originally
related shall expire and shall thereafter no longer be useable by the Executive.
6. FACILITIES
The Company shall provide the Executive with a fully furnished office, and
the facilities of the Company shall be generally available to the Executive in
the performance of the Executive's duties pursuant to this Agreement, it being
understood and contemplated by the parties that all equipment, supplies and
office personnel required in the performance of the Executive's duties under
this Agreement shall be supplied by and at the sole expense of the Company.
7. ILLNESS OR INCAPACITY, TERMINATION ON DEATH, ETC.
(a) Death. If after the Full-Time Employment Date the Executive dies
during the term of the Executive's employment, the Company shall pay to the
estate of the Executive within 30 days after the date of death such Base Salary
and any cash bonus compensation earned pursuant to the provisions of any
incentive compensation plan then in effect but not yet paid, as would otherwise
have been payable to the Executive up to the end of the month in which the
Executive's death occurs. After receiving the payments provided in this Section
7(a) the Executive and the Executive's estate shall have no further rights under
this Agreement (other than those rights already accrued).
(b) Disability. (i) During any period of disability, illness or incapacity
after the Full-Time Employment Date and during the term of this Agreement which
renders the Executive temporarily unable to perform the services required under
this Agreement, the Executive shall receive the Base Salary payable under
Section 3(a) of this Agreement plus any cash bonus compensation earned pursuant
to the provisions of any incentive compensation plan then in effect but not yet
paid, less any cash benefits received by her under any disability insurance
carried by or provided by the Company. Upon the Executive's "Permanent
Disability" (as defined below),the Executive shall receive the Base Salary
payable under Section 3(a) of this Agreement plus any cash bonus compensation
earned pursuant to the provisions of any incentive compensation plan then in
effect but not yet paid, as would otherwise have been payable to the Executive
up
4.
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to the end of the month in which the Executive's Permanent Disability occurs.
Upon "Permanent Disability" (as that term is defined in Section 7(b)(ii) below)
of the Executive, except as provided in this Section 7(b), all rights of the
Executive under this Agreement (other than rights already accrued) shall
terminate.
(ii) The term "Permanent Disability" as used in this Agreement shall
mean, in the event a disability insurance policy is maintained by the Company
covering the Executive at such time and is in full force and effect, the
definition of permanent disability set forth in such policy. In the event no
disability insurance policy is maintained at such time and in full force and
effect, "Permanent Disability" shall mean the inability of the Executive, as
determined by the Board of Directors of the Company, by reason of physical or
mental disability to perform the duties required of her under this Agreement for
a period of one hundred and eighty (180) days in any one-year period. Successive
periods of disability, illness or incapacity will be considered separate periods
unless the later period of disability, illness or incapacity is due to the same
or related cause and commences less than six months from the ending of the
previous period of disability. Upon such determination, the Board of Directors
may terminate the Executive's employment under this Agreement upon ten (10)
days' prior written notice. If any determination of the Board of Directors with
respect to permanent disability is disputed by the Executive, the parties hereto
agree to abide by the decision of a panel of three physicians. The Executive and
Company shall each appoint one member, and the third member of the panel shall
be appointed by the other two members. The Executive agrees to make herself
available for and submit to examinations by such physicians as may be directed
by the Company. Failure to submit to any such examination shall constitute a
breach of a material part of this Agreement.
8. OTHER TERMINATIONS
(a) By the Executive. (i) The Executive may terminate the Executive's
employment hereunder upon giving at least ninety (90) days' prior written
notice. In addition, the Executive shall have the right to terminate the
Executive's employment hereunder on the conditions and at the times provided for
in Section 8(d) of this Agreement.
(ii) If the Executive gives notice pursuant to Section 8(a)(i)
above, the Company shall have the right (but not the obligation) to relieve the
Executive, in whole or in part, of the Executive's duties under this Agreement,
or direct the Executive to no longer perform such duties, or direct that the
Executive should no longer report to work, or any combination of the foregoing.
In any such event, the Executive shall be entitled to receive only the Base
Salary not yet paid, as would otherwise have been payable to the Executive up to
the end of the month specified as the month of termination in the termination
notice. In the event the Executive gives notice pursuant to Section 8(a)(i)
above but specifies a termination date in excess of ninety (90) days from the
date of such notice, the Company shall have the right (but not the obligation)
to accelerate the termination date to any date prior to the date specified in
the notice that is in excess of ninety (90) days from the date of the notice,
and the Company shall have the right (but not the obligation) to relieve the
Executive, in whole or in part, of the Executive's duties under this Agreement,
or direct the Executive to no longer perform such duties, or direct that the
Executive should no longer report to work, or any combination of the foregoing;
provided, however, that in any such event the Executive shall be entitled to
receive the Base Salary, as would otherwise have been payable to the Executive
up to the end of the month of the termination date properly selected by the
Company. Upon receiving the payments provided for under this Section 8(a), all
rights of the Executive under this Agreement (other than rights already accrued)
shall terminate.
5.
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(b) Termination for "Good Cause". (i) Except as otherwise provided in this
Agreement, the Company may terminate the employment of the Executive hereunder
only for "good cause," which shall mean: (A) the Executive's conviction of
either a felony involving moral turpitude or any crime in connection with the
Executive's employment by the Company which causes the Company a substantial
detriment, but specifically shall not include traffic offenses; (B) actions by
the Executive as an executive officer of the Company which clearly are contrary
to the best interests of the Company; (C) the Executive's willful failure to
take actions permitted by law and necessary to implement policies of the
Company's Board of Directors which the Board of Directors has communicated to
her in writing, provided that minutes of a Board of Directors meeting attended
in its entirety by the Executive shall be deemed communicated to the Executive;
(D) the Executive's continued failure to attend to the Executive's duties as an
executive officer of the Company; or (E) any condition which either resulted
from the Executive's substantial dependence, as determined by the Board of
Directors of the Company, on alcohol, or any narcotic drug or other controlled
or illegal substance. If any determination of substantial dependence is disputed
by the Executive, the parties hereto agree to abide by the decision of a panel
of three physicians appointed in the manner and subject to the same penalties
for noncompliance as specified in Section 7(b)(ii) of this Agreement.
(ii) Notwithstanding the foregoing, each of the foregoing bases for
termination specified in (A) through (E) of Subsection 8(b)(i) shall constitute
"Good Cause" only if (1) the Executive has been provided with written notice of
any assertion that there is a basis for termination for good cause which notice
shall specify in reasonable detail specific facts regarding any such assertion
and the Executive has been given a reasonable period of time within which to
remedy or cure the problem or complaint, (2) such notice is provided to the
Executive a reasonable time before the Board of Directors meets to consider any
possible termination for cause, (3) at or prior to the meeting of the Board of
Directors to consider the matters described in the written notice, an
opportunity is provided to the Executive and her counsel to be heard by the
Board of Directors with respect to the matters described in the written notice,
before it acts with respect to such matter, (4) any resolution or other action
by the Board of Directors with respect to any deliberation regarding or decision
to terminate the Executive for good cause is duly adopted by a vote of a
majority of the entire Board of Directors of the Company at a meeting of the
Board duly called and held and (5) the Executive is promptly provided with a
copy of the resolution or other corporate action taken with respect to such
termination.
(iii) If the employment of the Executive is terminated for good
cause under Section 8(b)(i) of this Agreement, the Company shall pay to the
Executive any Base Salary earned prior to the effective date of termination but
not yet paid and any cash bonus compensation earned pursuant to the provisions
of any incentive compensation plan then in effect but not paid to the Executive
prior to the effective date of such termination. Under such circumstances, such
payments shall be in full and complete discharge of any and all liabilities or
obligations of the Company to the Executive hereunder, and the Executive shall
be entitled to no further benefits under this Agreement (other than rights
already accrued).
(iv) Termination of the employment of the Executive other than as
expressly specified above in this Section 8(b) for good cause shall be deemed to
be a termination of employment "Without Good Cause."
6.
<PAGE>
(c) Termination Without Good Cause. (i) Notwithstanding any other
provision of this Agreement, the Company shall have the right to terminate the
Executive's employment Without Good Cause pursuant to the provisions of this
Section 8(c). If after the Full-Time Employment Date the Company shall terminate
the employment of the Executive Without Good Cause effective on a date earlier
than the termination date provided for in Section 2 (with the effective date of
termination as so identified by the Company being referred to herein as the
"Accelerated Termination Date"), the Executive, until the end of the term of
this Agreement then in effect as provided for in Section 2 or until the date
which is 12 months after the Accelerated Termination Date, whichever is greater,
shall continue to receive (1) the Base Salary, paid in the same monthly on other
periodic installments ad in effect prior to the Accelerated Termination Date (2)
an amount equal to the target level of the annual cash bonus payable to the
Executive under the Company's Management Incentive Compensation Plan as
described on Exhibit A or any similar bonus or incentive plans or programs then
in effect (the "MICP Target Amount") in respect of the year during which the
Executive's employment terminates or, if greater, the MICP Target Amount
multiplied times the number of years (or fractions thereof) remaining in the
then unexpired term of this Agreement, and (3) any other cash or other bonus
compensation earned prior to the date of such termination pursuant to the terms
of all incentive compensation plans then in effect other than under the
Management Incentive as described on Exhibit A or any similar bonus or incentive
plans or programs then in effect; provided that, notwithstanding such
termination of employment, the Executive's covenants set forth in Section 10 and
Section 11 are intended to and shall remain in full force and effect and
provided further that in the event of such termination, the Company shall have
the right (but not the obligation) to relieve the Executive, in whole or in
part, of the Executive's duties under this Agreement, or direct the Executive to
no longer perform such duties, or direct that the Executive no longer be
required to report to work, or any combination of the foregoing.
(ii) The parties agree that, because there can be no exact measure
of the damage that would occur to the Executive as a result of a termination by
the Company of the Executive's employment Without Good Cause, the payments and
benefits paid and provided pursuant to this Section 8(c) shall be deemed to
constitute liquidated damages and not a penalty for the Company's termination of
the Executive's employment Without Good Cause.
(d) Change of Control. (i) For purposes of this Agreement, a "Change in
Control" shall mean the first to occur of:
(1) a change in control of the Company of a nature that is required,
pursuant to the Securities Exchange Act of 1934 (the "1934 Act"), to be reported
in response to Item 1(a) of a Current Report on Form 8-K or Item 6(e) of
Schedule 14A under the 1934 Act (in each case under this Agreement, references
to provisions of the 1934 Act and the rules and regulations promulgated
thereunder being understood to refer to such law, rules and regulations as the
same are in effect on November 1, 1996); or
(2) the acquisition of "Beneficial Ownership" (as defined in Rule
13d-3 under the 1934 Act) of the Company's securities comprising 35% or more of
the combined voting power of the Company's outstanding securities by any
"person" (as that term is used in Sections 13(d) and
7.
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14(d)(2) of the 1934 Act and the rules and regulations promulgated thereunder,
but not including any trustee or fiduciary acting in that capacity for an
employee benefit plan sponsored by the Company) and such person's "affiliates"
and "associates" (as those terms are defined under the 1934 Act), but excluding
any ownership by the Executive and her affiliates and associates; or
(3) the failure of the "Incumbent Directors" (as defined below) to
constitute at least a majority of all directors of the Company (for these
purposes, "Incumbent Directors" means individuals who were the directors of the
Company on November 1, 1996, and, after his or her election, any individual
becoming a director subsequent to November 1, 1996, whose election, or
nomination for election by the Company's stockholders, is approved by a vote of
at least two-thirds of the directors then comprising the Incumbent Directors,
except that no individual shall be considered an Incumbent Director who is not
recommended by management and whose initial assumption of office as a director
is in connection with an actual or threatened "election contest" relating to the
"election of directors" of the Company, as such terms are used in Rule 14a-11 of
Regulation 14A under the 1934 Act); or
(4) the closing of a sale of all or substantially all of the assets
of the Company;
(5) the Company's adoption of a plan of dissolution or liquidation;
or
(6) the closing of a merger or consolidation involving the Company
in which the Company is not the surviving corporation or if, immediately
following such merger or consolidation, less than seventy-five percent (75%) of
the surviving corporation's outstanding voting stock is held or is anticipated
to be held by persons who are stockholders of the Company immediately prior to
such merger or consolidation.
(ii) If after the Full-Time Employment Date a Change in Control of
the Company occurs, the Executive shall have the right, exercisable for a period
of one year thereafter by delivering a written statement to that effect to the
Company, to immediately terminate this Agreement and upon such a determination
the Executive shall have the right to receive and the Company shall be obligated
to pay to Executive in cash a lump sum payment in an amount equal to the sum of
(1) two times the annual Base Salary then in effect, (2) two times the MICP
Target Amount (as that term is defined in Section (8)(c)) in the year in which
employment terminates and (3) the additional payments necessary to discharge
certain tax liabilities (the "Gross Up") as that term is defined in Section 13
of this Agreement (the sum of the foregoing amounts other than the Gross Up
being referred to as the "Change in Control Payment"). If the Executive fails to
exercise her rights under this Section 8(d) within one year following a Change
in Control, such rights shall expire and be of no further force or effect.
(e) Intentions Regarding Certain Stock and Benefit Plans. Except as
otherwise provided herein, upon any termination of the Executive's employment
upon the Without Good Cause or upon the exercise by the Executive of her rights
to terminate her employment following a Change of Control, it is the intention
of the parties that any and all vesting or performance requirements or
conditions affecting any outstanding restricted stock, performance stock, stock
option, stock appreciation right, bonus, award, right, grant or any other
incentive compensation under any of the
8.
<PAGE>
Plans, under this Agreement, or otherwise received, shall be deemed to be fully
satisfied and any risk of forfeiture with respect thereto shall be deemed to
have lapsed.
(f) Certain Rights Mutually Exclusive. The provisions of Section 8(c) and
Section 8(d) are mutually exclusive, provided, however, that if within one year
following commencement of an 8(c) payout there shall be a Change in Control as
defined in Section 8(d)(i), then the Executive shall be entitled to the amount
payable to the Executive under Section 8(d)(ii) and Section 8(d)(iii) reduced by
the amount that the Executive has received under Section 8(c) up to the date of
the change in control. The triggering of the lump sum payment requirement of
Section 8(d) shall cause the provisions of Section 8(c) to become inoperative.
9. DISCLOSURE
The Executive agrees that during the term of the Executive's employment by
the Company, the Executive will disclose and disclose only to the Company all
ideas, methods, plans, developments or improvements known by her which relate
directly or indirectly to the business of the Company, whether acquired by the
Executive before or during the Executive's employment by the Company. Nothing in
this Section 9 shall be construed as requiring any such communication where the
idea, plan, method or development is lawfully protected from disclosure as a
trade secret of a third party or by any other lawful prohibition against such
communication. The covenants of this Section 9 shall not be violated by ordinary
and customary communications with reporters, bankers and securities analysts and
other members of the investment community.
10. CONFIDENTIALITY
The Executive agrees to keep in strict secrecy and confidence any and all
information the Executive assimilates or to which the Executive has access
during the Executive's employment by the Company and which has not been publicly
disclosed and is not a matter of common knowledge in the fields of work of the
Company. The Executive agrees that both during and after the term of the
Executive's employment by the Company, the Executive will not, without the prior
written consent of the Company, disclose any such confidential information to
any third person, partnership, joint venture, company, corporation or other
organization. The foregoing covenants shall not be breached to the extent that
any such confidential information becomes a matter of general knowledge other
than through a breach by the Executive of the Executive's obligations under this
Section 10.
9.
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11. NONCOMPETITION AND NONSOLICITATION
(a) General. The Executive hereby acknowledges that, during and solely as
a result of the Executive's employment by the Company, the Executive has
received and shall continue to receive: (1) special training and education with
respect to the operations of the Company's real estate development and
management businesses and its leasing, lending and financing activities, and
other related matters, and (2) access to confidential information and business
and professional contacts. In consideration of the special and unique
opportunities afforded to the Executive by the Company as a result of the
Executive's employment, as outlined in the previous sentence, the Executive
hereby agrees to the restrictive covenants in this Section 11.
(b) Noncompetition. Notwithstanding anything in this Agreement to the
contrary, this section (b) shall only be effective after the Full-Time
Employment Date. During the term of the Executive's employment, whether pursuant
to this Agreement, any automatic or other renewal hereof or otherwise, and,
except as may be otherwise herein provided, for a period of two (2) years after
the termination of the Executive's employment with the Company, regardless of
the reason for such termination, the Executive shall not, directly or
indirectly, enter into, engage in, be employed by or consult with any business
which competes with the Company's real estate lending, leasing, development or
management businesses in Florida. The Executive shall not engage in such
prohibited activities, either as an individual, partner, officer, director,
stockholder, employee, advisor, independent contractor, joint venturer,
consultant, agent, or representative or salesman for any person, firm,
partnership, corporation or other entity so competing with the Company. The
restrictions of this Section 11 shall not be violated by (i) the ownership of no
more than 2% of the outstanding securities of any company whose stock is traded
on a national securities exchange or is quoted in the Automated Quotation System
of the National Association of Securities Dealers (NASDAQ), or (ii) other
outside business investments that do not in any manner conflict with the
services to be rendered by the Executive for the Company and that do not
diminish or detract from the Executive's ability to render the Executive's
required attention to the business of the Company.
(c) Nonsolicitation. During the Executive's employment with the Company
and, except as may be otherwise herein provided, for a period of two (2) years
following the termination of the Executive's employment with the Company,
regardless of the reason for such termination, the Executive agrees the
Executive will refrain from and will not, directly or indirectly, as an
individual, partner, officer, director, stockholder, employee, advisor,
independent contractor, joint venturer, consultant, agent, representative,
salesman or otherwise solicit any of the employees of the Company to terminate
their employment.
(d) Term Extended or Suspended. The period of time during which the
Executive is prohibited from engaging in certain business practices pursuant to
Sections 11(b) or (c) shall be extended by any length of time during which the
Executive is in breach of such covenants.
(e) Essential Element. It is understood by and between the parties hereto
that the foregoing restrictive covenants set forth in Sections 11(a) through (c)
are essential elements of this Agreement, and that, but for the agreement of the
Executive to comply with such covenants, the Company would not have agreed to
enter into this Agreement. Such covenants by the Executive
10.
<PAGE>
shall be construed as agreements independent of any other provision in this
Agreement. The existence of any claim or cause of action of the Executive
against the Company, whether predicated on this Agreement, or otherwise, shall
not constitute a defense to the enforcement by the Company of such covenants.
(f) Severability. It is agreed by the Company and Executive that if any
portion of the covenants set forth in this Section 11 are held to be invalid,
unreasonable, arbitrary or against public policy, then such portion of such
covenants shall be considered divisible both as to time and geographical area.
The Company and Executive agree that, if any court of competent jurisdiction
determines the specified time period or the specified geographical area
applicable to this Section 11 to be invalid, unreasonable, arbitrary or against
public policy, a lesser time period or geographical area which is determined to
be reasonable, non-arbitrary and not against public policy may be enforced
against the Executive. The Company and the Executive agree that the foregoing
covenants are appropriate and reasonable when considered in light of the nature
and extent of the business conducted by the Company.
12. SPECIFIC PERFORMANCE
The Executive agrees that damages at law will be an insufficient remedy to
the Company if the Executive violates the terms of Sections 9, 10 or 11 of this
Agreement and that the Company would suffer irreparable damage as a result of
such violation. Accordingly, it is agreed that the Company shall be entitled,
upon application to a court of competent jurisdiction, to obtain injunctive
relief to enforce the provisions of such Sections, which injunctive relief shall
be in addition to any other rights or remedies available to the Company. The
Executive agrees to pay to the Company all reasonable costs and expenses
incurred by the Company relating to the enforcement of the terms of Sections 9,
10 or 11 of this Agreement, including reasonable fees and reasonable
disbursements of counsel selected by the Company (during investigation and
before and at trial and in appellate proceedings).
11.
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13. PAYMENT OF EXCISE TAXES
(a) Payment of Excise Taxes. If the Executive is to receive any Change of
Control Payment under Section 8(d), or any benefit or payment under the Plans as
a result of a Change of Control, following the death of Permanent Disability of
the Executive or following the termination of employment hereunder Without Good
Cause (such sections being referred to as the "Covered Sections" and the
benefits and payments to be received thereunder being referred to as the
"Covered Payments"), the Executive shall be entitled to receive the amount
described below to the extent applicable: If any Covered Payment(s) under any of
the Covered Sections or by the Company under another plan or agreement
(collectively, the "Payments") are subject to the excise tax imposed by Section
4999 of the Internal Revenue Code of 1986 (as amended from time to time, the
"Code"), or any successor or similar provision of the Code (the "Excise Tax"),
the Company shall pay the Executive an additional amount (the "Gross Up") such
that the net amount retained by the Executive after deduction of any Excise Tax
on the Payments and the federal income tax on any amounts paid under this
Section 13 shall be equal to the Payments.
(b) Certain Adjustment Payments. For purposes of determining the Gross Up,
the Executive shall be deemed to pay the federal income tax at the highest
marginal rate of taxation (currently 39.5%) in the calendar year in which the
payment to which the Gross Up applies is to be made. The determination of
whether such Excise Tax is payable and the amount thereof shall be made upon the
opinion of tax counsel selected by the Company and reasonably acceptable to the
Executive. The Gross Up, if any, that is due as a result of such determination
shall be paid to the Executive in cash in a lump sum within thirty (30) days of
such computation. If such opinion is not finally accepted by the Internal
Revenue Service upon audit or otherwise, then appropriate adjustments shall be
computed (without interest but with Gross Up, if applicable) by such tax counsel
based upon the final amount of the Excise Tax so determined; any additional
amount due the Executive as a result of such adjustment shall be paid to the
Executive by his or her Company in cash in a lump sum within thirty (30) days of
such computation, or any amount due the Executive's Company as a result of such
adjustment shall be paid to the Company by the Executive in cash in a lump sum
within thirty (30) days of such computation.
14. MISCELLANEOUS
(a) Waiver of Breach. The waiver by either party to this Agreement of a
breach of any of the provisions of this Agreement by the other party shall not
be construed as a waiver of any subsequent breach by such other party.
(b) No Right to Continued Employment. Notwithstanding the fact that
certain provisions of this Agreement and/or Exhibit A reference a three year
cycle or provide for benefits upon a third year of employment, this Agreement
shall have a two year term with annual one year renewal terms subject to the
termination provisions contained herein.
(c) Compliance With Other Agreements. The Executive represents and
warrants that the execution of this Agreement by her and the Executive's
performance of the Executive's obligations
12.
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hereunder will not conflict with, result in the breach of any provision of or
the termination of or constitute a default under any Agreement to which the
Executive is a party or by which the Executive is or may be bound.
(d) Binding Effect; Assignment. The rights and obligations of the Company
under this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of the Company. This Agreement is a personal employment
contract and the rights, obligations and interests of the Executive hereunder
may not be sold, assigned, transferred, pledged or hypothecated.
(e) Entire Agreement. This Agreement contains the entire agreement and
supersedes all prior agreements and understandings, oral or written, with
respect to the subject matter hereof. This Agreement may be changed only by an
agreement in writing signed by the party against whom any waiver, change,
amendment, modification or discharge is sought.
(f) No Duty to Mitigate. The Executive shall be under no duty to mitigate
any loss of income as result of the termination of her employment hereunder and
any payments due the Executive upon termination of employment shall not be
reduced in respect of any other employment compensation received by the
Executive following such termination.
(g) Florida Law. This Agreement shall be construed pursuant to and
governed by the substantive laws of the State of Florida (except that any
provision of Florida law shall not apply if the law of a state or jurisdiction
other than Florida would otherwise apply).
(h) Venue; Process. The parties to this Agreement agree that jurisdiction
and venue in any action brought pursuant to this Agreement to enforce its terms
or otherwise with respect to the relationships between the parties shall
properly lie in and only in the Circuit Court of the Sixth Judicial Circuit of
the State of Florida in and for Pinellas County (the "Circuit Court") and the
parties agree that jurisdiction shall not properly lie in any other jurisdiction
provided, however, if jurisdiction does not properly lie with the Circuit Court,
the parties agree that jurisdiction and venue shall properly lie in and only in
the United States District Court for the Middle District of Florida, Tampa
Division. The parties hereby waive any objections which they may now or
hereafter have based on venue and/or forum non conveniens and irrevocably submit
to the jurisdiction of any such court in any legal suit, action or proceeding
arising out of or relating to this Agreement. The parties further agree that the
mailing by certified or registered mail, return receipt requested, of any
process required by any such court shall constitute valid and lawful service of
process against them, without the necessity for ser vice by any other means
provided by statute or rule of court.
(i) Headings. The headings of the various sections in this Agreement are
inserted for the convenience of the parties and shall not affect the meaning,
construction or interpretation of this Agreement.
(j) Severability. Any provision of this Agreement which is determined by a
court of competent jurisdiction to be prohibited, unenforceable or not
authorized in any jurisdiction shall, as to such jurisdiction, be ineffective to
the extent of such prohibition, unenforceability or non-
13.
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authorization without invalidating the remaining provisions hereof or affecting
the validity, enforceability or legality of such provision in any other
jurisdiction. In any such case, such determination shall not affect any other
provision of this Agreement, and the remaining provisions of this Agreement
shall remain in full force and effect. If any provision or term of this
Agreement is susceptible to two or more constructions or interpretations, one or
more of which would render the provision or term void or unenforceable, the
parties agree that a construction or interpretation which renders the term or
provision valid shall be favored.
(k) Deduction for Tax Purposes. The Company's obligations to make payments
under this Agreement are independent of whether any or all of such payments are
deductible expenses of the Company for federal income tax purposes.
(l) Enforcement. If, within 10 days after demand to comply with the
obligations of one of the parties to this Agreement served in writing on the
other, compliance or reasonable assurance of compliance is not forthcoming, and
the party demanding compliance engages the services of an attorney to enforce
rights under this Agreement, the prevailing party in any action shall be
entitled to recover all reasonable costs and expenses of enforcement (including
reasonable attorneys' fees and reasonable expenses during investigation, before
and at trial and in appellate proceedings). In addition, each of the parties
agrees to indemnify the other in respect of any and all claims, losses, costs,
liabilities and expenses, including reasonable fees and reasonable disbursements
of counsel (during investigation prior to initiation of litigation and at trial
and in appellate proceedings if litigation ensues), directly or indirectly
resulting from or arising out of a breach by the other party of their respective
obligations hereunder. The parties' costs of enforcing this Agreement shall
include prejudgment interest. Additionally, if any party incurs any
out-of-pocket expenses in connection with the enforcement of this Agreement, all
such amounts shall accrue interest at 18% per annum (or such lower rate as may
be required to avoid any limit imposed by applicable law) commencing 30 days
after any such expenses are incurred.
(m) Notices. All notices which are required or may be given under this
Agreement shall be in writing and shall be deemed to have been duly given when
received if personally delivered; when transmitted if transmitted by telecopy or
similar electronic transmission method; one working day after it is sent, if
sent by recognized expedited delivery service; and three days after it is sent,
if mailed, first class mail, certified mail, return receipt requested, with
postage prepaid. In each case notice shall be sent to:
To the Company: Echelon International Corporation
One Progress Plaza
St. Petersburg, FL 33701
Attn: Chairman of the Board
Telecopy:(813) 824-6536
To the Executive at the Executive's address herein first above written, or
to such other address as either party may specify by written notice to the
other.
14.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
ATTEST: ECHELON INTERNATIONAL CORPORATION
(Corporate Seal)
________________________________ By:____________________________________
Secretary Darryl A. LeClair, President
EXECUTIVE
Witnesses:
________________________________ _______________________________________
Susan G. Johnson
________________________________
As to Executive
15.
<PAGE>
EXHIBIT A
TO
EMPLOYMENT AGREEMENT WITH SUSAN G. JOHNSON
DATED AS OF NOVEMBER 20, 1996
The Company will establish a Management Incentive Compensation Plan
("MICP") for its senior management in which the Executive will participate.
During the first two full fiscal years of the Company's operation following the
completion of the Spinoff ending on December 31, 1997, and December 31, 1998,
respectively (the "Covered Years"), the MICP will provide for annual cash
bonuses based upon the Company's net income for each of the Covered Years. The
Executive's participation in the MICP during the Covered Years shall be based
upon the criteria and shall include awards with the values indicated in the
tables set forth below and as more fully described in this Exhibit A.
MICP
During each of the Covered Years, (i) all MICP bonuses shall be paid in
cash; (ii) if Threshold Net Income is not achieved, no MICP cash bonus will be
paid; (iii) if actual net income exceeds Threshold Net Income, but is less than
Target Net Income, or exceeds Target Net Income but is less than Maximum Net
Income, the percentage of the MICP bonus shall be proportionately increased
above the Threshold bonus amount or the Target Bonus amount, as the case may be,
and (iv) if actual net income equals or exceeds Maximum Net Income, the Maximum
MICP cash bonus will be paid, but no additional cash bonus will be payable under
the MICP regardless of the amount by which actual net income in that Covered
Year exceeds Maximum Net Income. The following table sets forth information
regarding the MICP Net Income Threshold, Target and Maximum and cash bonuses.
- --------------------------------------------
MICP 1997 1998
(7 months)
- --------------------------------------------
THRESHOLD
- --------------------------------------------
Net Income $1,584,274 $1,768,816
- --------------------------------------------
MICP Cash Bonus $9,115 $15,625
(% of Target Bonus) (50%) (50%)
- --------------------------------------------
TARGET
- --------------------------------------------
Net Income $2,112,366 $2,358,422
- --------------------------------------------
MICP Cash Bonus $18,229 $31,250
(% of Base Salary) (25%) (25%)
- --------------------------------------------
MAXIMUM
- --------------------------------------------
Net Income $2,640,457 $2,948,027
- --------------------------------------------
MICP Cash Bonus $27,344 $46,875
(% of Target Bonus) (150%) (150)%
- --------------------------------------------
16.
<PAGE>
- --------------------------------------------------------------------------------
17.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into this 20th day of
November, 1996, but is effective for all purposes as of the date specified below
in Section 2, by and between ECHELON INTERNATIONAL CORPORATION, a Florida
corporation (the "Company"), and TIMOTHY S. TINSLEY, residing at 4404 Fox Hollow
Circle, Casselberry, Florida 32707 (the "Executive").
W I T N E S S E T H:
1. EMPLOYMENT
The Company hereby employs the Executive, and the Executive hereby accepts
such employment, upon the terms and subject to the conditions set forth in this
Agreement.
2. TERM
Subject to the provisions for termination as hereinafter provided, the
term of employment under this Agreement shall begin as of the completion of the
"Distribution" as that term is defined in the Company's Registration Statement
on Form 10, as amended (the "Distribution"), and shall continue through December
31, 1998, provided, however, that this Employment Agreement shall automatically
be renewed for successive one year terms unless either party gives the other
written notice of termination at least ninety (90) days prior to the end of any
such term.
3. COMPENSATION
(a) Base Salary. The Company shall pay to the Executive as basic
compensation for all services rendered by the Executive during the term of this
Agreement a basic annualized salary of $125,000 per year, or such other sum in
excess of that amount as the parties may agree on from time to time or as
provided in the next sentence (as in effect from time to time, the "Base
Salary"), payable monthly or in other more frequent installments, as determined
by the Company. The Board of Directors shall have no authority to reduce the
Executive's Base Salary in effect from time to time. In addition, the Board of
Directors, in its discretion, may award a bonus or bonuses to the Executive in
addition to the bonuses provided for in Section 3(b).
(b) Bonuses. In addition to the Base Salary to be paid pursuant to Section
3(a), for each of the Company's two fiscal years ending December 31, 1997 and
December 31, 1998 during the term of this Agreement, the Company shall pay as
incentive compensation the annual bonuses, to the extent earned, specified on
Exhibit A to this Agreement. For each fiscal year ending after December 31,
1998, provided the Executive continues to be employed by the Company under this
Agreement, the Executive shall be eligible for incentive compensation annual
bonus plan(s) adopted by the Board of Directors of the Company from time to time
in accordance with the terms of such plans.
(c) Certain Plans and Initial Award. (i) It is anticipated that the
Company will adopt certain incentive compensation plans including a long term
incentive plan (the "LTIP"), providing for annual or other periodic awards to
key employees, among other things, of restricted stock and a stock option plan
(the "ISO/NSO Plan"), providing for the annual or other periodic issuance of
options to purchase the Company's common stock. The LTIP and ISO/NSO are
referred to collectively in this Agreement as the "Plans."
<PAGE>
The Executive will be given an opportunity to participate in the Plans, in
accordance with and subject to the terms of the Plans as they may be adopted,
amended and administered from time to time.
(ii) In addition to the incentive compensation referred to in
Section 3(c)(i), the Company hereby agrees to issue to the Executive under the
LTIP, effective immediately following the completion of the Distribution, that
number of shares of the Company's common stock (the "Initial Restricted Stock")
as will equal two tenths of one percent (0.20%) of the shares of the Company's
common stock distributed in the Distribution, which Initial Restricted Stock
shall be subject to risk of forfeiture, which risk will lapse as to one-fifth of
the shares of the Initial Restricted Stock on January 31, 1998, and as to an
additional one-fifth of the Initial Restricted Stock on each of January 31,
1999, January 31, 2000, January 31, 2001 and January 31, 2002.
(iii) In addition to the incentive compensation referred to in
Section 3(c)(i) and the Initial Restricted Stock, the Company hereby agrees to
grant to the Executive under the LTIP, effective immediately following the
completion of the Distribution, options to purchase one thousand (1,000) shares
of the Company's common stock (the "Initial Options"), which Initial Options
shall be exercisable as to one-fifth of the shares of common stock covered by
the Initial Options on January 31, 1998, and as to an additional one-fifth of
such shares on each of January 31, 1999, January 31, 2000, January 31, 2001 and
January 31, 2002. The exercise price for the Initial Options shall be the
closing price on the New York Stock Exchange (or such other market on which the
Company's stock trades if it is not listed on the New York Stock Exchange) on
the trading day which is the eighth month anniversary of the day of the
completion of the Distribution (the "Option Pricing Date") or if the Option
Pricing Date is not a trading day, the first trading day thereafter.
(d) Reimbursement. The Company shall reimburse the Executive, in
accordance with the Company's policies and practices for senior management, for
all reasonable expenses incurred by the Executive in the performance of the
Executive's duties under this Agreement, provided, however, that the Executive
must furnish to the Company an itemized account, satisfactory to the Company, in
substantiation of such expenditures.
(e) Certain Benefits. The Executive shall be entitled to such fringe
benefits including, but not limited to, medical and other insurance benefits as
may be provided from time to time by the Company to other senior officers of the
Company. In addition, without restricting the foregoing, the Company shall
provide the Executive at the Company's sole cost and expense with (i) a policy
or policies of term life insurance (the "Basic Life Insurance") providing, among
other things, basic death benefits of not less than two times the Base Salary in
effect from time to time, (ii) directors and officers liability insurance with
coverage, terms and limits suitable for a vice president of a New York Stock
Exchange listed company comparable in financial size and wherewithal to that of
the Company and (iii) a monthly allowance of $500 cash to reimburse the
Executive for the use and maintenance of his automobile in furtherance of the
business and affairs of the Company, provided that the Executive shall at all
times insure the Executive and the Company in such amounts as may be reasonably
requested by the Company against claims for bodily injury, death and property
damages occurring as a result of its use. The Company shall use its reasonable
best efforts to make available to the Executive in connection with providing and
paying for the Basic Life Insurance the opportunity to purchase at the
Executive's sole cost and expense additional life insurance with a basic death
benefit (the "Optional Life Insurance") equal to two times the Executive's Base
Salary in effect from time to time (affording the Executive the opportunity to
have basic death benefit life insurance coverage equal to four times such Base
Salary). The Company shall use its reasonable best efforts to effect the
transfer of the ownership to the Executive of the policy or policies for the
Basic Life Insurance and the Optional Life Insurance, if any, upon the
termination of the Executive's employment by the Company.
2.
<PAGE>
After the Executive's termination, payment of any premiums would be the obliga
a) Other Incentive and Benefit Plans. The Executive shall be eligible to
participate, in accordance with the terms of such plans as they may be adopted,
amended and administered from time to time, in incentive, bonus, benefit or
similar plans, including without limitation, any stock option, bonus or other
equity ownership plan, any short, mid or long term incentive plan and any other
bonus, pension or profit sharing plans established by the Company from time to
time.
4. DUTIES
(a) General. The Executive is engaged as a Vice President of the Company.
In addition, at the request of the Board of Directors, the Executive shall serve
in the same positions in any wholly owned subsidiary of the Company, without any
additional compensation. The Executive shall have such duties and hold such
other offices as may from time to time be reasonably assigned to him by the
Board of Directors of the Company.
(b) Indemnification. To the fullest extent permitted by law, the Company
shall indemnify and hold harmless the Executive for all liabilities, costs,
expenses and damages arising out of or in connection with the Executive's
service to the Company under this Agreement. In furtherance of this indemnity,
the Company shall enter into an indemnification agreement, in form and substance
reasonably satisfactory to the Executive and the Company. In addition, the
indemnity provided hereunder shall extend to service by the Executive as an
officer or director, or service in a similar capacity, for any civic, community
or charitable organization, provided such service is undertaken at the request
of or with the knowledge and acquiescence of the Company. The foregoing
indemnification shall be in addition to any rights or benefits the Executive may
have under statute, the Bylaws or Articles of Incorporation of the Company,
under a policy of insurance, or otherwise.
5. EXTENT OF SERVICES; VACATIONS AND DAYS OFF
(a) Extent of Services. During the term of the Executive's employment
under this Agreement, except during customary vacation periods and periods of
illness, the Executive shall devote full-time energy and attention during
regular business hours to the benefit and business of the Company as may be
reasonably necessary in performing the Executive's duties pursuant to this
Agreement.
(b) Vacations. The Executive shall be entitled to vacations with pay and
to such personal and sick leave with pay in accordance with the policy of the
Company as may be established from time to time by the Company and applied to
other senior officers of the Company. However, in no event shall the Executive
be entitled to less than one week vacation with pay after the first six months
of employment, two weeks vacation with pay per year after the first 12 months of
employment and three weeks of vacation with pay per year after three years of
employment. Unused vacation days may be carried over from one year to the next
for a period of up to two years. Any vacation days which remain unused on the
second anniversary of the end of the fiscal year to which they originally
related shall expire and shall thereafter no longer be useable by the Executive.
6. FACILITIES
3.
<PAGE>
The Company shall provide the Executive with a fully furnished office, and
the facilities of the Company shall be generally available to the Executive in
the performance of the Executive's duties pursuant to this Agreement, it being
understood and contemplated by the parties that all equipment, supplies and
office personnel required in the performance of the Executive's duties under
this Agreement shall be supplied by and at the sole expense of the Company.
7. ILLNESS OR INCAPACITY, TERMINATION ON DEATH, ETC.
(a) Death. If the Executive dies during the term of the Executive's
employment, the Company shall pay to the estate of the Executive within 30 days
after the date of death such Base Salary and any cash bonus compensation earned
pursuant to the provisions of any incentive compensation plan then in effect but
not yet paid, as would otherwise have been payable to the Executive up to the
end of the month in which the Executive's death occurs. After receiving the
payments provided in this Section 7(a) the Executive and the Executive's estate
shall have no further rights under this Agreement (other than those rights
already accrued).
(b) Disability. (i) During any period of disability, illness or incapacity
during the term of this Agreement which renders the Executive temporarily unable
to perform the services required under this Agreement, the Executive shall
receive the Base Salary payable under Section 3(a) of this Agreement plus any
cash bonus compensation earned pursuant to the provisions of any incentive
compensation plan then in effect but not yet paid, less any cash benefits
received by him under any disability insurance carried by or provided by the
Company. Upon the Executive's "Permanent Disability" (as defined below),the
Executive shall receive the Base Salary payable under Section 3(a) of this
Agreement plus any cash bonus compensation earned pursuant to the provisions of
any incentive compensation plan then in effect but not yet paid, as would
otherwise have been payable to the Executive up to the end of the month in which
the Executive's Permanent Disability occurs. Upon "Permanent Disability" (as
that term is defined in Section 7(b)(ii) below) of the Executive, except as
provided in this Section 7(b), all rights of the Executive under this Agreement
(other than rights already accrued) shall terminate.
(ii) The term "Permanent Disability" as used in this Agreement shall
mean, in the event a disability insurance policy is maintained by the Company
covering the Executive at such time and is in full force and effect, the
definition of permanent disability set forth in such policy. In the event no
disability insurance policy is maintained at such time and in full force and
effect, "Permanent Disability" shall mean the inability of the Executive, as
determined by the Board of Directors of the Company, by reason of physical or
mental disability to perform the duties required of him under this Agreement for
a period of one hundred and eighty (180) days in any one-year period. Successive
periods of disability, illness or incapacity will be considered separate periods
unless the later period of disability, illness or incapacity is due to the same
or related cause and commences less than six months from the ending of the
previous period of disability. Upon such determination, the Board of Directors
may terminate the Executive's employment under this Agreement upon ten (10)
days' prior written notice. If any determination of the Board of Directors with
respect to permanent disability is disputed by the Executive, the parties hereto
agree to abide by the decision of a panel of three physicians. The Executive and
Company shall each appoint one member, and the third member of the panel shall
be appointed by the other two members. The Executive agrees to make himself
available for and submit to examinations by such physicians as may be directed
by the Company. Failure to submit to any such examination shall constitute a
breach of a material part of this Agreement.
4.
<PAGE>
8. OTHER TERMINATIONS
(a) By the Executive. (i) The Executive may terminate the Executive's
employment hereunder upon giving at least ninety (90) days' prior written
notice. In addition, the Executive shall have the right to terminate the
Executive's employment hereunder on the conditions and at the times provided for
in Section 8(d) of this Agreement.
(ii) If the Executive gives notice pursuant to Section 8(a)(i)
above, the Company shall have the right (but not the obligation) to relieve the
Executive, in whole or in part, of the Executive's duties under this Agreement,
or direct the Executive to no longer perform such duties, or direct that the
Executive should no longer report to work, or any combination of the foregoing.
In any such event, the Executive shall be entitled to receive only the Base
Salary not yet paid, as would otherwise have been payable to the Executive up to
the end of the month specified as the month of termination in the termination
notice. In the event the Executive gives notice pursuant to Section 8(a)(i)
above but specifies a termination date in excess of ninety (90) days from the
date of such notice, the Company shall have the right (but not the obligation)
to accelerate the termination date to any date prior to the date specified in
the notice that is in excess of ninety (90) days from the date of the notice,
and the Company shall have the right (but not the obligation) to relieve the
Executive, in whole or in part, of the Executive's duties under this Agreement,
or direct the Executive to no longer perform such duties, or direct that the
Executive should no longer report to work, or any combination of the foregoing;
provided, however, that in any such event the Executive shall be entitled to
receive the Base Salary, as would otherwise have been payable to the Executive
up to the end of the month of the termination date properly selected by the
Company. Upon receiving the payments provided for under this Section 8(a), all
rights of the Executive under this Agreement (other than rights already accrued)
shall terminate.
(b) Termination for "Good Cause". (i) Except as otherwise provided in this
Agreement, the Company may terminate the employment of the Executive hereunder
only for "good cause," which shall mean: (A) the Executive's conviction of
either a felony involving moral turpitude or any crime in connection with the
Executive's employment by the Company which causes the Company a substantial
detriment, but specifically shall not include traffic offenses; (B) actions by
the Executive as an executive officer of the Company which clearly are contrary
to the best interests of the Company; (C) the Executive's willful failure to
take actions permitted by law and necessary to implement policies of the
Company's Board of Directors which the Board of Directors has communicated to
him in writing, provided that minutes of a Board of Directors meeting attended
in its entirety by the Executive shall be deemed communicated to the Executive;
(D) the Executive's continued failure to attend to the Executive's duties as an
executive officer of the Company; or (E) any condition which either resulted
from the Executive's substantial dependence, as determined by the Board of
Directors of the Company, on alcohol, or any narcotic drug or other controlled
or illegal substance. If any determination of substantial dependence is disputed
by the Executive, the parties hereto agree to abide by the decision of a panel
of three physicians appointed in the manner and subject to the same penalties
for noncompliance as specified in Section 7(b)(ii) of this Agreement.
(ii) Notwithstanding the foregoing, each of the foregoing bases for
termination specified in (A) through (E) of Subsection 8(b)(i) shall constitute
"Good Cause" only if (1) the Executive has been provided with written notice of
any assertion that there is a basis for termination for good cause which notice
shall specify in reasonable detail specific facts regarding any such assertion
and the Executive has been given a reasonable period of time within which to
remedy or
5.
<PAGE>
cure the problem or complaint, (2) such notice is provided to the Executive a
reasonable time before the Board of Directors meets to consider any possible
termination for cause, (3) at or prior to the meeting of the Board of Directors
to consider the matters described in the written notice, an opportunity is
provided to the Executive and his counsel to be heard by the Board of Directors
with respect to the matters described in the written notice, before it acts with
respect to such matter, (4) any resolution or other action by the Board of
Directors with respect to any deliberation regarding or decision to terminate
the Executive for good cause is duly adopted by a vote of a majority of the
entire Board of Directors of the Company at a meeting of the Board duly called
and held and (5) the Executive is promptly provided with a copy of the
resolution or other corporate action taken with respect to such termination.
(iii) If the employment of the Executive is terminated for good
cause under Section 8(b)(i) of this Agreement, the Company shall pay to the
Executive any Base Salary earned prior to the effective date of termination but
not yet paid and any cash bonus compensation earned pursuant to the provisions
of any incentive compensation plan then in effect but not paid to the Executive
prior to the effective date of such termination. Under such circumstances, such
payments shall be in full and complete discharge of any and all liabilities or
obligations of the Company to the Executive hereunder, and the Executive shall
be entitled to no further benefits under this Agreement (other than rights
already accrued).
(iv) Termination of the employment of the Executive other than as
expressly specified above in this Section 8(b) for good cause shall be deemed to
be a termination of employment "Without Good Cause."
(c) Termination Without Good Cause. (i) Notwithstanding any other
provision of this Agreement, the Company shall have the right to terminate the
Executive's employment Without Good Cause pursuant to the provisions of this
Section 8(c). If the Company shall terminate the employment of the Executive
Without Good Cause effective on a date earlier than the termination date
provided for in Section 2 (with the effective date of termination as so
identified by the Company being referred to herein as the "Accelerated
Termination Date"), the Executive, until the end of the term of this Agreement
then in effect as provided for in Section 2 or until the date which is 12 months
after the Accelerated Termination Date, whichever is greater, shall continue to
receive (1) the Base Salary, paid in the same monthly on other periodic
installments ad in effect prior to the Accelerated Termination Date (2) an
amount equal to the target level of the annual cash bonus payable to the
Executive under the Company's Management Incentive Compensation Plan as
described on Exhibit A or any similar bonus or incentive plans or programs then
in effect (the "MICP Target Amount") in respect of the year during which the
Executive's employment terminates or, if greater, the MICP Target Amount
multiplied times the number of years (or fractions thereof) remaining in the
then unexpired term of this Agreement, and (3) any other cash or other bonus
compensation earned prior to the date of such termination pursuant to the terms
of all incentive compensation plans then in effect other than under the
Management Incentive as described on Exhibit A or any similar bonus or incentive
plans or programs then in effect; provided that, notwithstanding such
termination of employment, the Executive's covenants set forth in Section 10 and
Section 11 are intended to and shall remain in full force and effect and
provided further that in the event of such termination, the Company shall have
the right (but not the obligation) to relieve the Executive, in whole or in
part, of the Executive's duties under this
6.
<PAGE>
Agreement, or direct the Executive to no longer perform such duties, or direct
that the Executive no longer be required to report to work, or any combination
of the foregoing.
(ii) The parties agree that, because there can be no exact measure of the
damage that would occur to the Executive as a result of a termination by the
Company of the Executive's employment Without Good Cause, the payments and
benefits paid and provided pursuant to this Section 8(c) shall be deemed to
constitute liquidated damages and not a penalty for the Company's termination of
the Executive's employment Without Good Cause.
(d) Change of Control. (i) For purposes of this Agreement, a "Change in
Control" shall mean the first to occur of:
(1) a change in control of the Company of a nature that is required,
pursuant to the Securities Exchange Act of 1934 (the "1934 Act"), to be reported
in response to Item 1(a) of a Current Report on Form 8-K or Item 6(e) of
Schedule 14A under the 1934 Act (in each case under this Agreement, references
to provisions of the 1934 Act and the rules and regulations promulgated
thereunder being understood to refer to such law, rules and regulations as the
same are in effect on November 1, 1996); or
(2) the acquisition of "Beneficial Ownership" (as defined in Rule
13d-3 under the 1934 Act) of the Company's securities comprising 35% or more of
the combined voting power of the Company's outstanding securities by any
"person" (as that term is used in Sections 13(d) and 14(d)(2) of the 1934 Act
and the rules and regulations promulgated thereunder, but not including any
trustee or fiduciary acting in that capacity for an employee benefit plan
sponsored by the Company) and such person's "affiliates" and "associates" (as
those terms are defined under the 1934 Act), but excluding any ownership by the
Executive and his affiliates and associates; or
(3) the failure of the "Incumbent Directors" (as defined below) to
constitute at least a majority of all directors of the Company (for these
purposes, "Incumbent Directors" means individuals who were the directors of the
Company on November 1, 1996, and, after his or her election, any individual
becoming a director subsequent to November 1, 1996, whose election, or
nomination for election by the Company's stockholders, is approved by a vote of
at least two-thirds of the directors then comprising the Incumbent Directors,
except that no individual shall be considered an Incumbent Director who is not
recommended by management and whose initial assumption of office as a director
is in connection with an actual or threatened "election contest" relating to the
"election of directors" of the Company, as such terms are used in Rule 14a-11 of
Regulation 14A under the 1934 Act); or
(4) the closing of a sale of all or substantially all of the assets
of the Company;
(5) the Company's adoption of a plan of dissolution or liquidation;
or
(6) the closing of a merger or consolidation involving the Company
in which the Company is not the surviving corporation or if, immediately
following such merger or consolidation, less than seventy-five percent (75%) of
the surviving corporation's outstanding
7.
<PAGE>
voting stock is held or is anticipated to be held by persons who are
stockholders of the Company immediately prior to such merger or consolidation.
(ii) If a Change in Control of the Company occurs, the Executive
shall have the right, exercisable for a period of one year thereafter by
delivering a written statement to that effect to the Company, to immediately
terminate this Agreement and upon such a determination the Executive shall have
the right to receive and the Company shall be obligated to pay to Executive in
cash a lump sum payment in an amount equal to the sum of (1) two times the
annual Base Salary then in effect, (2) two times the MICP Target Amount (as that
term is defined in Section (8)(c) in the year in which employment terminates and
(3) the additional payments necessary to discharge certain tax liabilities (the
"Gross Up") as that term is defined in Section 13 of this Agreement (the sum of
the foregoing amounts other than the Gross Up being referred to as the "Change
in Control Payment"). If the Executive fails to exercise his rights under this
Section 8(d) within one year following a Change in Control, such rights shall
expire and be of no further force or effect.
(e) Intentions Regarding Certain Stock and Benefit Plans. Except as
otherwise provided herein, upon any termination of the Executive's employment
Without Good Cause or upon the exercise by the Executive of his rights to
terminate his employment following a Change of Control, it is the intention of
the parties that any and all vesting or performance requirements or conditions
affecting any outstanding restricted stock, performance stock, stock option,
stock appreciation right, bonus, award, right, grant or any other incentive
compensation under any of the Plans, under this Agreement, or otherwise
received, shall be deemed to be fully satisfied and any risk of forfeiture with
respect thereto shall be deemed to have lapsed.
(f) Certain Rights Mutually Exclusive. The provisions of Section 8(c) and
Section 8(d) are mutually exclusive, provided, however, that if within one year
following commencement of an 8(c) payout there shall be a Change in Control as
defined in Section 8(d)(i), then the Executive shall be entitled to the amount
payable to the Executive under Section 8(d)(ii) and Section 8(d)(iii) reduced by
the amount that the Executive has received under Section 8(c) up to the date of
the change in control. The triggering of the lump sum payment requirement of
Section 8(d) shall cause the provisions of Section 8(c) to become inoperative.
9. DISCLOSURE
The Executive agrees that during the term of the Executive's employment by
the Company, the Executive will disclose and disclose only to the Company all
ideas, methods, plans, developments or improvements known by him which relate
directly or indirectly to the business of the Company, whether acquired by the
Executive before or during the Executive's employment by the Company. Nothing in
this Section 9 shall be construed as requiring any such communication where the
idea, plan, method or development is lawfully protected from disclosure as a
trade secret of a third party or by any other lawful prohibition against such
communication. The covenants of this Section 9 shall not be violated by ordinary
and customary communications with reporters, bankers and securities analysts and
other members of the investment community.
8.
<PAGE>
10. CONFIDENTIALITY
The Executive agrees to keep in strict secrecy and confidence any and all
information the Executive assimilates or to which the Executive has access
during the Executive's employment by the Company and which has not been publicly
disclosed and is not a matter of common knowledge in the fields of work of the
Company. The Executive agrees that both during and after the term of the
Executive's employment by the Company, the Executive will not, without the prior
written consent of the Company, disclose any such confidential information to
any third person, partnership, joint venture, company, corporation or other
organization. The foregoing covenants shall not be breached to the extent that
any such confidential information becomes a matter of general knowledge other
than through a breach by the Executive of the Executive's obligations under this
Section 10.
11. NONCOMPETITION AND NONSOLICITATION
(a) General. The Executive hereby acknowledges that, during and solely as
a result of the Executive's employment by the Company, the Executive has
received and shall continue to receive: (1) special training and education with
respect to the operations of the Company's real estate development and
management businesses and its leasing, lending and financing activities, and
other related matters, and (2) access to confidential information and business
and professional contacts. In consideration of the special and unique
opportunities afforded to the Executive by the Company as a result of the
Executive's employment, as outlined in the previous sentence, the Executive
hereby agrees to the restrictive covenants in this Section 11.
(b) Noncompetition. During the term of the Executive's employment, whether
pursuant to this Agreement, any automatic or other renewal hereof or otherwise,
and, except as may be otherwise herein provided, for a period of two (2) years
after the termination of the Executive's employment with the Company, regardless
of the reason for such termination, the Executive shall not, directly or
indirectly, enter into, engage in, be employed by or consult with any business
which competes with the Company's real estate lending, leasing, development or
management businesses in Florida. The Executive shall not engage in such
prohibited activities, either as an individual, partner, officer, director,
stockholder, employee, advisor, independent contractor, joint venturer,
consultant, agent, or representative or salesman for any person, firm,
partnership, corporation or other entity so competing with the Company. The
restrictions of this Section 11 shall not be violated by (i) the ownership of no
more than 2% of the outstanding securities of any company whose stock is traded
on a national securities exchange or is quoted in the Automated Quotation System
of the National Association of Securities Dealers (NASDAQ), or (ii) other
outside business investments that do not in any manner conflict with the
services to be rendered by the Executive for the Company and that do not
diminish or detract from the Executive's ability to render the Executive's
required attention to the business of the Company.
9.
<PAGE>
(c) Nonsolicitation. During the Executive's employment with the Company
and, except as may be otherwise herein provided, for a period of two (2) years
following the termination of the Executive's employment with the Company,
regardless of the reason for such termination, the Executive agrees the
Executive will refrain from and will not, directly or indirectly, as an
individual, partner, officer, director, stockholder, employee, advisor,
independent contractor, joint venturer, consultant, agent, representative,
salesman or otherwise solicit any of the employees of the Company to terminate
their employment.
(d) Term Extended or Suspended. The period of time during which the
Executive is prohibited from engaging in certain business practices pursuant to
Sections 11(b) or (c) shall be extended by any length of time during which the
Executive is in breach of such covenants.
(e) Essential Element. It is understood by and between the parties hereto
that the foregoing restrictive covenants set forth in Sections 11(a) through (c)
are essential elements of this Agreement, and that, but for the agreement of the
Executive to comply with such covenants, the Company would not have agreed to
enter into this Agreement. Such covenants by the Executive shall be construed as
agreements independent of any other provision in this Agreement. The existence
of any claim or cause of action of the Executive against the Company, whether
predicated on this Agreement, or otherwise, shall not constitute a defense to
the enforcement by the Company of such covenants.
(f) Severability. It is agreed by the Company and Executive that if any
portion of the covenants set forth in this Section 11 are held to be invalid,
unreasonable, arbitrary or against public policy, then such portion of such
covenants shall be considered divisible both as to time and geographical area.
The Company and Executive agree that, if any court of competent jurisdiction
determines the specified time period or the specified geographical area
applicable to this Section 11 to be invalid, unreasonable, arbitrary or against
public policy, a lesser time period or geographical area which is determined to
be reasonable, non-arbitrary and not against public policy may be enforced
against the Executive. The Company and the Executive agree that the foregoing
covenants are appropriate and reasonable when considered in light of the nature
and extent of the business conducted by the Company.
12. SPECIFIC PERFORMANCE
The Executive agrees that damages at law will be an insufficient remedy to
the Company if the Executive violates the terms of Sections 9, 10 or 11 of this
Agreement and that the Company would suffer irreparable damage as a result of
such violation. Accordingly, it is agreed that the Company shall be entitled,
upon application to a court of competent jurisdiction, to obtain injunctive
relief to enforce the provisions of such Sections, which injunctive relief shall
be in addition to any other rights or remedies available to the Company. The
Executive agrees to pay to the Company all reasonable costs and expenses
incurred by the Company relating to the enforcement of the terms of Sections 9,
10 or 11 of this Agreement, including reasonable fees and reasonable
disbursements of counsel selected by the Company (during investigation and
before and at trial and in appellate proceedings).
10.
<PAGE>
13. PAYMENT OF EXCISE TAXES
(a) Payment of Excise Taxes. If the Executive is to receive any Change of
Control Payment under Section 8(d), or any benefit or payment under the Plans as
a result of a Change of Control, following the death of Permanent Disability of
the Executive or following the termination of employment hereunder Without Good
Cause (such sections being referred to as the "Covered Sections" and the
benefits and payments to be received thereunder being referred to as the
"Covered Payments"), the Executive shall be entitled to receive the amount
described below to the extent applicable: If any Covered Payment(s) under any of
the Covered Sections or by the Company under another plan or agreement
(collectively, the "Payments") are subject to the excise tax imposed by Section
4999 of the Internal Revenue Code of 1986 (as amended from time to time, the
"Code"), or any successor or similar provision of the Code (the "Excise Tax"),
the Company shall pay the Executive an additional amount (the "Gross Up") such
that the net amount retained by the Executive after deduction of any Excise Tax
on the Payments and the federal income tax on any amounts paid under this
Section 13 shall be equal to the Payments.
(b) Certain Adjustment Payments. For purposes of determining the Gross Up,
the Executive shall be deemed to pay the federal income tax at the highest
marginal rate of taxation (currently 39.5%) in the calendar year in which the
payment to which the Gross Up applies is to be made. The determination of
whether such Excise Tax is payable and the amount thereof shall be made upon the
opinion of tax counsel selected by the Company and reasonably acceptable to the
Executive. The Gross Up, if any, that is due as a result of such determination
shall be paid to the Executive in cash in a lump sum within thirty (30) days of
such computation. If such opinion is not finally accepted by the Internal
Revenue Service upon audit or otherwise, then appropriate adjustments shall be
computed (without interest but with Gross Up, if applicable) by such tax counsel
based upon the final amount of the Excise Tax so determined; any additional
amount due the Executive as a result of such adjustment shall be paid to the
Executive by his or her Company in cash in a lump sum within thirty (30) days of
such computation, or any amount due the Executive's Company as a result of such
adjustment shall be paid to the Company by the Executive in cash in a lump sum
within thirty (30) days of such computation.
14. MISCELLANEOUS
(a) Waiver of Breach. The waiver by either party to this Agreement of a
breach of any of the provisions of this Agreement by the other party shall not
be construed as a waiver of any subsequent breach by such other party.
(b) No Right to Continued Employment. Notwithstanding the fact that
certain provisions of this Agreement and/or Exhibit A reference a three year
cycle or provide for benefits upon a third year of employment, this Agreement
shall have a two year term with annual one year renewal terms subject to the
termination provisions contained herein.
11.
<PAGE>
(c) Compliance With Other Agreements. The Executive represents and
warrants that the execution of this Agreement by him and the Executive's
performance of the Executive's obligations hereunder will not conflict with,
result in the breach of any provision of or the termination of or constitute a
default under any Agreement to which the Executive is a party or by which the
Executive is or may be bound.
(d) Binding Effect; Assignment. The rights and obligations of the Company
under this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of the Company. This Agreement is a personal employment
contract and the rights, obligations and interests of the Executive hereunder
may not be sold, assigned, transferred, pledged or hypothecated.
(e) Entire Agreement. This Agreement contains the entire agreement and
supersedes all prior agreements and understandings, oral or written, with
respect to the subject matter hereof. This Agreement may be changed only by an
agreement in writing signed by the party against whom any waiver, change,
amendment, modification or discharge is sought.
(f) No Duty to Mitigate. The Executive shall be under no duty to mitigate
any loss of income as result of the termination of his employment hereunder and
any payments due the Executive upon termination of employment shall not be
reduced in respect of any other employment compensation received by the
Executive following such termination.
(g) Florida Law. This Agreement shall be construed pursuant to and
governed by the substantive laws of the State of Florida (except that any
provision of Florida law shall not apply if the law of a state or jurisdiction
other than Florida would otherwise apply).
(h) Venue; Process. The parties to this Agreement agree that jurisdiction
and venue in any action brought pursuant to this Agreement to enforce its terms
or otherwise with respect to the relationships between the parties shall
properly lie in and only in the Circuit Court of the Sixth Judicial Circuit of
the State of Florida in and for Pinellas County (the "Circuit Court") and the
parties agree that jurisdiction shall not properly lie in any other jurisdiction
provided, however, if jurisdiction does not properly lie with the Circuit Court,
the parties agree that jurisdiction and venue shall properly lie in and only in
the United States District Court for the Middle District of Florida, Tampa
Division. The parties hereby waive any objections which they may now or
hereafter have based on venue and/or forum non conveniens and irrevocably submit
to the jurisdiction of any such court in any legal suit, action or proceeding
arising out of or relating to this Agreement. The parties further agree that the
mailing by certified or registered mail, return receipt requested, of any
process required by any such court shall constitute valid and lawful service of
process against them, without the necessity for service by any other means
provided by statute or rule of court.
(i) Headings. The headings of the various sections in this Agreement are
inserted for the convenience of the parties and shall not affect the meaning,
construction or interpretation of this Agreement.
12.
<PAGE>
(j) Severability. Any provision of this Agreement which is determined by a
court of competent jurisdiction to be prohibited, unenforceable or not
authorized in any jurisdiction shall, as to such jurisdiction, be ineffective to
the extent of such prohibition, unenforceability or non-authorization without
invalidating the remaining provisions hereof or affecting the validity,
enforceability or legality of such provision in any other jurisdiction. In any
such case, such determination shall not affect any other provision of this
Agreement, and the remaining provisions of this Agreement shall remain in full
force and effect. If any provision or term of this Agreement is susceptible to
two or more constructions or interpretations, one or more of which would render
the provision or term void or unenforceable, the parties agree that a
construction or interpretation which renders the term or provision valid shall
be favored.
(k) Deduction for Tax Purposes. The Company's obligations to make payments
under this Agreement are independent of whether any or all of such payments are
deductible expenses of the Company for federal income tax purposes.
(l) Enforcement. If, within 10 days after demand to comply with the
obligations of one of the parties to this Agreement served in writing on the
other, compliance or reasonable assurance of compliance is not forthcoming, and
the party demanding compliance engages the services of an attorney to enforce
rights under this Agreement, the prevailing party in any action shall be
entitled to recover all reasonable costs and expenses of enforcement (including
reasonable attorneys' fees and reasonable expenses during investigation, before
and at trial and in appellate proceedings). In addition, each of the parties
agrees to indemnify the other in respect of any and all claims, losses, costs,
liabilities and expenses, including reasonable fees and reasonable disbursements
of counsel (during investigation prior to initiation of litigation and at trial
and in appellate proceedings if litigation ensues), directly or indirectly
resulting from or arising out of a breach by the other party of their respective
obligations hereunder. The parties' costs of enforcing this Agreement shall
include prejudgment interest. Additionally, if any party incurs any
out-of-pocket expenses in connection with the enforcement of this Agreement, all
such amounts shall accrue interest at 18% per annum (or such lower rate as may
be required to avoid any limit imposed by applicable law) commencing 30 days
after any such expenses are incurred.
(m) Notices. All notices which are required or may be given under this
Agreement shall be in writing and shall be deemed to have been duly given when
received if personally delivered; when transmitted if transmitted by telecopy or
similar electronic transmission method; one working day after it is sent, if
sent by recognized expedited delivery service; and three days after it is sent,
if mailed, first class mail, certified mail, return receipt requested, with
postage prepaid. In each case notice shall be sent to:
To the Company: Echelon International Corporation
One Progress Plaza
St. Petersburg, FL 33701
Attn: Chairman of the Board
Telecopy:(813) 824-6536
13.
<PAGE>
To the Executive at the Executive's address herein first above written, or
to such other address as either party may specify by written notice to the
other.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
ATTEST: ECHELON INTERNATIONAL
CORPORATION
(Corporate Seal)
________________________________ By:____________________________________
Secretary Darryl A. LeClair, President
EXECUTIVE
Witnesses:
________________________________ _______________________________________
Timothy S. Tinsley
________________________________
As to Executive
14.
<PAGE>
EXHIBIT A
TO
EMPLOYMENT AGREEMENT WITH TIMOTHY S. TINSLEY
DATED NOVEMBER 20, 1996
The Company will establish a Management Incentive Compensation Plan
("MICP") for its senior management in which the Executive will participate.
During the first two full fiscal years of the Company's operation following the
completion of the Spinoff ending on December 31, 1997, and December 31, 1998,
respectively (the "Covered Years"), the MICP will provide for annual cash
bonuses based upon the Company's net income for each of the Covered Years. The
Executive's participation in the MICP during the Covered Years shall be based
upon the criteria and shall include awards with the values indicated in the
tables set forth below and as more fully described in this Exhibit A.
MICP
During each of the Covered Years, (i) all MICP bonuses shall be paid in
cash; (ii) if Threshold Net Income is not achieved, no MICP cash bonus will be
paid; (iii) if actual net income exceeds Threshold Net Income, but is less than
Target Net Income, or exceeds Target Net Income but is less than Maximum Net
Income, the percentage of the MICP bonus shall be proportionately increased
above the Threshold bonus amount or the Target Bonus amount, as the case may be,
and (iv) if actual net income equals or exceeds Maximum Net Income, the Maximum
MICP cash bonus will be paid, but no additional cash bonus will be payable under
the MICP regardless of the amount by which actual net income in that Covered
Year exceeds Maximum Net Income. The following table sets forth information
regarding the MICP Net Income Threshold, Target and Maximum and cash bonuses.
----------------------------------------------
MICP 1997 1998
----------------------------------------------
THRESHOLD
----------------------------------------------
Net Income $1,584,274 $1,768,816
----------------------------------------------
MICP Cash Bonus $15,625 $15,625
(% of Target Bonus) (50%) (50%)
----------------------------------------------
TARGET
----------------------------------------------
Net Income $2,112,366 $2,358,422
----------------------------------------------
MICP Cash Bonus $31,250 $31,250
(% of Base Salary) (25%) (25%)
----------------------------------------------
MAXIMUM
----------------------------------------------
Net Income $2,640,457 $2,948,027
----------------------------------------------
MICP Cash Bonus $46,875 $46,875
(% of Target Bonus) (150%) (150)%
----------------------------------------------
15.
Consent of Independent Auditors
The Stockholders
Echelon International Corporation
We consent to incorporation by reference in the registration statements (No.
333-18171 on Form S-8, No. 333-18175 on Form S-8, No. 333-18177 on Form S-8 and
No. 333-18179 on Form S-8) of Echelon International Corporation of our report
dated March 19, 1997, relating to the consolidated balance sheets of Echelon
International Corporation and subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of operations and deficit, stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1996, and all related schedules, which report appears in the
December 31, 1996 annual report on Form 10-K of Echelon International
Corporation.
KPMG Peat Marwick LLP
March 31, 1997
St. Petersburg, Florida
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 63,300
<SECURITIES> 0
<RECEIVABLES> 77,000
<ALLOWANCES> 0
<INVENTORY> 3,100
<CURRENT-ASSETS> 144,100
<PP&E> 166,700
<DEPRECIATION> 36,600
<TOTAL-ASSETS> 531,000
<CURRENT-LIABILITIES> 92,200
<BONDS> 73,800
0
0
<COMMON> 100
<OTHER-SE> 201,300
<TOTAL-LIABILITY-AND-EQUITY> 531,000
<SALES> 0
<TOTAL-REVENUES> 63,200
<CGS> 0
<TOTAL-COSTS> 38,400
<OTHER-EXPENSES> 50,900
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,700
<INCOME-PRETAX> (44,800)
<INCOME-TAX> (15,500)
<INCOME-CONTINUING> (29,300)
<DISCONTINUED> 0
<EXTRAORDINARY> 1,800
<CHANGES> 0
<NET-INCOME> (27,500)
<EPS-PRIMARY> (4.23)
<EPS-DILUTED> (4.23)
</TABLE>
