<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
PacificAmerica Money Center, Inc.
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
PACIFICAMERICA MONEY CENTER, INC.
21031 Ventura Boulevard
Woodland Hills, California 91364
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 12, 1998
TO THE STOCKHOLDERS:
The Annual Meeting of Stockholders (the "Annual Meeting") of
PacificAmerica Money Center, Inc. (the "Company") will be held on June 12, 1998
at 2:00 p.m. Pacific Time, at the Los Angeles Airport Hilton and Towers, Theater
Room, Second Floor, located at 5711 West Century Boulevard, Los Angeles,
California 90045, to consider and act upon the following matters, all as more
fully described in the accompanying Proxy Statement which is incorporated herein
by this reference:
(1) To elect one member to the Board of Directors to serve until
the 2001 Annual Meeting of Stockholders or until his successor
shall be elected and qualify;
(2) To approve a new Employment Agreement between the Company and
Joel R. Schultz, which includes the grant of a stock option
for 100,000 shares;
(3) To approve a new Employment Agreement between the Company and
Richard D. Young;
(4) To approve an amendment of the Company's 1995 Stock Option
Plan which increases the maximum number of shares covered by
such plan from 660,000 to 800,000 shares, with an increase of
2% of the total issued and outstanding shares of the Common
Stock on the first day of each subsequent calendar year, up to
a maximum of 1,000,000;
(5) To approve an amendment of the Company's Employee Stock
Purchase Plan which increases the maximum number of shares
covered by such plan from 130,000 to 260,000;
(6) To ratify the appointment of BDO Seidman, LLP as independent
accountants for the fiscal year ending December 31, 1998; and
(7) To transact such other business and to consider and take
action upon any and all matters that may properly come before
the Annual Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on May 5,
1998, as the record date for the determination of the stockholders entitled to
notice of and to vote at the Annual Meeting. For ten days prior to the Annual
Meeting, a complete list of stockholders entitled to vote at the Annual Meeting
will be available for examination by any stockholder for any purpose germane to
the Annual Meeting during ordinary business hours at the Company's executive
office, located at the address set forth above.
All stockholders are invited to attend the Annual Meeting in person.
By Order of the Board of Directors
Joel R. Schultz
Chief Executive Officer
Woodland Hills, California
May 15, 1998
<PAGE> 3
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IMPORTANT
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE MARK, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE ENCLOSED ENVELOPE SO
THAT YOUR STOCK MAY BE REPRESENTED AT THE ANNUAL MEETING.
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<PAGE> 4
PACIFICAMERICA MONEY CENTER, INC.
21031 Ventura Boulevard
Woodland Hills, California 91364
(818) 992-8999
---------------
PROXY STATEMENT
---------------
Approximate date proxy material first
sent to stockholders: May 15, 1998
INFORMATION CONCERNING SOLICITATION AND VOTING
The enclosed proxy is solicited by and on behalf of the Board of
Directors of PacificAmerica Money Center, Inc. (the "Company") in connection
with the Annual Meeting of Stockholders (the "Annual Meeting") and adjournments
thereof to be held at 2:00 p.m. Pacific Time on June 12, 1998 at the Los Angeles
Airport Hilton and Towers, Theater Room, Second Floor, located at 5711 West
Century Boulevard, Los Angeles, California 90045.
Stockholders are requested to complete, date and sign the
accompanying proxy and return it promptly to the Company. Any proxy given may be
revoked by a stockholder at any time before it is voted at the Annual Meeting
and all adjournments thereof by filing with the Secretary of the Company a
notice in writing revoking it, or by duly executing and submitting a proxy
bearing a later date. Proxies may also be revoked by any stockholder present at
the Annual Meeting who expresses a desire to vote in person. Subject to such
revocation, all proxies duly executed and received prior to, or at the time of,
the Annual Meeting will be voted FOR the election of the nominee-director
specified herein, FOR the approval of the new Employment Agreement of Joel R.
Schultz, FOR the approval of the new Employment Agreement of Richard D. Young,
FOR the approval of an amendment of the Company's 1995 Stock Option Plan to
increase the maximum number of shares available for the grant of options from
660,000 to 800,000, with an increase of 2% of the total issued and outstanding
shares of the Common Stock on the first day of each subsequent calendar year, up
to a maximum of 1,000,000, FOR the approval of an amendment of the Company's
Employee Stock Purchase Plan to increase the maximum number of shares available
under the plan from 130,000 to 260,000, and FOR the ratification of the
selection of BDO Seidman, LLP, as the Company's independent public accountants
for fiscal year 1998, unless a contrary choice is specified in the proxy. Where
a specification is indicated as provided in the proxy, the stock represented by
the proxy will be voted and cast in accordance with the specification made. As
to other matters, if any, to be voted upon, the persons designated as proxies
will take such actions as they, in their discretion, may deem advisable. The
persons named as proxies were selected by the Board of Directors of the Company
and each of them is an executive officer of the Company.
Brokers and nominees may be precluded from exercising their voting
discretion with respect to certain matters to be acted upon and thus, in the
absence of specific instructions from the beneficial owners of the shares, will
not be empowered to vote on such matters and therefore will not be counted in
determining the number of shares necessary for approval. Shares represented by
such broker non-votes will, however, be counted for purposes of determining
whether there is a quorum. Any shares not voted (whether by abstention, broker
non-vote or otherwise) will have no impact on the election of directors, except
to the extent that the failure to vote for an individual results in another
individual receiving a larger proportion of votes. Any shares represented at the
Annual Meeting but not voted (whether by abstention, broker non-vote or
otherwise) with respect to the proposals to approve the new Employment
Agreements of Joel R. Schultz and Richard D. Young, approve the amendment to the
1995 Stock Option Plan and to ratify the selection of BDO Seidman, LLP will have
no effect on the vote for such proposals except to the extent the number of
abstentions causes the number of shares voted in favor of the proposals not to
equal or exceed a majority of the quorum required for the Annual Meeting.
Participants in the Company's Employee Savings Plan (i.e., the
Company's "401(k)" plan) may vote shares of common stock of the Company (the
"Common Stock") equivalent to the value of the interest credited to their
account in the plan by instructing City National Bank, the trustee of the plan,
pursuant to the instruction card being mailed with this proxy statement to plan
participants. The trustee will vote such shares in accordance with duly executed
instructions received by it by June 10, 1998. Share equivalents credited to a
participant's account as to which no instructions are received by that date are
not required to be voted by the trustee unless required by
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<PAGE> 5
applicable law, but may be voted by the trustee in the same proportion that it
votes shares for which it does receive timely instructions. Each participant may
revoke previously given voting instructions by filing with the trustee a written
notice to that effect or a duly executed voting instruction card bearing a date
subsequent to the date of his or her previously delivered instruction card.
Your execution of the enclosed proxy will not affect your right as a
stockholder to attend the Annual Meeting and to vote in person. Any stockholder
giving a proxy has a right to revoke it at any time by either (i) a later-dated
proxy, (ii) a written revocation sent to and received by the Secretary of the
Company prior to the Annual Meeting, or (iii) attendance at the Annual Meeting
and voting in person.
STOCKHOLDERS' VOTING RIGHTS
Only holders of record of the Company's Common Stock at the close of
business on May 5, 1998 (the "Record Date") will be entitled to notice of, and
to vote at, the Annual Meeting. On such date, there were 5,017,583 shares of
Common Stock outstanding, with one vote per share.
With respect to the election of a director, assuming a quorum is
present, the candidate receiving the highest number of votes will be elected.
See "Nomination and Election of Directors." To approve the new Employment
Agreements of Joel R. Schultz and Richard D. Young, to approve the amendment of
the Company's 1995 Stock Option Plan and the amendment of the Company's Stock
Purchase Plan, and to ratify the appointment of BDO Seidman LLP, assuming a
quorum is present, the affirmative votes of stockholders holding a majority of
the voting power represented and voting at the meeting will be required. A
quorum is the presence in person or by proxy of shares representing a majority
of the voting power of the Common Stock.
STOCK OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following tables sets forth the ownership of Common Stock as of
March 31, 1998 by (i) those persons known by the Company to hold at least 5% of
the total outstanding Common Stock of the Company; (ii) the five directors of
the Company, (iii) the Chief Executive Officer and the other four most highly
compensated executive officers of the Company for the fiscal year ended December
31, 1997 (the "Named Executives"), and (iv) all executive officers and directors
of the Company, as a group.
This table includes, in addition to Common Stock outstanding as of
March 31, 1998, Common Stock issuable upon exercise of subscriber warrants
("Subscriber Warrants") issued in connection with the restructuring (the
"Restructuring") of the Company completed in June 1996. In addition, the table
includes that portion of stock options granted to the Named Executives which are
exercisable within the next 60 days, as described herein under the heading
"EXECUTIVE COMPENSATION AND OTHER MATTERS -- Plans and Arrangements -- Stock
Option Plan."
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<PAGE> 6
<TABLE>
<CAPTION>
Common
Stock Percent
Name and Address of Beneficially of
Beneficial Owner Owned(1) Class
---------------- -------- -----
<S> <C> <C>
Joel R. Schultz(3) 417,681 8.1%
21031 Ventura Boulevard
Woodland Hills, CA 91364
Richard D. Young(4) 137,535 2.7%
21031 Ventura Boulevard
Woodland Hills, CA 91364
Charles J. Siegel(5) 29,869 *
21031 Ventura Boulevard
Woodland Hills, CA 91364
Frank P. Landini(6) 39,347 *
500 Ygnacio Valley Road
Walnut Creek, CA 94596
Norman A. Markiewicz(7) 172,514 3.3%
21031 Ventura Boulevard
Woodland Hills, CA 91364
James C. Neuhauser(8) 17,000 *
21031 Ventura Boulevard
Woodland Hills, CA 91364
Paul D. Weiser(9) 37,280 *
21031 Ventura Boulevard
Woodland Hills, CA 91364
Alan J. Siebler(10) 4,600 *
21031 Ventura Boulevard
Woodland Hills, CA 91364
All Directors and Executive Officers, as a group 1,100,616 21.3%
(10 persons)(11)
</TABLE>
- -----------
* Less than 1%.
(1) Except as otherwise noted and except as required by applicable community
property laws, each person has sole voting and disposition powers with
respect to the shares.
(2) Includes shares held by investment adviser clients of Wellington Capital
Management Company, LLP
(3) Includes an aggregate of 409,149 shares of Common Stock held by Joel R.
Schultz (including 10,007 shares issued as partial payment of his 1997
annual bonus), Toby Schultz, his spouse, and The Schultz Living Trust, of
which Joel R. Schultz and Toby Schultz are the co-trustees, 8,000
Subscriber Warrants and currently exercisable options for 532 shares.
Does not include an option for 100,000 shares that will be granted under
the new Employment Agreement with Joel R. Schultz if approved at the
Annual Meeting. See "APPROVAL OF NEW EMPLOYMENT AGREEMENTS OF JOEL R.
SCHULTZ AND RICHARD D. YOUNG" herein.
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<PAGE> 7
(4) Includes 117,535 shares of Common Stock (including 22,766 shares issued
as partial payment of his 1997 annual bonus) and currently exercisable
options for 20,000 shares.
(5) Includes 19,619 shares of Common Stock and currently exercisable options
for 10,250 shares.
(6) Includes 30,347 shares of Common Stock and currently exercisable options
for 9,000 shares.
(7) Includes 165,314 shares of Common Stock and currently exercisable options
for 7,200 shares.
(8) Includes 16,000 shares of Common Stock and currently exercisable options
for 1,000 shares.
(9) Includes 36,280 shares of Common Stock and currently exercisable options
for 1,000 shares.
(10) Includes 4,000 shares of Common Stock and 600 Subscriber Warrants.
(11) Includes 1,028,540 shares of Common Stock, 23,094 Subscriber Warrants and
currently exercisable options for 48,982 shares.
The Company knows of no contractual arrangements which may at a
subsequent date result in a change in control of the Company.
NOMINATION AND ELECTION OF DIRECTORS
The Company's Amended and Restated Certificate of Incorporation states
that the Board of Directors shall be divided into three classes of directors,
with the directors in each class to be elected for three-year staggered terms
except for the initial directors. At this Annual Meeting, one director is to be
elected to serve until the 2001 Annual Meeting of Stockholders and until his
successor is elected and qualifies. The Nominating Committee of the Board of
Directors, consisting of Joel R. Schultz, James C. Neuhauser and Paul D. Weiser
has nominated James C. Neuhauser for election as a director at this Annual
Meeting. Mr. Neuhauser currently serves as a member of the Board of Directors of
the Company and chair of the Audit Committee of the Board of Directors.
In the event that Mr. Neuhauser should become unable to serve if elected,
it is intended that shares represented by proxies which are executed and
returned will be voted for such substitute nominee as may be recommended by the
Company's existing Board of Directors.
The nominee-director receiving the highest number of votes cast at the
Annual Meeting will be elected as the Company's director for the three-year term
from 1998 to 2001.
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<PAGE> 8
Mr. James C. Neuhauser, age 39, has been a non-employee director of the
Company since June 1996 and a non-employee director of Pacific Thrift and Loan
Company, a wholly owned subsidiary of the Company ("Pacific Thrift"), since
August 1996. Since March 1993, he has been employed with Friedman, Billings,
Ramsey & Company, Inc., an investment banking firm headquartered in Arlington,
Virginia, where he is currently a Managing Director. He was formerly employed
with Trident Financial Corporation from 1986 to 1993, where he last held the
position of Senior Vice President. Mr. Neuhauser is a Chartered Financial
Analyst.
CONTINUING DIRECTORS
The terms of Joel R. Schultz and Paul D. Weiser will expire at the 1999
annual meeting of stockholders, or when their successors are elected and
qualified. The terms of Richard D. Young and Alan J. Siebler will expire at the
2000 annual meeting of stockholders, or when their successors are elected and
qualified. The Board of Directors may fill interim vacancies of directors. Each
officer is elected by and serves at the discretion of, the Board of Directors,
subject to the terms of any employment agreement.
Mr. Joel R. Schultz, age 61, is Chairman of the Board, President and
Chief Executive Officer of the Company and was Chief Managing Officer of
Presidential Mortgage Company, a California limited partnership, which was the
Company's predecessor. Since 1989, Mr. Schultz has been the Chairman of the
Board and Chief Executive Officer of Pacific Thrift. He also served as President
of Pacific Thrift from 1988 to November 1993. He also is President and Chief
Executive Officer of PacificAmerica Money Centers, Inc., a wholly-owned
subsidiary of the Company ("PAMC"). Mr. Schultz is an attorney admitted to
practice in California, a certified public accountant, and a California licensed
real estate broker.
Mr. Richard D. Young, age 58, has served as a director, Senior Executive
Vice President of the Company and PAMC since September 1995. He has also served
as President and Chief Operating Officer of Pacific Thrift since November 1993.
From 1983 to 1993, Mr. Young served as President and Chief Executive Officer of
Topa Thrift and Loan. From 1984 to 1988 he served as President of Thrift
Guaranty Corporation and as a director from 1983 through 1988 and again from
1989 through 1995 when the Thrift Guaranty Corporation was liquidated. Mr. Young
is a member of the Secondary and Capital Markets Committee of the Mortgage
Bankers Association and the California Association of Thrift and Loan Companies
("CATL") and has served as Vice President of CATL since 1995.
Mr. Paul D. Weiser, age 61, has been a non-employee director of the
Company and PAMC since June 1996 and a non-employee director of Pacific Thrift
since August 1996. Since 1968, he has been employed with Dataproducts
Corporation, a manufacturer and seller of computer printers and related
products, currently as its Senior Vice President, Secretary and General Counsel.
Mr. Weiser is an attorney admitted to practice in California and former chairman
of the Securities and Exchange Commission's Advisory Committee on Shareholder
Communications.
Mr. Alan J. Siebler, age 67, was appointed as a director of the Company
on April 21, 1997. Mr. Siebler is also a non-employee director of Pacific
Thrift, on which Board he has served since June 1992. He was a Human Resource
Manager of the Van Nuys, California Plant of General Motors Corporation from
August 1956 until September 1992. Mr. Siebler also served as Chairman of the
California Joint Apprenticeship State Advisory Committee for Single Plant
Industry from 1986 to 1989; and Member of the Committee for Industrial Training
Curriculum of Pierce College.
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<PAGE> 9
INFORMATION CONCERNING THE BOARD OF DIRECTORS
AND CERTAIN COMMITTEES THEREOF
The business of the Company's Board of Directors is conducted through
meetings of the Board, as well as through meetings of its committees. Set forth
below is a description of the committees of the Board.
The Audit Committee reviews and reports to the Board on various auditing
and accounting matters, including the annual audit report from the Company's
independent public accountants. The Audit Committee consists of James C.
Neuhauser, Paul D. Weiser and Alan J. Siebler. Mr. Neuhauser is the Chairman of
the Audit Committee. The Audit Committee held three meetings during 1997.
The Executive Compensation Committee ("Executive Compensation
Committee"), and its predecessor the Executive Compensation and Stock Option
Committee until November 1997, determines the salary and bonus provisions of all
executive officers under written employment agreements with the Company, reviews
and certifies the performance-based bonuses of Messrs. Schultz and Young under
each of their employment agreements with the Company. See "JOINT REPORT OF THE
EXECUTIVE COMPENSATION COMMITTEE AND THE EMPLOYEE COMPENSATION COMMITTEE." The
Executive Compensation Committee currently consists of Paul D. Weiser, James C.
Neuhauser and Alan J. Siebler. Mr. Weiser is its Chairman. The Executive
Compensation Committee and its predecessor the Executive Compensation and Stock
Option Committee held six meetings in 1997.
The Stock Option Committee ("Stock Option Committee"), and its
predecessor the Executive Compensation and Stock Option Committee until November
1997, determines appropriate awards under the Company's 1995 Stock Option Plan
and administers the Company's Stock Option Plan, Employee Savings Plan and
Employee Stock Purchase Plan. See "EXECUTIVE COMPENSATION AND OTHER MATTERS --
Plans and Arrangements." The Stock Option Committee currently consists of Paul
D. Weiser and Alan J. Siebler. The Stock Option Committee and its predecessor
the Executive Compensation and Stock Option Committee held six meetings in 1997.
The Executive Committee has the authority to act on behalf of the full
Board of Directors in between meetings of the Board, except that the Executive
Committee does not have the authority to amend the Certificate of Incorporation
or the Bylaws of the Company, adopt an agreement of merger or consolidation,
recommend to the stockholders a dissolution of the Company or a revocation of
dissolution or remove or indemnify a director. To the extent authorized by the
Board of Directors, the Executive Committee is also authorized to declare
dividends of the Company and to issue shares of authorized and unissued Common
Stock or any series of Preferred Stock of the Company. The Executive Committee
consists of Joel R. Schultz, Richard D. Young and Paul D. Weiser. Mr.
Schultz is its Chairman. The Executive Committee held no meetings in 1997.
The Nominating Committee, has the authority to nominate directors of the
Company for election. The Nominating Committee consists of Joel R. Schultz,
James C. Neuhauser and Paul D. Weiser. The Nominating Committee held one meeting
in 1997. Any stockholder wishing to propose a nominee should submit a
recommendation in writing to the Company's Corporate Secretary, indicating the
nominee's qualifications and other relevant biographical information and
providing confirmation of the nominee's consent to serve as a director.
There were 15 meetings of the Board of Directors of the Company during
1997. Each of the directors of the Company attended 75% or more of the aggregate
of the total number of meetings of the Board of Directors held during the period
in which he was a director and 75% or more of the total number of meetings held
by all committees of the Board of Directors on which he served during such
period.
COMPENSATION OF BOARD OF DIRECTORS
The Company pays fees to its directors for serving on the Board of
Directors and for their attendance at Board and committee meetings. The Company
pays each employee director an annual fee of $500, plus $200 per board or
committee meeting attended. The Company pays each non-employee director an
annual fee of $5,000, plus $1,000 for each board meeting attended, plus $300 for
each telephonic meeting of over 30 minutes in length, plus $500 per committee
meeting for committee chairman and $400 per committee meeting for other
committee members. The Corporate Secretary receives a fee of $200 per meeting
attended. The Company also grants options for 2,000 shares of Common Stock per
year to the non-officer directors of the Company pursuant to the Company's 1995
Stock
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<PAGE> 10
Option Plan, see "EXECUTIVE COMPENSATION AND OTHER MATTERS -- Stock Option Plan
- -- Options to Non-Employee Directors" and " -- Grant of Options."
Each of Pacific Thrift and PAMC also pays fees to its officer and
non-officer directors for serving on their respective boards of directors and
for their attendance at board and committee meetings, and grants options for
2,000 shares per year for serving as a director under the Company's 1995 Stock
Option Plan (provided that no director may receive an option for more than 2,000
shares, regardless of the number of directorships held with the Company or any
of its subsidiaries). Pacific Thrift pays the same fees that the Company pays to
its officer and non-officer directors. PAMC pays each employee director an
annual fee of $250 plus $200 for each meeting attended, and each non-employee
director an annual fee of $1,000, plus $500 for each board meeting attended,
plus $200 for each telephonic meeting of over 30 minutes in length, plus $350
per committee meeting for committee chairman or $250 per committee meeting for
other committee members. The Corporate Secretary receives a fee of $200 per
meeting attended. Only one meeting fee is paid for meetings of the Boards of
Directors of the Company and one or more of its subsidiaries on the same day and
for meetings of two or more committees of the Board of Directors of the Company
or any of its subsidiaries on the same day. It is the policy of the Board of
Directors to have as many board and committee meetings on the same day as
possible.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS
The Company's Certificate of Incorporation provides that a director of
the Company will have no personal liability to the Company or its stockholders
for monetary damages for breach of fiduciary duty as a director except (i) for
any breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, (iii) as provided under Section 174 of
the Delaware General Corporation Law (the "Delaware GCL") for the payment of
certain unlawful dividends and the making of certain stock purchases or
redemptions or (iv) for any transaction from which the director derived an
improper personal benefit. This provision would absolve directors of personal
liability for negligence in the performance of their duties, including gross
negligence. It would not permit a director to be exculpated, however, for
liability for actions involving conflicts of interest or breaches of the
traditional "duty of loyalty" to the Company and its stockholders, and it would
not affect the availability of injunctive or other equitable relief as a remedy.
The provision does not eliminate or alter the duty of the Company's
directors; it merely limits personal liability for monetary damages to the
maximum extent now permitted by the Delaware GCL. Moreover, it applies only to
claims against a director arising out of his role as a director; it does not
apply to claims arising out of his role as an officer (if he is also an officer)
or arising out of any other capacity in which he serves. While this provision
does not affect the availability of injunctive or other equitable relief as a
remedy for breach of duty by directors, it does limit the remedies available to
a stockholder who has an otherwise valid claim that a director acted in
violation of his duties, if the action is among those as to which liability is
limited. Because of this provision, stockholders will not have a claim for
monetary damages based on breach of the directors' duty, even if the directors'
conduct involved gross negligence (including a grossly negligent business
decision involving a takeover proposal for the Company), unless the conduct is
of a type for which the Delaware GCL does not permit limitation of liability. If
the stockholders do not have a claim for monetary damages, their only remedy may
be a suit to enjoin completion of the Board's action or to rescind completed
action. The stockholders may not be aware of a proposed transaction that might
otherwise give rise to a claim until the transaction is completed or until it is
too late to prevent its completion by injunction. In such a case, the Company
and its stockholders may have no effective remedy for an injury resulting from
the Board's action.
This provision may reduce the likelihood of stockholder derivative
litigation against directors and may discourage or deter stockholders or
management from bringing a lawsuit against directors for breach of their duties,
even though such action, if successful, might otherwise have benefited the
Company and its stockholders. The Securities and Exchange Commission has taken
the position that similar provisions added to other corporations' certificates
of incorporation would not protect those corporations' directors from liability
for violations of the federal securities laws.
The Company included this exculpation provision in its Certificate of
Incorporation to provide its directors with the maximum protection from personal
liability made available by the Delaware GCL. It is believed that this provision
will help the Company to attract and retain as directors highly qualified
persons for those positions.
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<PAGE> 11
The Company's Bylaws generally require the Company to indemnify and
advance expenses to its directors, officers, employees and other agents to the
fullest extent permitted by Delaware law. The Company also has entered into
indemnification agreements with each of its directors and executive officers
whereby the Company will indemnify each such person against certain claims
arising out of certain past, present or future acts, omissions or breaches of
duty committed by an indemnitee while serving as a director of the Company or
any of its subsidiaries. Such indemnification does not apply to acts or
omissions which are knowingly fraudulent, deliberately dishonest or arise from
willful misconduct. Indemnification will only be provided to the extent that the
indemnitee has not already received payments in respect of a claim from the
Company or from an insurance company. Under certain circumstances, such
indemnification (including reimbursement of expenses incurred) will be allowed
for liability arising under the federal securities laws.
Insofar as indemnification for liabilities arising under the federal
securities laws may be permitted to directors, officers or persons controlling
the Company pursuant to the foregoing provisions, the Company has been informed
that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the federal securities
laws and is therefore unenforceable.
The Company has purchased a directors' and officers' liability policy
insuring directors and officers of the Company from certain liabilities as a
result of their service as directors and officers of the Company.
EXECUTIVE COMPENSATION AND OTHER MATTERS
EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation. The Company is a
successor to Presidential Mortgage Company, a California limited partnership
(the "Partnership"). On June 27, 1996, the Company and the Partnership completed
the Restructuring, as a result of which all of the assets and liabilities of the
Partnership were transferred to the Company. Prior to the Restructuring, the
executive officers of the Company received compensation from the Partnership,
Presidential Management Company, the general partner of the Partnership (the
"General Partner") and/or Pacific Thrift, under various arrangements with those
entities. The following table sets forth certain summary information concerning
compensation paid or accrued by the Company, the Partnership, the General
Partner and Pacific Thrift to or on behalf of the Chief Executive Officer and
each of the Named Executives for the fiscal years ended December 31, 1997, 1996,
and 1995:
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Actual Annual Compensation
--------------------------
<TABLE>
<CAPTION>
Securities
Underlying All Other
Name and Principal Position Year Salary($)(1) Bonus($) Options(#)(2) Compensation
- --------------------------- ---- ------------ -------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Joel R. Schultz (3) 1997 $235,000 $1,633,728 30,000 $4,750
Chief Executive Officer of 1996 $450,704 $ 222,750 96,000 $4,500
the Company and Pacific Thrift 1995 $400,466 -0- -0- $4,620
Richard D. Young (4) 1997 $235,000 $1,478,050 6,000 $4,750
President and Chief Operating 1996 $247,583 $ 354,750 100,000 $4,500
Officer of Pacific Thrift, and 1995 $214,273 -0- -0- $4,594
Senior Executive Vice President
of the Company
Frank Landini (5) 1997 $163,200 $637,008 -0- $4,750
Executive Vice President - 1996 $184,600 $207,112 36,000 $4,190
Wholesale Lending Division of 1995 $159,600 -0- -0- $3,264
Pacific Thrift
Charles J. Siegel, 1997 $201,798 $ -0- 15,000 $4,750
Chief Financial Officer of 1996 $163,577 $51,667 26,000 $4,500
the Company and Pacific Thrift 1995 $144,400 -0- -0- $4,044
Norman A. Markiewicz 1997 $146,707 -0- -0- $4,147
Executive Vice President 1996 $172,500 -0- 18,000 $4,500
of the Company and Pacific 1995 $128,667 -0- -0- $4,154
Thrift
</TABLE>
- --------------
(1) The amounts specified above include automobile allowances and directors'
fees, but do not include life insurance or medical insurance premiums for
benefits in excess of group benefits provided to employees, the aggregate amount
of which do not exceed the lesser of either $50,000 or 10% of the total annual
salary and bonus reported for each of the above named executives in each
reported year.
(2) All options shown in this column are exercisable at a price equal to the
fair market value of the options on the date of grant.
(3) Salary amounts for 1995 and 1996 include payments prior to the effective
date of the Restructuring for providing legal services in connection with loan
accounts prior to June 27, 1996. Bonus amount for 1997 includes the value of
10,007 shares of Common Stock paid by the Company in lieu of a portion of the
cash bonus earned under an employment agreement based on the fair market value
of the shares on the date paid. See "--Employment Agreements." Bonus amounts for
each of 1996 and 1997 include amounts earned for the year reported but paid in
the following year.
(4) Bonus amount for 1997 includes the value of 22,766 shares of Common Stock
paid by the Company in lieu of a portion of the cash bonus earned under an
employment agreement, based on the fair market value of the shares on the date
paid, plus a $174,102 promissory note payable in two semi-annual installments
six months and one year after issuance, bearing interest at the Bank of America
prime rate. See "--Employment Agreements." Bonus amounts for each of 1996 and
1997 include amounts earned for the year reported but paid in the following
year. Bonus amount for 1996 consists of a bonus of $107,000 paid in 1996 for the
period prior to the Restructuring, a special discretionary bonus of $25,000 paid
after the Restructuring and a bonus of $222,750 accrued for in 1996 under an
employment agreement entered into effective as of the closing date of the
Restructuring Date and paid in 1997.
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<PAGE> 13
(5) Bonus amount for 1997 consists of a bonus of $637,008 accrued for 1997, of
which 75% was paid in January 1998 and 25% will be paid in January 2000. under
his employment agreement. Bonus amount for 1996 consists of a bonus of $182,112
accrued for 1996, of which 75% was paid in January 1997 and 25% will be paid in
January 1999 under his employment agreement, and a special discretionary bonus
of $25,000 paid after the Restructuring. See "--Employment Agreements."
OPTIONS
OPTION GRANTS DURING 1997. The Named Executives of the Company received
grants of Incentive Stock Options during the year ended December 31, 1997 for
the following amounts of shares of Common Stock.
OPTION GRANTS IN 1997 FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
Potential Realizable Value
Number of % of Total at Assumed Annual Rates
Securities Options of Stock Price Appreciation
Underlying Granted to Exercise or for Option Term
Options Employees in Base Price Expiration ------------------------
Name Granted (#) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
---- ----------- -------------- ------------- ------------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Joel R. Schultz 6,000 27.4% $ 14.50 1/29/07 $ 54,714 $138,656
24,000 $ 22.875 8/1/07 $345,263 $874,965
Richard D. Young 6,000 5.5% $ 14.50 1/29/07 $ 54,714 $138,656
Frank P. Landini -0- -- -- -- -- --
Charles J. Siegel 8,000 13.7% $ 14.25 1/1/07 $ 63,833 $151,765
7,000 $ 14.50 1/29/07 $ 71,694 $181,867
Norman A. Markiewicz -0- -- -- -- -- --
</TABLE>
OPTION EXERCISES IN 1997 AND CURRENT OPTION VALUES.
The following table provides certain information concerning options
exercised in 1997 and unexercised options held as of December 31, 1997, by the
executive officers who held options at the end of 1997:
AGGREGATE OPTION EXERCISES IN 1997 FISCAL YEAR
AND FISCAL YEAR END VALUES
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money Options
Shares Options at 12/31/97 (#) at 12/31/97 ($) (1)
Acquired on Value -------------------------- --------------------------
Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
------------ ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Joel R. Schultz 38,400 $788,799 532 87,068 $ 1,995 $ 783,705
Richard D. Young 0 0 20,000 86,000 $265,000 $1,077,500
Frank P. Landini 0 0 9,000 27,000 $118,000 $ 354,000
Charles J. Siegel 0 0 10,250 30,750 $ 91,125 $ 305,375
Norman A.
Markiewicz 0 0 7,200 10,800 $ 95,400 $ 143,100
- -----------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 14
(1) Value of unexercised "in-the-money" options is the difference between the
market price of the Common Stock at December 31, 1997 ($18.25 per share)
and the exercise price of the option, multiplied by the number of shares
subject to the option.
EMPLOYMENT AGREEMENTS
The Company entered into employment agreements with Joel R. Schultz,
Richard D. Young, Norman A. Markiewicz and Richard B. Fremed, effective as of
June 27, 1996, the closing date of the Restructuring (the "Closing Date"). In
addition, Pacific Thrift entered into an employment agreement with Frank P.
Landini which became effective as of January 1, 1996. On January 1, 1997, the
Company entered an employment agreement with Charles J.
Siegel.
The following paragraphs describe the terms of the current employment
agreements of Mr. Schultz and Mr. Young. The Board of Directors has approved new
employment agreements for each of them, subject to approval of the stockholders
at the Annual Meeting. If these new employment agreements are approved by the
stockholders, the current agreements will be superseded by the new employment
agreements, the terms of which are described herein under the heading: "APPROVAL
OF NEW EMPLOYMENT AGREEMENTS OF JOEL R. SCHULTZ AND RICHARD D. YOUNG." If the
new employment agreements are not approved by the stockholders, the current
employment agreement with Mr. Schultz will remain in effect and the Board of
Directors will negotiate an extension of Mr. Young's current employment
agreement.
Mr. Schultz' original employment agreement provided for an initial term
of three years and Mr. Young's employment agreement provided for an initial term
of two years, in each case subject to automatic extension for additional one
year terms thereafter. Mr. Schultz' agreement was extended until December 31,
2000 in 1997; Mr. Young's agreement has not been previously extended. The annual
salary of both Mr. Schultz and Mr. Young is $225,000 per year, as adjusted
annually for increases in the cost of living index. In addition, each of them
receives an annual bonus of 2-1/2% of the net pre-tax profits of the Company if
the Company earns net after-tax profits (after payment of annual bonuses) equal
to a minimum return on equity (as determined on June 27, 1996 with respect to
1996 and on January 1 of each succeeding calendar year) of 20% (reduced to 10%
for each year after the Company reaches equity of at least $20 million). The
bonus increases to 5% of the net pre-tax profits of the Company if the Company
earns net after tax profits equal to a minimum return on equity of 30% or more
(reduced to 20% for each year after the Company reaches equity of at least $20
million). For 1996, the bonus included only net profits of the Company from June
27, 1996 through December 31, 1996. Mr. Schultz' agreement was amended in 1997
to provide that his annual bonus is determined before the deduction of the bonus
amounts paid to him and Mr. Young. The bonus is reduced to the extent necessary
to allow the Company to retain the applicable minimum return on equity. Up to
50% of each year's annual bonus was payable in quarterly installments during the
applicable year for which the bonus was earned, determined by annualizing the
quarterly return on equity for each of the first three quarters of the year. Mr.
Schultz' agreement was amended in 1997 to provide that 80% of his annual bonus
is payable quarterly. Neither Mr. Schultz nor Mr. Young is eligible to
participate in the employee cash bonus pool of the Company. Upon certain events
constituting a change in control (a "Corporation Change," as further defined
below), Mr. Schultz is entitled to receive one and one-half year's base salary
and one and one-half the amount equal to his annual bonus for the prior year,
plus the value of all vacation, holiday and sick days which have accrued up to
the date of his termination, and which would have accrued for 18 months after
termination. In 1997, Mr. Schultz' agreement was amended to provide that his
termination bonus would not be reduced by quarterly installment payments of the
bonus previously paid and would equal the higher of one and one-half times the
prior year's bonus or one and one-half times the amount determined by
annualizing the pre-tax and after-tax profits of the Company for the number of
months completed in the current year prior to the Corporate Change. Upon a
Corporate Change, Mr. Young is entitled to receive one year's base salary, plus
an amount equal to his annual bonus for the prior year, plus the value of all
vacation, holiday and sick days which have accrued up to the date of termination
and which would have accrued for one year after termination.
In February 1998, the employment agreements of both Mr. Schultz and Mr.
Young were amended with respect to the annual bonus payable for 1997, to provide
that a portion of such bonuses would not be payable in cash.
-12-
<PAGE> 15
The Board of Directors determined that reducing the portion of the annual
bonuses payable in cash would substan tially benefit the Company, by allowing it
to retain available cash for growth of lending operations. Mr. Schultz'
agreement was amended to provide that the amount of his 1997 bonus which had not
previously been advanced would be paid, $450,000 in cash and the balance in
shares of common stock having a value ("Market Value") equal to the highest of:
(a) the market price per share on the annual bonus determination date; (b) the
average market price per share for the 10 trading days preceding the annual
bonus determination date; or (c) $10 per share. A total of 10,007 shares of
Common Stock were issued to Mr. Schultz on March 27, 1998, based on the average
market price of $21.9625 per share on that date. Mr. Young's employment
agreement was amended to provide that, with respect to the portion of his 1997
annual bonus which had not been advanced during 1997, $250,000 would be paid in
cash; $500,000 would be paid in shares of common stock at Market Value; and the
balance would be paid in the form of an unsecured promissory note, payable in
two equal installments at six months and one year from the date of determination
of the annual bonus amount, bearing interest at the Bank of America prime rate.
A total of 22,766 shares of Common Stock were issued to Mr. Young on March 27,
1998, based on the average market price of $21.9625 per share on that date. In
addition, a promissory note in the amount of $174,102 was delivered to Mr.
Young for the balance of the annual bonus earned in 1997.
The employment agreement with Mr. Siegel provides for a term of two
years, which will be automatically extended for additional one year terms
thereafter unless either party gives at least six months written notice of its
or his intention not to renew the agreement. Mr. Siegel's annual salary was
$160,000 per year until May 1997, when it was increased to $175,000 per year, as
adjusted annually for increases in the cost of living index. Mr. Siegel is also
eligible to participate in the employee cash bonus pool of the Company. Upon a
Corporate Change, Mr. Siegel is entitled to receive two times his annual salary
and three times his last annual bonus.
The employment agreement with Mr. Markiewicz provides for a term of one
year, which will be automatically extended for additional one year terms
thereafter unless either party gives at least six months written notice of its
or his intention not to renew the agreement. Mr. Markiewicz' annual salary is
$135,000 per year, as adjusted annually for increases in the cost of living
index, and Mr. Markiewicz is also eligible to participate in the employee cash
bonus pool of the Company. Upon a Corporate Change, Mr. Markiewicz is entitled
to receive one-half his annual salary.
As described above, the employment agreements of Messrs. Schultz, Young,
Siegel and Markiewicz contain special termination provisions upon a Corporate
Change. Corporate Change is defined in each of the employment agreements to
include any one (or more) of the following events: (i) any person, including a
group as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), becomes the beneficial owner of shares of the
Company with respect to which twenty percent (20%) or more of the total number
of votes for the election of the Board may be cast; (ii) as a result of, or in
connection with, any cash tender offer, exchange offer, merger or other business
combination, sale of assets, or contested election for the Board of Directors,
or combination of the foregoing, persons who were directors of the Company just
prior to such event(s) shall cease to constitute a majority of the Board; (iii)
a transaction in which the Company will cease to be an independent publicly
owned corporation that is required to file quarterly and annual reports under
the Exchange Act, or a sale or other disposition of all or substantially all the
assets of the Company (including but not limited to the assets or stock of
Company's subsidiaries that results in all or substantially all of the assets or
stock of Company on a consolidated basis being sold); (iv) a tender offer or
exchange offer is made for shares of the Company's Common Stock (other than one
made by the Company) and shares of Common Stock are acquired thereunder; (v) the
stockholders of the Company cause a change in the majority of the members of the
Board of Directors within a twelve (12) month period; provided, however, that
the election of one or more new directors shall not be deemed to be a change in
the membership of the Board of Directors if the nomination of the newly elected
directors was approved by the vote of three-fourths of the directors then still
in office who were directors at the beginning of such twelve (12) month period;
(vi) with respect to Joel Schultz only, a change in his duties or a reduction in
compensation; or (vii) with respect to Mr. Siegel only, a change in the Chief
Executive Officer and Senior Executive Vice President of the Company.
The Company retains the right to terminate any of the employment
agreements in the event of an employee's physical or mental disability which
renders him unable to perform under the agreement for any period of one hundred
and twenty (120) consecutive days or for an aggregate period of one hundred and
twenty (120) or more days during any twelve (12) month period. In the event of
termination due to disability, an employee would be entitled to receive as
disability compensation a lump sum payment equal to the annual bonus earned by
employee during the fiscal year preceding the year of termination, one year's
annual salary, payable not less frequently than monthly and continuation
-13-
<PAGE> 16
of certain benefits for the greater of one year or the remainder of the term
under the agreement. In the event of death, an employee's personal
representative is entitled to receive as a death benefit, in addition to any
other payments which he may be entitled to receive under any of the Company's
benefit plans, payment of one year's salary, payable not less frequently than
monthly. In addition, the personal representative of Mr. Schultz or Mr. Young
would be entitled to receive a lump sum payment equal to the higher of the bonus
earned in the prior year or the bonus that would have been earned in the current
year had the employee continued his employment for the full year.
Since January 1, 1996, Mr. Frank Landini has been employed under a
written employment agreement with Pacific Thrift. As of April 1, 1998, Pacific
Thrift entered into a new employment agreement with Mr. Landini, and the Company
entered into a Bonus Agreement with him, as further described below. The
original employment agreement of Mr. Landini with Pacific Thrift was for a term
of two years, with automatic extensions for additional one year terms thereafter
unless either party gave at least six (6) months written notice of its or his
intention not to renew the agreement. Mr. Landini received an annual base salary
of $150,000, as adjusted annually for increases in the cost of living index. Mr.
Landini also received an annual bonus equal to the sum of (a) 1.5% of the
pre-tax net profits of the Pacific Thrift Wholesale Division up to $10 million;
(b) 1.875% of the pre-tax profits between $10 and $20 million; and (c) 2.25% of
all pre-tax profits in excess of $20 million, less the amount of Mr. Landini's
salary. For purposes of the bonus calculation, Mr. Landini's salary is deducted
from the calculation of pre-tax net profits.
In April 1998, Mr. Landini entered a new employment agreement with
Pacific Thrift under which he will receive an annual base salary of $400,000.
Also in April 1998, Mr. Landini entered into a bonus agreement with the Company,
under which the Company has agreed to assume responsibility for payment of Mr.
Landini's annual bonus, in accordance with the same formula and payment terms
provided in Mr. Landini's prior agreement with Pacific Thrift.
Mr. Landini's original agreement provided for him to receive up to
$100,000 of his bonus earned in 1996 plus one-half of any bonus earned in 1996
in excess of $200,000 in January 1997, with any remaining bonus amount earned in
1996 to be paid 36 months later. For years after 1996, one-half of Mr. Landini's
bonus was to be paid the following January, and the remaining half paid 36
months later. Pursuant to an amendment to his agreement dated as of January 1,
1997, 75% of the bonus earned in 1996 was paid in January 1997, and 75% of the
bonus payable for future years is payable in the following January, with the
remainder of each year's bonus payable three years thereafter. In every case,
the deferred bonus amount is subject to forfeiture if Mr. Landini voluntarily
terminates his employment or Pacific Thrift terminates his employment "for
cause." If Mr. Landini's employment agreement continues for a total of ten (10)
years or more, the provision delaying a portion of his bonus for three (3) years
will terminate. Mr. Landini is not eligible for the employee bonus pool.
The Company and Pacific Thrift have the right to terminate for cause any
employee with whom it has a written employment agreement, which is defined in
the agreement as conviction of a felony or any crime involving moral turpitude,
commission of an act of fraud, theft or embezzlement against the Company, or
conduct materially injurious to the Company's business or reputation. In the
event of termination of the agreement without cause, the employee would be
entitled to the continuation of certain benefits and severance pay for either
six months or one year, as provided in his agreement.
PLANS AND ARRANGEMENTS
Employees of the Company, including executive officers, are entitled to
participate in various benefit plans established by the Company and approved by
the Board of Directors and the Partnership, as the sole stockholder of the
Company, prior to the Restructuring.
1995 STOCK OPTION PLAN
The 1995 PacificAmerica Money Center, Inc. Stock Option Plan (the "1995
Plan") is designed to promote and advance the interests of the Company and its
stockholders by: (i) enabling the Company to attract, retain and reward
managerial and other key employees and non-employee directors; and (ii)
strengthening the mutuality of interests between participants and the
stockholders of the Company in its long term growth, profitability and financial
success by offering stock options. The 1995 Plan empowers the Company to award
or grant options from time to time until December 31, 2003, when the 1995 Plan
expires except with respect to options then outstanding, to
-14-
<PAGE> 17
officers, directors, key employees and consultants of the Company and its
subsidiaries, Incentive and Non-Qualified Stock Options ("Options") authorized
by the Executive Compensation Committee of the Board of Directors, which
administers the 1995 Plan.
SHARES SUBJECT TO 1995 PLAN. The adjusted maximum number of shares of
Common Stock in respect of which Options may be granted under the Plan (the
"Plan Maximum") is 500,000 with an increase of two percent (2%) of the total
issued and outstanding shares of the Common Stock on the first day of each
subsequent calendar year, up to a maximum of 660,000 shares, commencing January
1, 1997. As of March 31, 1998 660,000 were issuable under the 1995 Plan, and
options for 567,350 shares had been granted under the 1995 Plan, leaving options
for 92,650 shares available for future issuance. The Board of Directors of the
Company has approved an amendment to the 1995 Plan to increase the number of
shares available for grant of options under the 1995 Plan to 800,000, with an
increase of 2% of the total issued and outstanding shares of the Common Stock on
the first day of each subsequent calendar year, up to a maximum of 1,000,000.
See "APPROVAL OF AMENDMENT TO 1995 STOCK OPTION PLAN."
For the purpose of computing the total number of shares of Common Stock
available for Options under the 1995 Plan, the above limitations are reduced by
the number of shares of Common Stock subject to issuance upon exercise or
settlement of Options, determined at the date of the grant of such Options.
However, if any Options are forfeited, terminated, settled in cash or exchanged
for other Options or expire unexercised, the shares of Common Stock previously
subject to such Options are again available for further Option grants. The
shares of Common Stock which may be issued to participants in the 1995 Plan may
be either authorized and unissued Common Stock or issued Common Stock reacquired
by the Company. No fractional shares may be issued under the 1995 Plan.
The maximum number of shares of Common Stock issuable upon exercise of
Options granted or which may be subject to Options, as applied to the 1995 Plan
and its several components, is subject to appropriate equitable adjustment in
the event of a reorganization, stock split, stock dividend, combination of
shares, merger, consolidation or other recapitalization of the Company. The
number of shares subject to outstanding options and issuable under the 1995 Plan
was adjusted to reflect the one-for-one stock dividend paid on August 13, 1997,
which had the effect of a two-for-one stock split.
ADMINISTRATION. The 1995 Plan is administered by the Executive
Compensation Committee of the Board of Directors (the "Committee"). The 1995
Plan provides that the Committee must consist of at least two directors of the
Company who are "non-employee directors" within the meaning of Rule
16b-3(b)(3)(i) of the Exchange Act promulgated by the Securities and Exchange
Commission (the "Commission"). The Committee has the sole authority to construe
and interpret the 1995 Plan, to make rules and procedures relating to the
implementation of the 1995 Plan, to select participants, to establish the terms
and conditions of Options and to grant Options, with broad authority to delegate
its responsibilities to others, except with respect to the selection for
participation of, and the granting of Options to, persons subject to Sections
16(a) and 16(b) of the Exchange Act. Members of the Committee are not eligible
to receive discretionary Options under the 1995 Plan.
ELIGIBILITY CONDITIONS. All officers and key employees of the Company and
its subsidiaries, are eligible to receive Options under the 1995 Plan.
Non-employee directors and consultants are only eligible to receive NonQualified
Stock Options under the 1995 Plan. Except for Non-Qualified Stock Options
granted to non-employee directors, the selection of recipients of, and the
nature and size of, Options granted under the 1995 Plan is wholly within the
discretion of the Committee. The 1995 Plan is subject to specific formula
provisions relating to the grant of options to non-employee directors, the
exercisability of Incentive Stock Options and the total shares available for
option grants. In addition, there is a 50,000 share limit on the number of
shares of Common Stock in respect of which any type of Options may be granted to
any person in each calendar year.
TRANSFERABILITY. No Option granted under the 1995 Plan, and no right or
interest therein, is assignable or transferable by a participant except by will
or the laws of descent and distribution.
TERM, AMENDMENT AND TERMINATION. The 1995 Plan currently provides for
termination on December 31, 2003, except with respect to Options then
outstanding. The Board of Directors may amend or terminate the 1995 Plan at any
time, except that: (i) to the extent restricted by Rule 16b-3 promulgated under
the Exchange Act, as amended and in effect from time to time (or any successor
rule), the Board of Directors may not, without approval of the stockholders of
the Company, make any amendment that would: (a) increase the total number of
shares available for issuance (except as permitted by the 1995 Plan to reflect
changes in capital structure); (b) materially change the
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<PAGE> 18
eligibility requirements; or (c) materially increase the benefits accruing to
participants under the 1995 Plan; and (ii) the provisions of the 1995 Plan
governing the award of options to non-employee directors may not be amended more
than once every six months other than to comport with changes to the Internal
Revenue Code of 1986, as amended (the "Code"), the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or the regulations promulgated
thereunder.
CHANGE OF CONTROL. The 1995 Plan provides that the exercisability of
outstanding Options shall be accelerated upon any of the following events: (i)
any person, including a group as defined in Section 13(d)(3) of the Exchange
Act, becomes the beneficial owner of shares of the Company with respect to which
twenty percent (20%) or more of the total number of votes for the election of
the Board of Directors may be cast; (ii) as a result of, or in connection with,
any cash tender offer, exchange offer, merger or other business combination,
sale of assets or contested election for the Board, or combination of the
foregoing, persons who were directors of the Company just prior to such event(s)
shall cease to constitute a majority of the Board of Directors; (iii) a
transaction in which the Company will cease to be an independent publicly owned
corporation that is required to file quarterly and annual reports under the
Exchange Act, or a sale or other disposition of all or substantially all the
assets of the Company (including but not limited to the assets or stock of the
Company's subsidiaries that results in all or substantially all of the assets or
stock of Company on a consolidated basis being sold); (iv) a tender offer or
exchange offer is made for shares of the Company's Common Stock (other than one
made by the Company) and shares of Common Stock are acquired thereunder; or (v)
the stockholders of the Company cause a change in the majority of the members of
the Board of Directors within a twelve (12) month period; provided, however,
that the election of one or more new directors shall not be deemed to be a
change in the membership of the Board of Directors if the nomination of the
newly elected directors was approved by the vote of three-fourths of the
directors then still in office who were directors at the beginning of such
twelve (12) month period (collectively, a "Change of Control").
INCENTIVE STOCK OPTIONS. Options designated as Incentive Stock Options,
within the meaning of Section 422 of the Code, in respect of up to the Plan
Maximum may be granted under the 1995 Plan. The number of shares of Common Stock
in respect of which Incentive Stock Options are first exercisable by any
optionee during any calendar year shall not have a fair market value (determined
at the date of grant) in excess of $100,000 (or such other limit as may be
imposed by the Code). To the extent the fair market value of the shares for
which options are designated as Incentive Stock Options that are first
exercisable by any optionee during any calendar year exceed $100,000, the excess
amount shall be treated as Non-Qualified Stock Options. Incentive Stock Options
shall be exercisable for such period or periods, not in excess of ten years
after the date of grant, as shall be determined by the Committee.
GRANT OF INCENTIVE STOCK OPTIONS. As of March 31, 1998, the Board of
Directors of the Company has granted Incentive Stock Options to acquire a total
of 555,350 shares of Common Stock to certain key employees, including the
executive officers, of the Company, at exercise prices ranging from $5 to $28.75
per share. For employees who were employed by the Partnership for five (5) years
or more, options become exercisable 20% after the first six (6) months following
the grant, and an additional 20% on the first, second, third and fourth-year
anniversary dates of the grant thereafter. For employees who were employed by
the Partnership for less than five (5) years, options become exercisable 25% on
each of the first, second, third and fourth-year anniversary dates of the grant.
NON-QUALIFIED STOCK OPTIONS. Non-Qualified Stock Options may be granted
for such number of shares of Common Stock and will be exercisable for such
period or periods as the Committee shall determine, up to a maximum term of ten
years.
OPTIONS TO NON-EMPLOYEE DIRECTORS. The 1995 Plan also provides for the
grant of Options to non-employee directors of the Company or any of its
subsidiaries, without any action on the part of the Board of Directors or the
Committee, only upon the terms and conditions set forth in the 1995 Plan. The
1995 Plan was amended in June 1997 to provide that non-employee directors of the
Company and its subsidiaries would be entitled to receive an initial grant of
1,000 shares of Common Stock and an annual grant of 1,000 shares of Common Stock
after each twelve (12) month period of continuous service as a director. On
April 22, 1998 the Board of Directors amended the 1995 Plan to clarify that, as
a result of the August 13, 1997 stock dividend which had the effect of a
two-for-one stock split, the amount of each initial and annual grant of options
to non-employee directors of the Company and its subsidiaries would be increased
to 2,000 shares of Common Stock. Each Option becomes exercisable as to 50% of
the shares of Common Stock subject to the Option on the first anniversary date
of the grant and 50% on the second anniversary date of the grant, and expires
ten (10) years from the date the Option is granted. The exercise price of all
Options
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<PAGE> 19
granted non-employee directors must be equal to 100% of the fair market value of
the Common Stock subject to the Option on the date on which such Options are
granted. Each Option is subject to the other provisions of the 1995 Plan.
As of March 31, 1998, the non-employee directors of the Company have been
granted Non-Qualified Options to acquire 12,000 shares of Common Stock, at
exercise prices ranging from $5.00 to $16.00 per share.
OPTION EXERCISE PRICES. The exercise price of an Incentive Stock Option
must be at least 100% of the fair market value of the Common Stock on the date
of grant. Except for Options to non-employee directors, NonQualified Stock
Options may be issued at such option exercise price as the Committee shall
determine, but not less than par value per share. The fair market value of all
Options is determined as the closing price of the Common Stock on the date the
Option is granted.
EXERCISE OF OPTIONS. Options are exercisable for a maximum term of 10
years, but may not be exercised after three months following a termination of
employment, or after one year following disability or death of an optionee.
Options are exercisable only upon the payment in full of the applicable Option
exercise price in cash or, if approved by the Committee, in shares of the Common
Stock (at the fair market value thereof at exercise date) or by concurrent sale
of the shares under the Option with instructions to the selling broker to
deliver the proceeds of sale, up to the exercise price, to the Company. No
Incentive or Non-Qualified Stock Option may be exercised within six months
following the date of grant.
RETIREMENT PLAN
The Company has a 401(k) Plan (the "401(k) Plan") which Plan allows
employees to invest contributions in Common Stock of the Company.
All employees (including officers) of the Company and its subsidiaries
are eligible to participate in the Retirement Plan and future employees will be
eligible following the completion of 1,000 hours of service and their first year
of employment. Subject to certain limitations, participants in the 401(k) Plan
may make contributions from 2% to 15% of their pretax compensation, up to a
maximum of [check amount] $9,500 per year (in 1997), subject to certain
limitations and annual adjustments for inflation. The Company may, in its
discretion, make a matching contribution equal to a percentage of compensation
contributed by each participant, not to exceed 6% of compensation. The 401(k)
Plan is designed to qualify under Section 401(k) of the Internal Revenue Code
and therefore contributions by the Company and the participants are deductible
by the Company and not includable in the income of the participants for federal
income tax purposes. Participants will always be fully vested in all of their
individual contributions to the 401(k) Plan (and in earnings on such
contributions). Participants will be fully vested in employer contributions (and
earnings on such contributions) to the 401(k) Plan, regardless of years of
service, upon the attainment of normal retirement age (age 65), such
participant's death or permanent and total disability while employed by the
Company or the termination or complete discontinuance of the 401(k) Plan. If a
participant terminates employment with the Company for any reason other than
retirement, then such participant's interest in employer contributions to the
401(k) Plan shall vest 20% after one year of service, and 20% for each year of
service thereafter, so they will be vested 100% after five or more years of
service. An employee's service with the Partnership, the General Partner and
former affiliates is counted for purposes of vesting under the 401(k) Plan.
STOCK PURCHASE PLAN
The 1995 Employee Stock Purchase Plan (the "Stock Purchase Plan")
provides for eligible employees of the Company and its subsidiaries to
participate in the ownership of the Company by acquiring the right to purchase
shares of the Company's Common Stock. The Stock Purchase Plan covers a total of
130,000 shares of Common Stock, which the Board has proposed to increase to
230,000 shares of Common Stock. See "APPROVAL OF AMENDMENT TO STOCK PURCHASE
PLAN." Shares of Common Stock may be purchased by the Stock Purchase Plan in the
open market or issued by the Company from authorized and unissued treasury
stock. The purpose of the Stock Purchase Plan is to promote the interests of the
Company by providing a method whereby employees of the Company may participate
in the ownership of the Company by acquiring an interest in the Company's growth
and productivity.
-17-
<PAGE> 20
THE OPTIONS. The Stock Purchase Plan provides that, during each specified
period ("Option Period"), the Company may grant options to participants to
purchase, at the termination of that Option Period, shares of Common Stock under
the Stock Purchase Plan. The Option Periods coincide with the Company's calendar
year. The price at which each share covered by an option under the Stock
Purchase Plan may be purchased is 100% of the fair market value of a share of
Common Stock on the first day of the applicable Option Period.
Unless terminated, options granted at the commencement of an Option
Period are exercised automatically on the last day of that Option Period. An
option terminates upon a voluntary withdrawal from participation in the Stock
Purchase Plan by a participant, which may be effected any time prior to the last
day of the Option Period by completing a notice of termination form. An option
also terminates automatically if the participant holding the option ceases to be
employed by the Company or a subsidiary of the Company for any reason (including
death, disability or retirement) prior to the last day of the Option Period.
An option may not be sold, pledged, assigned, hypothecated, transferred
or disposed of in any manner other than by will or by the laws of descent or
distribution, and may be exercised, during the lifetime of the optionee, only by
such optionee. Optionees do not have rights as stockholders of the Company with
respect to option shares until they exercise their options.
ELIGIBILITY AND PARTICIPATION. All full-time employees of the Company and
its subsidiaries who have been employed continuously for at least 30 days and
who work more than 20 hours per week are eligible to participate in the Stock
Purchase Plan at their election. However, no employee may be granted an option
if such employee would immediately thereafter own, directly or indirectly, 5% or
more of the combined voting power of all classes of stock of the Company, as
determined pursuant to Section 424(d) of the Code.
Eligible employees may enroll as participants in the Stock Purchase Plan
by executing a form provided by the Company prior to the commencement of each
Option Period on which they may designate the stated maximum set forth on the
form, to: (i) the portion of their compensation, in any amount up to the stated
maximum set forth on the form, to be deducted semi-monthly, and accumulated for
the purchase of shares of Common Stock; and/or (ii) the amount of funds, if any,
which they will deposit at the beginning of the Option Period for the purchase
of shares of Common Stock. Once chosen, the semi-monthly contribution for that
Option Period cannot be decreased or increased without terminating the option.
The aggregate maximum dollar amount which may be designated by a participant to
be applied to the purchase of shares under the Stock Purchase Plan may not
exceed the lesser of 15% of base compensation or $25,000 per year.
ADMINISTRATION AND AMENDMENT. The Stock Purchase Plan is administered by
the Executive Compensation Committee of the Board of Directors. That committee
is empowered to interpret and construe any provision of the Stock Purchase Plan
and to adopt such rules and regulations for administering the Stock Purchase
Plan as it deems necessary.
The Board of Directors of the Company may at any time, insofar as is
permitted by law, alter, amend, suspend or discontinue the Stock Purchase Plan
with respect to any shares not already subject to options; provided, however,
that without the approval of the stockholders of the Company, no modification or
amendment may increase the number of shares subject to the Stock Purchase Plan,
extend the term of the Stock Purchase Plan, alter the option price formula,
otherwise materially increase the benefits accruing to participants, materially
modify the requirements as to eligibility for participation or amend the Stock
Purchase Plan in any manner that will cause it to fail to meet the requirements
of an "Employee Stock Purchase Plan" as defined in Section 423 of the Code.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The PacificAmerica Money Center, Inc. Supplemental Executive Retirement
Plan (the "Supplemental Plan"), an unfunded retirement plan, is designed to
provide additional employer paid benefits to certain long-term executive
officers of the Company and its predecessors. Participants' years of service
with the Partnership and its affiliates prior to the completion of the
Restructuring carry forward for vesting and benefit accrual purposes. The
Supplemental Plan covers the following six employees: Joel R. Schultz, Richard
B. Fremed, Norman A. Markiewicz, Richard D. Young, Charles J. Siegel and Frank
P. Landini. Future participants, if any, will be determined by the Board of
Directors. Administration of the Supplemental Plan is the responsibility of the
Executive Compensation and Stock Option Committee of the Board of Directors.
-18-
<PAGE> 21
Under the Supplemental Plan, a participant's 65th birthday is deemed his
or her normal retirement date ("Normal Retirement Date"). The yearly benefit
that a participant will receive at his or her Normal Retirement Date will be
1-2/3% of his or her average compensation (whether paid by the General Partner,
the Partnership or the Company) for his or her highest 3 consecutive years,
multiplied by the actual number of his or her years of service. However, in no
event will any years of service in excess of 30 be taken into account. The
participant's benefits are reduced by his estimated Social Security benefit and
by his estimated Section 401(k) Plan benefit. Effective January 1, 1997, the
maximum annual retirement benefit payable under the Supplemental Plan
(determined after application of the reductions for a participant's estimated
Social Security and 401(k) benefits) is limited to the following amounts: (i)
Joel R. Schultz - $400,000; (ii) Richard D. Young - $200,000; (iii) all other
participants - $100,000. Beginning in 1998, the benefit cap amounts described
above are subject to cost-of-living adjustments during the period of a
participant's employment, up to a maximum of 5% per year, but only if the
increase in the applicable cost-of-living index exceeds 5% for any plan year.
The estimated 401(k) benefit is determined as a straight life annuity that is
the actuarial equivalent of the sum of the elective deferral and company
matching contributions made to the 401(k) Plan, based on the assumption that the
maximum elective deferrals and company match are contributed to the 401(k) Plan
on behalf of the participant each year and the participant's account yields an
assumed earnings rate. Benefits are payable monthly upon the participant's
retirement.
A participant is entitled to elect early retirement before his or her
Normal Retirement Date, and still receive retirement benefits, at any time
after: (i) he or she has completed fifteen (15) years of service; and (ii) the
sum of his or her age and years of service equals or exceeds seventy (70)
("Early Retirement Date"). The dollar amount of a participant's early retirement
benefit equals the normal retirement benefit reduced 1/4% for each month prior
to his or her 65th birthday.
If a participant dies while employed by the Company at any time when he
or she is eligible for early or normal retirement, his or her surviving spouse
will receive the survivor portion of a benefit determined as if the participant
had retired on the day before his or her death, and had elected to receive his
or her benefit in the form of a 50% joint and survivor annuity.
Participants' benefits will become fully vested upon the attainment of
their Early Retirement Date or Normal Retirement Date; however, participants
will forfeit all of their benefits in the event they either: (i) are terminated
for cause; or (ii) engage in competition with the Company, either before or
after retirement, without express written consent of the Company.
Special rules apply following a Change of Control of the Company. If a
participant terminates his employment within five (5) years following a Change
of Control:
(a) the participant will be entitled to receive a benefit even if he or
she voluntarily terminates employment prior to eligibility for retirement,
provided it is for "good reason," which includes, among other circumstances,
reduction in the participant's annual base salary, the failure to pay, within
seven (7) days of the due date, any portion of the participant's compensation
and the Company's failure to effectively continue any material compensation plan
in which the participant participated immediately before the Change of Control;
(b) the participant will be credited with an additional five (5) years of
service and entitled to receive a lump sum distribution of the present value of
his or her accrued benefit; and
(c) the participant's benefit can be forfeited because he or she is
terminated "for cause" only: (i) if the termination is because of the willful
and continued failure by the participant to substantially perform his or her
duties with the Company after a written demand for substantial performance is
delivered to the participant by the Board of Directors; or (ii) by the
participant's theft or embezzlement from the Company, fraud or other acts of
dishonesty in the conduct of the Company's business, conviction or plea of nolo
contendere to any felony or any crime involving moral turpitude, or willful and
knowing action which is materially injurious to the business or reputation of
the Company.
A participant also has the right to receive a lump sum benefit under the
Supplemental Plan in the event of a voluntary termination of employment within
one year following a Change of Control, based on his actual years of service.
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<PAGE> 22
The Board of Directors of the Company may amend or terminate the
Supplemental Plan at any time, provided that such amendment or termination may
not cancel or reduce the amount of a participant's previously accrued benefits
without the consent of that participant. The termination of the Supplemental
Plan will not result in immediate vesting of accrued benefits.
The following table shows the estimated annual retirement benefits,
before any applicable offset for estimated Social Security benefits or estimated
401(k) benefits under the 401(k) Plan and before application of the benefit cap.
Such benefits would be payable to participants in the Supplemental Plan on their
Normal Retirement Date on a straight life annuity basis. Offsets for social
security and 401(k) contributions made under the 401(k) Plan may be substantial
for certain participants.
<TABLE>
<CAPTION>
Average Annual Annual Benefit by
Eligible Years of Service at Retirement(1)
Compensation ---------------------------------
------------
10 15 20 25 30
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$100,000 $ 16,667 $ 25,000 $ 33,333 $ 41,667 $ 50,000
$200,000 $ 33,333 $ 50,000 $ 66,667 $ 83,333 $100,000
$300,000 $ 50,000 $ 75,000 $100,000 $125,000 $150,000
$400,000 $ 66,667 $100,000 $133,333 $166,667 $200,000
$500,000 $ 83,333 $125,000 $166,667 $208,333 $250,000
$600,000 $100,000 $150,000 $200,000 $250,000 $300,000
$700,000 $116,667 $175,000 $233,333 $291,667 $350,000
</TABLE>
- -------------------
(1) Estimated annual retirement benefits, before any applicable offset for
estimated Social Security benefits or estimated 401(k) benefits under the
401(k) Plan and before application of the benefit cap. Effective January
1, 1997, the maximum annual retirement benefit payable under the
Supplemental Plan (determined after application of the reductions for a
participant's estimated Social Security and 401(k) benefits) is limited
to the following amounts: (i) Joel R. Schultz - $400,000; (ii) Richard D.
Young - $200,000; (iii) all other participants - $100,000.
As of December 31, 1997, all of the Named Executives were participating
in the Supplemental Plan. The average salary of the Named Executives for
purposes of the Supplemental Plan does not differ substantially from that set
forth in the Actual Annual Compensation table, except for the inclusion of
amounts realized upon exercise or sale of shares of Common Stock received upon
exercise of stock options, and except for Joel R. Schultz, whose average annual
eligible compensation currently is $600,769, which is the average of his annual
compensation for the years 1989, 1990 and 1991. Credited years of service in the
Retirement Plan by the Named Executives participating in the Retirement Plan are
as follows: Joel R. Schultz, 23 years of service; Richard D. Young, five years
of service; Frank P. Landini, four years of service; Charles J. Siegel, four
years of service; and Norman A. Markiewicz, 23 years of service. It is estimated
that Mr. Schultz will reach the maximum $400,000 in annual retirement benefit
payable if his average annual eligible compensation exceeds $960,000 and he has
25 or more years of service.
1997 BONUS PERFORMANCE PLAN
Effective April 18, 1997, the Board of Directors of the Company adopted a
1997 Bonus Performance Plan (the "Bonus Plan") for all officers and employees of
the Company and its subsidiaries except Joel R. Schultz and Richard D. Young.
The Bonus Plan is intended to provide a strong incentive for all of the
Company's officers and employees to significantly enhance stockholder value.
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<PAGE> 23
The Bonus Plan has established $40 per share performance targets for the
market price of the Company's stock by December 31, 1999 or the consideration to
be received by all holders of Common Stock in a sale, merger, cash tender offer,
exchange offer or other business combination. The performance targets will be
achieved if either: (i) the average market price for the Company's Common Stock
(the "Market Price") for the sixty (60) days prior to December 31, 1999 is in
excess of $40 per share; or (ii) the total consideration (including cash and the
value of any other consideration received by the stockholders, as determined in
good faith by the Board of Directors of the Company) in a sale, merger, cash
tender offer, exchange offer or other business combination (the "Acquisition
Price") is in excess of $40 per share. If either of these performance targets is
met, a bonus pool, payable in cash and/or Common Stock in the discretion of the
Board of Directors, will be established by the Board of Directors equal to no
more than five percent (5%) of the excess of the Market Price or the Acquisition
Price over $40 per share, to be allocated among and paid at such time to such of
the employees and officers (other than Messrs. Schultz and Young) as the Board
of Directors shall determine, based upon its assessment of the performance of
such employees and officers.
The Board of Directors believes that this Bonus Plan will, in addition to
providing a strong incentive to maximize stockholder value, provide a
significant incentive for all of the Company's valued employees, including
regional managers and top performing loan representatives, to remain in the
Company's employ. The Bonus Plan will be administered by the Company's Executive
Compensation Committee and may from time to time be amended, suspended or
terminated, in whole in part, by the Board of Directors.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1998, the Company engaged Friedman, Billings, Ramsey & Co., Inc.
("FBR"), an investment banking firm, to act as the Company's exclusive financial
adviser in connection with an analysis of the Company's strategic opportunities.
James C. Neuhauser, a director of the Company, is also a Managing Director of
FBR. In the event that the Company engages in a purchase or sale of assets or
stock with another company, or completes a financing transaction, the Company
has agreed to pay commissions to FBR pursuant to either a specified formula or
to be negotiated in connection with the transaction. If a transaction is
completed, the amount of compensation payable to FBR is expected to exceed
$60,000, but the amount cannot be determined until the details of any such
transaction are known.
JOINT REPORT OF THE EXECUTIVE COMPENSATION COMMITTEE
AND THE EMPLOYEE COMPENSATION COMMITTEE
The Company's Executive Compensation Committee ("Executive Compensation
Committee") and Employee Compensation Committee ("Employee Compensation
Committee") make this joint report on executive compensation pursuant to Item
402 of Regulation S-K. Notwithstanding anything to the contrary set forth in any
of the Company's previous filings under the Securities Act of 1933, as amended,
or the Securities Exchange Act of 1934, as amended, that might incorporate
future filings, including this Proxy Statement, in whole or in part, this report
and the performance graph which follows this report shall not be incorporated by
reference into any such filings, and such information shall be entitled to the
benefits provided in Item 402(a)(9) of Regulation S-K.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended December 31, 1997, the Executive
Compensation Committee, and its predecessor the Executive Compensation and Stock
Option Committee until November 1997, determined the salary and the
performance-based bonuses of the Company's executive officers under written
employment contracts and appropriate awards under the 1995 Stock Option Plan for
all officers and employees of the Company and administered the Company's 401(k)
Plan. None of the members of the Executive Compensation Committee is now, and
none of the members of the Executive Compensation Committee or its predecessor
the Executive Compensation and Stock Option Committee was, at any time during
1997, an officer or employee of the Company.
The Employee Compensation Committee, consisting of Joel R. Schultz and
Richard D. Young, determined the salary and bonus structure for all employees
who are not employed under written contracts and the annual bonuses of Messrs.
Markiewicz, Fremed and Siegel.
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<PAGE> 24
EXECUTIVE OFFICER COMPENSATION POLICY AND PHILOSOPHY
The Company's compensation program for executive officers consists
primarily of three key elements: a base salary, a performance-based annual cash
bonus and periodic grants of stock options. The Company believes that its
compensation policies are designed to attract, retain and reward executive
officers who contribute to the Company's success, to provide economic incentives
for executive officers to achieve the Company's business objectives by linking
the executive officers' compensation to the performance of the Company, to
strengthen the relationship between executive pay and stockholder value and to
reward individual performance. Thus, compensation for such executive officers
involves a high proportion of pay which is at risk: the variable annual cash
bonus (which permits individual performance to be recognized on an annual basis,
and which is based, in significant part, on an evaluation of the contribution
made by the officer to the Company's overall performance) and stock options
(which directly relate a significant portion of the executive officer's
long-term remuneration to stock price appreciation realized by the Company's
stockholders).
COMPONENTS OF COMPENSATION
BASE SALARY. Executive officer salaries are established in relation to a
range of salaries for comparable positions in the subprime residential lending
industry. For the purpose of establishing base salary levels prior to the
Restructuring, the Company compared itself to a self-selected group of subprime
lenders of small to medium market capitalization, which included approximately
five companies in the comparison group. The Company seeks to pay salaries to
executive officers that are commensurate with the qualifications, duties and
responsibilities of each officer and that are competitive in the marketplace. In
making its annual salary recommendations, the Executive Compensation Committee
and the Employee Compensation Committee review the Company's financial position
and performance, the contribution of the individual executive officers during
the prior fiscal year in helping to meet the Company's financial and business
objectives as well as the executive officers' performance of their individual
responsibilities.
ANNUAL CASH BONUS. Executive officer cash bonuses are used to provide
executive officers with financial incentives to meet annual performance targets
of the Company. The performance goals of Messrs. Schultz and Young are
established in their employment agreements as specified returns on stockholder
equity. The performance goals of Mr. Landini are established as a percentage of
the profits of the Wholesale Division of Pacific Thrift. The performance targets
and bonus recommendations for executives other than Messrs. Schultz, Young and
Landini are established by the Employee Compensation Committee. The Employee
Compensation Committee develops a Company-wide bonus pool following the end of
each fiscal year. The size of the bonus pool is based upon a subjective
assessment of overall Company and individual business unit performance as
compared to both budgeted and prior fiscal year performance and the extent to
which the Company achieved its overall financial goals of growth in earnings and
return on stockholders' equity. Once the overall size of the bonus pool has been
approved, the Employee Compensation Committee makes discretionary, individual
bonus recommendations for eligible employees based upon an evaluation of their
individual performance and contribution to the Company's overall performance
STOCK OPTIONS. The Board believes that equity ownership by executive
officers provides incentive to build stockholder value and align the interests
of executive officers with the interests of stockholders. Upon hiring executive
officers, the Executive Compensation Committee of the Board will typically
recommend stock option grants to the officers under the 1995 Plan, subject to
applicable vesting periods. Thereafter, the Executive Compensation Committee
will consider awarding additional grants, usually on an annual basis, under the
1995 Plan. The Executive Compensation Committee believes that these additional
annual grants will provide incentives for executive officers to remain with the
Company. Options will be granted at the then current market price of the
Company's Common Stock and, consequently, will have value only if the price of
the Company's Common Stock increases over the exercise price. The size of the
initial grant will usually be determined based upon prior grants to executive
officers. In determining the size of the periodic grants the Executive
Compensation Committee will consider prior option grants to the executive
officer, the executive's performance during the current fiscal year and his or
her expected contributions during the succeeding fiscal year.
OTHER EMPLOYEE BENEFIT PLANS. The Company has certain broad-based
employee benefit plans in which all employees, including executive officers, are
permitted to participate on the same terms and conditions relating to
eligibility and subject to the same limitations on amounts that may be
contributed. The Company also makes matching contributions for all participants
in the Company's 401(k) Plan.
-22-
<PAGE> 25
COMPENSATION OF THE PRINCIPAL EXECUTIVE OFFICERS
Mr. Schultz's 1997 Compensation. The terms of Mr. Schultz' employment
agreement provide for a base salary of $225,000 per annum and a bonus determined
as a specified percentage of the net pre-tax profits of the Company if the
after-tax net income of the Company results in a specified return on equity. See
"EXECUTIVE COMPENSATION AND OTHER MATTERS -- Employment Agreements."
Compensation of other Executive Officers and Employees. The terms of the
1997 compensation of all of the Company's executive officers were determined
based on their employment agreements. See "EXECUTIVE COMPENSATION AND OTHER
MATTERS -- Executive Compensation -- Employment Agreements." The annual bonuses
of Messrs. Young and Landini were determined under specific performance-based
formulas provided in their employment agreements. See "EXECUTIVE COMPENSATION
AND OTHER MATTERS -- Employment Agreements." The annual bonuses of Messrs.
Siegel, Markiewicz and Fremed were determined as an allocated share of the
employee bonus pool, the amount of which and allocated shares of which were
determined by the Employee Compensation Committee with reference to the
performance and results of operations of the Company and the individual
performance of each executive officer and employee.
In evaluating the performance of its executive officers at the end of
1997, the Executive Compensation Committee and the Employee Compensation
Committee considered the following factors (i) the over 300% increase in the
Company's net income, to $17.1 million in 1997 from $4.2 million in 1996; (ii)
the 100% increase in loan origination volume, to $768 million in 1997 from $374
million in 1996; (iii) the over 150% increase in gain on sale of loans, to $81.7
million in 1997 from $29.2 million in 1996; (iv) the successful completion of
the Company's first direct securitization in the fourth quarter of 1997; (v) the
successful negotiation of warehouse financing and interest-only strip receivable
financing arrangements; and (vi) the successful opening of 27 new retail loan
offices throughout the country in 1997, increasing the number of retail loan
offices to 40 at the end of 1997 from 13 at the end of 1996.
Respectfully submitted,
Executive Compensation Committee
Paul D. Weiser
James C. Neuhauser
Alan J. Siebler
Employee Compensation Committee
Joel R. Schultz
Richard D. Young
STOCKHOLDER RETURN PERFORMANCE PRESENTATION
The graph below compares the cumulative total stockholder return on the
Company's Common Stock with the cumulative total return on the Nasdaq Stock
Market US Index for the period commencing on June 25, 1996 (the date trading of
the Company's Common Stock commenced on the Nasdaq National Market) and ending
on December 31, 1997. The data set forth below assumes the value of an
investment in the Company's Common Stock and the Index was $100 on June 25,
1996.
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<PAGE> 26
COMPARISON OF TOTAL RETURN*
SINCE THE INITIAL PUBLIC OFFERING OF PACIFICAMERICA MONEY CENTER, INC.
AMONG PACIFICAMERICA MONEY CENTER, INC., THE NASDAQ STOCK MARKET-US INDEX
AND THE NASDAQ FINANCIAL STOCKS INDEX
[GRAPH]
<TABLE>
<CAPTION>
6/25/96 6/28/96 9/30/96 12/31/96 3/31/97 6/30/97 9/30/97 12/31/97
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PacificAmerica Money Center, Inc. 100 108 176 232 240 256 408 292
NASDAQ Stock Market - U.S. 100 100 105 110 104 122 142 133
NASDAQ Financial Stocks 100 101 109 121 126 146 171 185
</TABLE>
*In calculating cumulative total stockholder return, reinvestment of
dividends, if any, was assumed.
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<PAGE> 27
APPROVAL OF NEW EMPLOYMENT AGREEMENTS OF
JOEL R. SCHULTZ AND RICHARD D. YOUNG
The current terms of the employment agreements of Joel R. Schultz and
Richard D. Young, as amended in 1997, are described under the heading "EXECUTIVE
COMPENSATION AND OTHER MATTERS -- Employment Agreements." The Board of Directors
has approved new employment agreements with Messrs. Schultz and Young, subject
to the approval of a majority of the stockholders present and voting at the
Annual Meeting. Among other changes, the new employment agreements provide that
one half of the annual bonuses earned by both Mr. Schultz and Mr. Young will be
payable in Common Stock, and will be forfeitable if certain performance
conditions are not met in the year following the bonus year.
The Board notes that the Common Stock portion of the annual bonuses is
subject to both market risks and risk of loss if the performance-related
forfeiture conditions are not met. The Board believes that the change from an
all cash annual bonus to a 50% cash and 50% stock annual bonus will allow the
Company to retain more cash flow for the growth of its lending business, thereby
potentially reducing the Company's financing costs and its need to raise cash
for operations. The Board of Directors further believes that the new employment
agreements will provide substantial incentives for Mr. Schultz and Mr. Young to
continue to improve the profitability and return on equity of the Company.
The new employment agreements are each for an initial term of three
years, beginning effective January 1, 1998 and expiring on December 31, 2000.
The agreements are subject to automatic extension for successive one year terms
unless, at least six months prior to the end of the term, either the Company or
the executive gives notice of intent not to renew.
Under the new agreements, Mr. Schultz receives an annual base salary of
$425,000 per year and Mr. Young receives an annual base salary of $375,000 per
year, in each case adjusted annually to reflect any increases in the consumer
price index. In addition, each of Mr. Schultz and Mr. Young receives an annual
bonus equal to 2-1/2% of the annual net pre-tax profits of the Company (before
deduction of bonuses paid to Mr. Schultz and Mr. Young, referred to as "annual
bonuses") if the Company earns annual net after-tax profits (after payment of
annual bonuses) equal to a minimum annual return on equity in excess of 10%, or
5% of the annual net pre-tax profits of the Company if the Company earns annual
net after-tax profits equal to a minimum annual return on equity in excess of
20%. Return on equity is determined as net after-tax profits as a percentage of
stockholder equity at January 1 of each year. The annual bonuses are payable in
quarterly installments during the year earned, determined by annualizing the
quarterly net pre-tax profits, net after-tax profits and return on equity for
each of the first three quarters of the year, with a final determination of the
total annual bonus following release of the Company's audited consolidated
financial statements for the year.
Each installment of the annual bonus is paid 50% in cash and 50% in
Common Stock. The Common Stock portion of the Annual Bonus will be held in
escrow by the Company unless and until either of the following forfeiture
conditions are met: (a) pre-tax net income for the year following the bonus year
must be at least 12.5% higher than the bonus year (i.e., for the 1998 bonus,
1999 pre-tax net income must exceed 1998 pre-tax net income by 12.5%); or (b)
return on equity (after payment of annual bonuses) must be at least 25% for the
year following the bonus year (i.e., for the 1998 bonus, 1999 return on equity
must be at least 25%). (The forfeiture conditions are only applicable for the
year 2000 bonus year if the executive is employed under an employment contract
through the end of the year 2001.) The amount of Common Stock issued in payment
of quarterly installments of the annual bonus is determined as the highest of
(x) the closing price on the last trading day of the applicable quarter; (y) the
average closing price for the 10 trading days prior to the end of the applicable
quarter; or (z) $10 per share. The Company will use its best efforts to register
with the Securities and Exchange Commission for resale by the executive the
Common Stock issued in payment of the annual bonus. To the extent that the total
quarterly annual bonus payments exceed the total annual bonus determined at the
end of the year, the excess will be repaid first from the Common Stock issued to
the executive during the year, using the average weighted price per share of the
Common Stock issued in payment of the annual bonus during the year, and then in
cash or, at the executive's option, in shares of Common Stock previously
purchased by him.
Mr. Schultz is also entitled to receive a special cash bonus equal to 1%
of the annual pre-tax net income of the Company and Mr. Young is entitled to
receive a special cash bonus equal to 0.5% of the annual pre-tax net income of
the Company, in each case calculated before payment of the special bonus but
after payment of the annual bonuses, if the following conditions are met: (a)
comparing the special bonus year with the prior year, the pre-tax net income for
the special bonus year is at least 25% higher than the prior year or the return
on equity for the special bonus year is at least 25%; and (b) comparing the
special bonus year with the following year, the pre-tax net income
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<PAGE> 28
for the year following the special bonus year is at least 25% higher than the
special bonus year or the return on equity for the year following the special
bonus year is at least 25%. (For the year 2000 special bonus, the performance
conditions for the year 2001 are only applicable if the executive is employed
under an employment contract through the end of the year 2001.)
Mr. Schultz is also entitled to receive a stock option for 100,000
shares upon approval by the stockholders of the new employment agreement, at an
exercise price equal to 100% of the fair market value of the Common Stock on the
date of grant. The option shall be exercisable at any time beginning six months
after grant for a term of 10 years.
Mr. Young is also entitled to receive a guaranteed cash bonus equal to
$150,000 payable in three equal annual installments during the term of his
employment agreement, or payable immediately upon a termination of his
employment for any reason.
Each of Mr. Schultz and Mr. Young is also entitled to participate in
benefit plans maintained by the Company for its executive officers, including
insurance, pension, stock option plans and stock purchase plans, and to receive
perquisite benefits including an automobile allowance and expense allowance. In
addition, Mr. Schultz and Mr. Young are entitled to receive the insurance
benefits made available to all executives of the Company.
Upon a termination of the employment agreement as a result of the death
or disability of the executive, he or his personal representative is entitled to
receive any unpaid annual and special bonuses for any prior year and through the
last full quarter prior to termination, including cash and Common Stock, free of
any forfeiture or other conditions otherwise applicable to such bonuses, plus a
lump sum payment equal to the sum of the full annual bonus and special bonus
earned in the prior year, plus payments of the base salary and all benefits for
one year. Mr. Young or his personal representative is also entitled to any
unpaid installments of his special guaranteed bonus. If, at the end of the year
of such a termination, it is determined that the annual bonus that would have
been earned in the year of termination is higher than the annual bonus for the
prior year, the executive or his personal representative is entitled to an
additional payment equal to the difference between the annual bonus that would
have been earned and the annual bonus amount paid upon termination.
The Company may terminate the employment agreement of Mr. Schultz or Mr.
Young "for cause," which is defined to include: (i) theft or embezzlement; (ii)
fraud or other acts of dishonesty in the conduct of the Company's business;
(iii) conviction or plea of nolo contendere to any felony or crime of moral
turpitude; (iv) any action willfully and knowingly taken which is injurious to
the Company's business or reputation. Upon a termination for cause, the Company
is only obligated to pay the amount of base salary and annual bonus earned
through the date of termination. Any Common Stock held in escrow upon
termination for cause will be released to the executive if and when the
conditions are met in accordance with the terms of his employment agreement. In
addition, the Company is obligated to pay any special bonus to the executive for
each year that he was employed, to the extent the performance targets are met in
accordance with the terms of the employment agreement. Mr. Young is also
entitled to receive any unpaid installments of his guaranteed bonus.
If either Mr. Schultz or Mr. Young terminates his employment agreement
for any reason other than a "corporate change" (as defined below), he is
entitled to his base salary through the date of termination and his annual bonus
earned through the end of the last full quarter prior to termination. Mr. Young
is also entitled to receive any unpaid installments of his guaranteed bonus. Any
Common Stock held in escrow upon such a termination by Mr. Schultz will be
released to the executive if and when the conditions are met in accordance with
the terms of his employment agreement. Any Common Stock held in escrow upon such
a termination by Mr. Young will be forfeited. In addition, the Company is
obligated to pay any special bonus for each year that Mr. Schultz or Mr. Young
was employed, to the extent the performance targets are met in accordance with
the terms of his employment agreement.
If the Company terminates the employment agreement of Mr. Schultz
without cause, he is entitled to benefits for one year, plus a lump sum payment
equal to one year's base salary and the annual bonus earned for the prior year.
Mr. Schultz is also entitled to any special bonus for the year prior to
termination if the performance targets were met for the year prior to
termination, plus the cash value of all vacation, holiday and sick days which
have accrued and would have accrued for one year following termination. If, at
the end of the year of termination, it is determined that the annual or special
bonus that would have been earned by Mr. Schultz in the year of termination is
higher than the annual or special bonus for the prior year, Mr. Schultz is
entitled to an additional payment equal to
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<PAGE> 29
the difference between the annual and/or special bonus that would have been
earned and the annual and special bonus amounts paid upon termination. In
addition, all Common Stock then held in escrow for Mr. Schultz is required to be
released immediately.
If the Company terminates the employment agreement of Mr. Young without
cause, he is entitled to benefits for one year, plus a lump sum payment equal to
one year's base salary, one half of the annual bonus earned for the prior year,
any unpaid installments of the guaranteed bonus and the cash value of all
vacation, holiday and sick days which have accrued and would have accrued for a
period of six months following termination. In addition, any Common Stock then
held in escrow for Mr. Young will be released if and when the conditions for
such release are met. Mr. Young is also entitled to any special bonus for the
year prior to termination if the performance targets for the year of termination
are met.
If, at any time within one year of a "corporate change" (as defined
below), the Company or the executive terminates his employment for any reason
other than "for cause," Mr. Schultz and/or Mr. Young is entitled to receive full
benefits for 18 months after termination and the cash value of all vacation,
holiday and sick days which would have accrued for 18 months following
termination. In addition, Mr. Schultz is also entitled to receive any earned and
unpaid installments of his annual bonus through the last full quarter of his
employment, and an additional lump sum equal to the sum of two times his annual
base salary, two times his annual bonus earned in the prior year, the special
bonus amount earned for the year prior to termination, plus an additional "in
lieu of special bonus" amount equal to 1% of the annualized pre-tax net income
for the year of termination. If, at the end of the year of termination, it is
determined that two times the annual bonus or the special bonus that would have
been earned in the year of termination is higher than the two times the annual
bonus or the special bonus amount paid upon termination, Mr. Schultz is entitled
to an additional payment equal to the difference between two times the annual
bonus and the special bonus actually paid and two time the amount that would
have been earned in the year of termination, in addition to a payment equal to
the difference between the "in lieu of special bonus" amount paid and the amount
that would have been paid as a special bonus in the year of termination. In
addition, all Common Stock then held in escrow for Mr. Schultz is required to be
released. Mr. Young is also entitled to receive any earned and unpaid
installments of his annual bonus (subject to escrow of the Common Stock portion
of the annual bonus) through the last full quarter of his employment, any unpaid
installments of his guaranteed bonus, and a lump sum payment equal to his annual
base salary and his annual bonus earned in the prior year. In addition, all
Common Stock held in escrow is required to be released to Mr. Young and he is
entitled to receive any special bonus earned for each year of his employment
upon his completion of 12 full months of employment with the Company following a
Corporate Change, or upon a termination of employment by the Company without
cause, or termination of employment by Mr. Young for "good cause" as defined in
the agreement.
A "corporate change" is defined in the employment agreement as: (i) a
transaction in which Employer ceases to be an independent publicly owned
corporation that is required to file quarterly and annual reports under the
Securities Exchange Act of 1934, (ii) a sale or other disposition of all or
substantially all of the assets, or a majority of the outstanding capital stock,
of Employer (including but not limited to the assets or stock of Employer's
subsidiaries that results in all or substantially all of the assets or stock of
Employer on a consolidated basis being sold), (iii) as a result of, or in
connection with, any cash tender offer, exchange offer, merger or other business
combination, sale of assets or combination of the foregoing, persons who were
directors of Employer just prior to such event(s) shall cease to constitute a
majority of the Board, (iv) any person, including a group as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended, becomes the
beneficial owner of shares of Employer with respect to which twenty percent
(20%) or more of the total number of votes for the election of the Board may be
cast, (v) the Employer assigns to Executive duties, functions, responsibilities
or authority substantially inferior to the duties, functions, responsibilities
and authority contemplated by Section 1 (b) herein, or (vi) Employer's
stockholders cause a change in the majority of the members of the Board within a
twelve (12) month period; provided, however, that the election of one or more
new directors shall not be deemed to be a change in the membership of the Board
if the nomination of the newly elected directors was approved by the vote of
three-fourths of the directors then still in office who were directors at the
beginning of such twelve (12) month period.
If the new employment agreements with Mr. Schultz and Mr. Young are
approved by the stockholders at the 1998 Annual Meeting of Stockholders, the
Company will make a one time adjustment payment, in stock or cash, as
appropriate under the terms of the agreement, so that the total amount of
compensation paid to each of Mr. Schultz and Mr. Young for the period beginning
January 1, 1998, including all payments made under the prior employment
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<PAGE> 30
agreement relating to the period beginning January 1, 1998, are equal the total
compensation that would have been paid had the new employment agreements been in
effect from January 1, 1998.
The Board of Directors believes that the proposed new employment
agreements provide substantial incentives for Mr. Schultz and Mr. Young to
continue to improve the profitability and return on equity of the Company. The
Board further believes that the additional compensation payable to both Mr.
Schultz and Mr. Young under the new employment agreements is justified because
they are each surrendering the right to receive one-half of their annual bonuses
in cash, and are instead receiving that portion of their annual bonuses in
Common Stock, which is subject to both market risks and substantial
performance-related forfeiture conditions. In addition, the Board believes that
the change from an all cash annual bonus to a 50% cash and 50% stock annual
bonus will allow the Company to retain more cash flow for the growth of its
lending business, thereby potentially reducing the Company's financing costs and
its need to raise cash for operations.
The new employment agreements of Mr. Schultz and Mr. Young are subject
to approval of a majority of the stockholders present and voting at the Annual
Meeting. If the new agreements are approved by a majority of stockholders
present and voting at the Annual Meeting, the provisions of the agreements will
take effect for all periods beginning January 1, 1998. If Mr. Schultz's new
agreement is not approved, the existing terms of Mr. Schultz' employment
agreement, as amended, will continue in effect without modification. If Mr.
Young's new agreement is not approved, the Company will negotiate an extension
of Mr. Young's existing employment agreement. FOR THE REASONS STATED ABOVE, THE
BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL OF THE
EMPLOYMENT AGREEMENTS OF MR. SCHULTZ AND MR. YOUNG.
APPROVAL OF AMENDMENT TO 1995 STOCK OPTION PLAN
As currently in effect, the maximum number of shares of Common Stock in
respect of which Options may be granted under the Plan (the "Plan Maximum") is
500,000 with an increase of two percent (2%) of the total issued and outstanding
shares of the Common Stock on the first day of each subsequent calendar year, up
to a maximum of 660,000 shares, commencing January 1, 1997. As of March 31, 1998
a total of 567,350 shares were subject to options issued under the 1995 Plan.
The Board of Directors has approved an increase in the total number of shares
available for the grant of options under the 1995 Plan to 800,000, with an
increase of 2% of the total issued and outstanding shares of the Common Stock on
the first day of each subsequent calendar year, up to a maximum of 1,000,000.
The terms of the 1995 Plan are described herein under the heading "EXECUTIVE
COMPENSATION AND OTHER MATTERS - Plans and Arrangements - 1995 Stock Option
Plan."
As of March 31, 1998, the Board of Directors of the Company has granted
Incentive Stock Options to acquire a total of 555,350 shares of Common Stock to
certain key employees, including the executive officers, of the Company, at
exercise prices ranging from $5 to $28.75 per share. For employees who were
employed by the Partnership for five (5) years or more, options become
exercisable 20% after the first six (6) months following the grant, and an
additional 20% on the first, second, third and fourth-year anniversary dates of
the grant thereafter. For employees who were employed by the Partnership for
less than five (5) years, options become exercisable 25% on each of the first,
second, third and fourth-year anniversary dates of the grant. As of March 31,
1998, the non-employee directors of the Company have been granted pursuant to
the formula provisions of the 1995 Plan NonQualified Options to acquire 12,000
shares of Common Stock, at exercise prices ranging from $5.00 to $16.00 per
share. All Stock Options granted to non-employee directors are exercisable 50%
on the first anniversary date of grant and 50% on the second anniversary date of
grant. All outstanding Stock Options are for a term of 10 years.
The market value of the Common Stock was $21.875 per share as of April 15, 1998.
FEDERAL INCOME TAX CONSEQUENCES
The federal income tax consequences to the Company and to any person
granted an Option under the Stock Option Plan, under the existing applicable
provisions of the Internal Revenue Code of 1986 (the "Code") and the regulations
thereunder, are substantially as set forth below.
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<PAGE> 31
Non-Qualified Options. Under current federal income tax law, the grant
of a Non-Qualified Option under the 1995 Plan will have no federal income tax
consequences to the Company or the optionee. Generally, upon exercise of a
Non-Qualified Stock Option granted under the 1995 Plan, the excess of the fair
market value of the stock at the date of exercise over the Option price (the
"Spread") is taxable to the optionee as ordinary income. All such amounts
taxable to an employee are deductible by the Company as compensation expense.
The deduction will be allowed for the taxable year of the Company in which or
with which ends the taxable year of the optionee in which such amount is
included in income.
Property received for services that is subject to a substantial risk of
forfeiture generally is not included in the recipient's income until the risk of
forfeiture lapses. However, the optionee is entitled to elect to recognize
income on the date of transfer. Such election (the "Section 83(b) election")
must be made within 30 days of the transfer of the shares to the optionee, in
which case the results are the same as if the optionee were not subject to a
risk of forfeiture.
Generally, the shares received on exercise of an Option under the 1995
Plan are not subject to restrictions on transfer or risks of forfeiture and,
therefore, the optionee will recognize income on the date of exercise of a
NonQualified Stock Option. However, if the optionee is subject to Section 16(b)
of the Exchange Act, the Section 16(b) restriction will be considered a
substantial risk of forfeiture for tax purposes. Under current law, employees
who are either officers, directors or more than 10% shareholders of the Company
will be subject to restrictions under Section 16(b) of the Exchange Act during
their term of service and for up to six months after termination of such
service. SEC Rule 16b-3 provides an exemption from the restrictions of Section
16(b) for the grant of derivative securities, such as stock options, under
qualifying plans. Because the 1995 Plan satisfies the requirements for exemption
under SEC Rule 16b-3, the grant of Options will not be considered a purchase and
the exercise of the Options to acquire the underlying shares of the Company
Common Stock will not be considered a purchase or a sale. Thus, ordinary income
will be recognized and the Spread will be measured on the date of exercise.
The taxable income resulting from the exercise of a Non-Qualified Stock
Option will constitute wages subject to withholding and the Company will be
required to make whatever arrangements are necessary to ensure that funds
equaling the amount of tax required to be withheld are available for payment,
including the deduction of required withholding amounts from the optionee's
other compensation and requiring payment of withholding amounts as part of the
exercise price. The tax basis for the Company Common Stock acquired is the
Option price plus the taxable income recognized. An optionee will recognizee
gain or loss on the subsequent sale of shares acquired upon exercise of a
Non-Qualified Stock Option in an amount equal to the difference between the
amount realized and the tax basis of such shares. Such gain or loss will be
long-term or short-term capital gain or loss, depending upon whether the shares
have been held for more than one year.
Incentive Stock Options. The 1995 Plan contemplates the grant of
Incentive Stock Options, provided that the optionee is an employee at the date
of grant and within three months of exercise. There will be no federal income
tax consequences to the Company or the employee as a result of a grant of an
Incentive Stock Option. The optionee also will not recognize income when the
Incentive Stock Option is exercised (subject to the alternative minimum tax
rules discussed below). Generally, the Company receives no tax deduction at the
time of exercise of an Incentive Stock Option.
In the event of a disposition of shares acquired upon exercise of an
Incentive Stock Option, the tax consequences depend on how long the optionee has
held the stock. If the optionee does not dispose of the shares within two years
after the Incentive Stock Option was granted, or within one year after the
Incentive Stock Option was exercised and shares were purchased, then the
optionee must recognize only a long-term capital gain or loss.
The Company is not entitled to any deduction under these circumstances.
If the optionee fails to satisfy either of the foregoing holding
periods, then he or she must recognize ordinary income in the year of
disposition (referred to as a "disqualifying disposition"). The amount of such
ordinary income generally is determined under the rules applicable to
Non-Qualified Stock Options (see above). However, such ordinary income will in
no event exceed the amount of the gain recognized on the sale, provided that the
disposition involves an arms-length sale or exchange with an unrelated party.
Any gain in excess of the amount taxed as ordinary income will be taxed as
capital gain. The Company, in the year of the disqualifying disposition, is
entitled to a deduction equal to the amount of the ordinary income recognized by
the optionee.
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<PAGE> 32
The Spread under an Incentive Stock Option is treated as an adjustment
in computing alternative minimum taxable income ("AMTI") for the year of
exercise. If a Taxpayer's AMTI exceeds an exemption amount equal to $45,000 in
the case of a married individual filing a joint return ($33,750 in the case of a
single taxpayer), then the alternative minimum tax equals 26% of the first
$175,000 of the excess and 28% of the taxable excess that exceeds $175,000,
reduced by the amount of the regular federal income tax paid for the same
taxable year. The exemption amount is subject to reduction in an amount equal to
25% of the amount by which AMTI exceeds $150,000 in the case of a married
individual filing a joint return ($112,500 in the case of a single taxpayer). A
subsequent disqualifying disposition of shares acquired upon exercise of an
Incentive Stock Option will eliminate the AMTI adjustment if the disposition
occurs in the same taxable year as the exercise. A disqualifying disposition in
a subsequent taxable year will not affect the alternative minimum tax
computation in the earlier year.
Payment of Option Exercise Price in Shares. To the extent an optionee
pays all or part of the Option exercise price of a Non-Qualified Stock Option by
tendering shares of Common Stock owned by the optionee, the tax consequences
described above apply except that the number of shares of Common Stock received
upon such exercise which is equal to the number of shares surrendered in payment
of the Option price will have the same tax basis and holding periods as the
shares surrendered. The additional shares of Common Stock received upon such
exercise will have a tax basis equal to the amount of ordinary income recognized
on such exercise and a holding period which commences on the day following the
date of recognition of such income. Under proposed Treasury regulations, if an
optionee exercises an Incentive Stock Option by tendering shares of Company
Common Stock previously acquired by the exercise of an Incentive Stock Option
that have not satisfied statutory holding period requirements, a disqualifying
disposition will occur and the optionee will recognize income and be subject to
other basis allocation and holding period requirements.
OPTIONS OUTSTANDING UNDER THE 1995 PLAN
The following table lists the number of options currently held by each
of the Named Executives, all current executive officers as a group, all current
non-officer directors as a group and all employees, including all current
officers who are not executive officers, as a group. There is no current plan to
grant additional options under the 1995 Plan to any executive officer or
director (other than the annual grant of 2,000 options in the case of
non-employee directors), or to any other person. No associate of any director or
executive officer has received or is expected to receive any options under the
1995 Plan, and no person other than Joel R. Schultz and Richard D. Young has
received or is expected to receive five percent of the total options available
for grant under the 1995 Plan.
<TABLE>
<CAPTION>
NAME AND POSITION OPTIONS HELD AT MARCH 31, 1998
- ----------------- ------------------------------
<S> <C>
Joel R. Schultz 87,600
Richard D. Young 106,000
Frank P. Landini 36,000
Charles J. Siegel 41,000
Norman A. Markiewicz 18,000
All Executive Officers as a group 288,600
All Non-Officer Directors as a group 12,000
All Employees as a group 267,750
</TABLE>
The Board has approved the amendment to the 1995 Plan to increase the
shares available for grant of options under the 1995 Plan to 800,000, with an
increase of 2% of the total issued and outstanding shares of the Common Stock on
the first day of each subsequent calendar year, up to a maximum of 1,000,000,
because the Board believes that option grants and stock issuances under the 1995
Plan play an important role in the Company's efforts to attract employees of
outstanding ability and to reward employees for outstanding performance. The
Company's current policy is to grant an option for 100 shares to every
non-officer employee upon his or her one year anniversary
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<PAGE> 33
date of employment with the Company, and to grant additional options to key
employees in the discretion of the Executive Compensation Committee, which
administers the 1995 Plan. In the event the amendment to the 1995 Plan is not
approved by the stockholders, the Board believes that the Company's inability to
grant additional options will adversely impact the Company's ability to hire and
retain valuable employees.
The amendment of the 1995 Plan is subject to approval of a majority of
the stockholders present and voting at the Annual Meeting. FOR THE REASONS
STATED ABOVE, THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
APPROVAL OF THE AMENDMENT OF THE 1995 PLAN.
APPROVAL OF AMENDMENT TO
EMPLOYEE STOCK PURCHASE PLAN
All full-time employees of the Company and its subsidiaries who have
been employed continuously for at least 30 days and who work more than 20 hours
per week are eligible to participate in the Stock Purchase Plan at their
election, except for any employee who owns 5% or more of the combined voting
power of all classes of stock of the Company. Every eligible employee makes an
annual election whether or not to participate in the Stock Purchase Plan. As
currently in effect, the maximum number of shares of Common Stock available for
purchase by employees under the Stock Purchase Plan is 130,000. As of March 31,
1998 a total of 113,685 shares had been purchased under the Stock Purchase Plan,
and the remaining authorized shares had been allocated for purchase in 1998. The
terms of the Purchase Plan are described herein under the heading "EXECUTIVE
COMPENSATION AND OTHER MATTERS - Plans and Arrangements - Employee Stock
Purchase Plan."
The Board of Directors of the Company has approved an amendment to the
Purchase Plan to increase the number of shares available for grant of options
under the Purchase Plan to 260,000 shares, subject to the approval of the
stockholders. The amendment was adopted and is recommended for approval by the
Company's stockholders because the Board believes that the Purchase Plan plays
an important role in the Company's efforts to attract employees of outstanding
ability. In the event the amendment to the Purchase Plan is not approved by the
stockholders, the Board believes that the Company's inability to offer
additional shares for purchase under the Purchase Plan will adversely impact the
Company's ability to hire and retain valuable employees.
The amendment of the Purchase Plan is subject to approval of a majority
of the stockholders present and voting at the Annual Meeting. FOR THE REASONS
STATED ABOVE, THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
APPROVAL OF THE AMENDMENT OF THE PURCHASE PLAN.
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
Action is to be taken by the stockholders at the Annual Meeting with
respect to the ratification of BDO Seidman, LLP ("BDO"), independent certified
public accountants, as independent accountants for the Company for the fiscal
year ending December 31, 1998. BDO does not have and has not had at any time any
direct or indirect financial interest in the Company or any of its subsidiaries
and does not have and has not had at any time any connection with the Company or
any of its subsidiaries in the capacity of promoter, underwriter, voting
trustee, director, officer, or employee. Neither the Company nor any officer or
director of the Company has or has had any interest in BDO.
The Board of Directors of the Company and its Audit Committee have
approved BDO as its independent accountants. Prior thereto, they have questioned
partners of that firm about its methods of operation and have received
assurances that any litigation or other matters involving it do not affect its
ability to perform as the Company's independent accountants.
Representatives of BDO will be present at the Annual Meeting, will have
an opportunity to make statements if they so desire, and will be available to
respond to appropriate questions.
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<PAGE> 34
Notwithstanding the ratification by stockholders of the appointment of
BDO, the Board of Directors or the Audit Committee may, if the circumstances
dictate, appoint other independent accountants.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
RATIFICATION OF THE APPOINTMENT OF BDO SEIDMAN, LLP AS THE COMPANY'S
INDEPENDENT ACCOUNTANTS FOR FISCAL 1998.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16 of the Exchange Act requires the Company's directors and
executive officers and persons who own more than 10% of a registered class of
the Company's equity securities to file various reports with the Securities and
Exchange Commission concerning their holdings of, and transactions in,
securities of the Company. Copies of these filings must be furnished to the
Company.
Based on a review of the copies of such forms furnished to the Company
and written representations from the Company's executive officers and directors,
the Company believes all filings were made on a timely basis.
STOCKHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
In order for a stockholder proposal to be included in the Board of
Directors' Proxy Statement for the next annual meeting of stockholders, such
proposal must be received at 21031 Ventura Boulevard, Suite 102, Woodland Hills,
California 91364, Attention: Corporate Secretary, no later than the close of
business on January 28, 1999.
ANNUAL REPORT
The Company's Annual Report on Form 10-K containing its financial
statements for the fiscal year ended December 31, 1997, has been mailed
concurrently herewith. The Annual Report is not incorporated in this Proxy
Statement and is not deemed to be a part of the proxy solicitation material. Any
stockholder who does not receive a copy of such Annual Report may obtain one by
writing to the Company.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors does not
know of any other matter which will be brought before the Annual Meeting.
However, if any other matter properly comes before the Annual Meeting, or any
adjournment thereof, the person or persons voting the proxies will vote on such
matters in accordance with their best judgment and discretion.
ADDITIONAL INFORMATION
The cost of soliciting proxies in the enclosed form will be borne by the
Company. The Company has retained Georgeson & Co., 100 Wall Street, New York,
New York 10005, to aid in the solicitation of proxies. For these services, the
Company will pay Georgeson & Co. a fee of $7,000 and reimburse it for certain
out-of-pocket disbursements and expenses. Officers and regular employees of the
Company may, but without compensation other than their regular compensation,
solicit proxies by further mailing or personal conversations, or by telephone,
telex or facsimile. The Company will, upon request, reimburse brokerage firms
and others for their reasonable expenses in forwarding solicitation material to
the beneficial owners of Common Stock.
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<PAGE> 35
By Order of the Board of Directors
JOEL R. SCHULTZ
Chief Executive Officer and
Chairman of the Board
Woodland Hills, California
May 15, 1998
STOCKHOLDERS ARE URGED TO SPECIFY THEIR CHOICES AND TO DATE, SIGN, AND RETURN
THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE. PROMPT RESPONSE IS HELPFUL AND
YOUR COOPERATION WILL BE APPRECIATED.
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<PAGE> 36
PACIFICAMERICA MONEY CENTER, INC.
21031 Ventura Boulevard
Woodland Hills, California 91364
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS ON JUNE 12, 1998
THE UNDERSIGNED HEREBY APPOINTS JOEL R. SCHULTZ OR RICHARD B. FREMED AS PROXIES,
EACH WITH THE POWER TO APPOINT HIS SUBSTITUTE, AND HEREBY AUTHORIZES THEM OR
EITHER OF THEM TO REPRESENT AT THE ANNUAL MEETING OF STOCKHOLDERS OF
PACIFICAMERICA MONEY CENTER, INC. (THE "COMPANY") TO BE HELD AT 2:00 P.M.
PACIFIC TIME, ON JUNE 12, 1998, AT THE LOS ANGELES AIRPORT HILTON AND TOWERS,
THEATER ROOM, SECOND FLOOR, LOCATED AT 5711 WEST CENTURY BOULEVARD, LOS ANGELES,
CALIFORNIA, 90045 AND AT ANY ADJOURNMENT THEREOF AND TO VOTE ALL SHARES OF
COMMON STOCK WHICH THE UNDERSIGNED MAY BE ENTITLED TO VOTE AT SUCH MEETING AS
FOLLOWS:
(1) ______ FOR NOMINEE LISTED BELOW (EXCEPT AS MARKED TO CONTRARY
BELOW)
______ WITHHOLDING AUTHORITY TO VOTE FOR ALL NOMINEE LISTED BELOW
JAMES C. NEUHAUSER
(INSTRUCTIONS: TO WITHHOLD AUTHORITY FOR NOMINEE,
STRIKE THE NOMINEE'S NAME LISTED ABOVE.)
(2) TO APPROVE THE NEW EMPLOYMENT AGREEMENT OF JOEL R. SCHULTZ, CHIEF
EXECUTIVE OFFICER AND PRESIDENT OF THE COMPANY, INCLUDING THE
GRANT OF A STOCK OPTION FOR 100,000 SHARES.
______FOR ______AGAINST ______ABSTAIN
(3) TO APPROVE THE NEW EMPLOYMENT AGREEMENT OF RICHARD D. YOUNG,
SENIOR EXECUTIVE VICE PRESIDENT OF THE COMPANY.
______FOR ______AGAINST ______ABSTAIN
(4) TO APPROVE AN AMENDMENT TO THE COMPANY'S 1995 STOCK OPTION PLAN
INCREASING THE NUMBER OF SHARES AVAILABLE FOR THE GRANT OF
OPTIONS.
______FOR ______AGAINST ______ABSTAIN
(5) TO APPROVE THE INCREASE IN THE NUMBER OF SHARES AVAILABLE FOR
PURCHASE UNDER THE COMPANY'S STOCK PURCHASE PLAN.
______FOR ______AGAINST ______ABSTAIN
(6) TO RATIFY THE APPOINTMENT OF BDO SEIDMAN, LLP, AS INDEPENDENT
ACCOUNTANTS.
______FOR ______AGAINST ______ABSTAIN
<PAGE> 37
(7) IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON ANY
OTHER BUSINESS WHICH MAY PROPERLY COME BEFORE THE ANNUAL MEETING
OR ANY ADJOURNMENT THEREOF.
______FOR ______AGAINST ______ABSTAIN
(Continued and to be Signed on the Other Side)
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF NO SPECIFICATION IS MADE, IT WILL BE VOTED FOR PROPOSALS 1, 2, 3, 4, 5 AND 6.
DATED: ____________ ___, 1998
- ------------------------------------------------------------
- ------------------------------------------------------------
SIGNATURE OF STOCKHOLDER
- ------------------------------------------------------------
SIGNATURE(S) IF HELD JOINTLY
THIS PROXY SHOULD BE SIGNED EXACTLY
AS YOUR NAME APPEARS HEREON. JOINT
OWNERS SHOULD BOTH SIGN. IF SIGNED BY
EXECUTORS, ADMINISTRATORS, TRUSTEES
AND OTHER PERSONS SIGNING IN
REPRESENTATIVE CAPACITY, THEY SHOULD
GIVE FULL TITLES.
PLEASE READ, COMPLETE, DATE, AND SIGN THIS PROXY AND RETURN IT IN
THE ENCLOSED ENVELOPE.
<PAGE> 38
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") is entered into as
of January 1, 1998, by and between PACIFICAMERICA MONEY CENTER, INC., a Delaware
corporation (hereinafter referred to as "Employer") and JOEL R. SCHULTZ
(hereinafter referred to as "Executive"), upon the following terms and
conditions:
1. TERM OF AGREEMENT; DUTIES.
(a) Term. Employer hereby agrees to employ Executive as the President
and Chief Executive Officer of Employer, Chief Executive Officer of Pacific
Thrift and Loan Company, Inc., a California corporation ("Pacific Thrift"), and
President and Chief Executive Officer of PacificAmerica Money Centers, Inc., a
Delaware corporation ("Centers"), both of which are operating subsidiaries of
the Employer, for a term commencing on the date hereof, subject to approval by
the holders of a majority of the outstanding shares of common stock of Employer,
and expiring on December 31, 2000. Executive hereby agrees to accept such
employment for such term, subject to earlier termination under the circumstances
provided herein. The term of this Agreement shall be extended automatically to
cover successive terms of one year commencing on each anniversary date of the
date hereof after the initial three-year term, unless, at least six months prior
to the end of the initial term or any renewal term hereof, Executive gives
written notice to the Board of Directors of Employer (the "Board"), or Employer
gives written notice to Executive, of an intent to terminate this Agreement at
the end of such term.
(b) Duties. Executive, subject to the direction and control of the
Board, shall devote all of Executive's productive time, attention and energies
to discharging, and shall perform, such executive duties and managerial
responsibilities as may from time to time be specified by Employer, and will use
Executive's best efforts to promote the interests of Employer and its
subsidiaries and affiliates. The performance of such duties and responsibilities
shall be Executive's exclusive employment for compensation; provided, how ever,
that nothing herein contained shall be deemed to limit Executive's right, with
the consent of the Board, to engage in other activities that do not interfere
with Executive's duties hereunder.
2. COMPENSATION. As compensation for the services to be rendered by Executive
hereunder during the term of Executive's employment, including all services to
be rendered as an officer and executive of Employer, its subsidiaries and
affiliates, Employer agrees to pay Executive the following compensation:
(a) Base Salary. During the term of this Agreement, Employer
shall pay Executive a salary at an annual base rate of four hundred twenty five
thousand dollars ($425,000) per year, which shall be adjusted annually to
reflect any increase from the previous year in the Consumer Price Index for the
Los Angeles, California area (the "Base Salary"). The applicable Base Salary
shall be payable not less frequently than monthly in accordance
<PAGE> 39
with the regular salary procedure from time to time adopted by Employer. There
shall be deducted from all compensation paid to Executive such sums, including
but not limited to Social Security, income tax withholding, employment
insurance, and any and all other such deductions, as Employer is by law
obligated to withhold.
(b) Annual Bonus. In addition to the Base Salary, Employer shall
pay Executive an annual bonus (the "Annual Bonus"), the amount of which shall be
determined in the manner provided in Section 2(b)(i) below, and paid in the
manner provided in Section 2(b)(ii) below.
(i) Calculation. The Annual Bonus shall be equal to: (x)
two and one-half percent (2 1/2%) of the annual net pre-tax profits of Employer
(before deduction of the Annual Bonus payable to Executive and to Richard D.
Young under an employment agreement with Employer dated of even date herewith,
referred to herein collectively as "Executive Bonuses") if Employer earns annual
net after-tax profits (after payment of Executive Bonuses) equal to a minimum
annual Return on Equity (as defined below) in excess of ten percent (10%); or
(y) five percent (5%) of the annual net pre-tax profits of Employer (before
deduction of Executive Bonuses) if Employer earns annual net after-tax profits
(after payment of Executive Bonuses) equal to a minimum annual Return on Equity
in excess of twenty percent (20%).
As used in this Agreement, net pre-tax profits and net after-tax profits refer
to the net pre-tax profits and net-after tax profits of Employer on a
consolidated basis as determined under generally accepted accounting principles.
As used in this Agreement, Return on Equity means net-after tax profits of
Employer for the applicable year as a percentage of stockholders' equity as of
January 1 of the applicable year. To the extent that the total Executive Bonuses
determined under this formula result in the reduction of annual net after-tax
profits of Employer to an amount less than the applicable minimum Return on
Equity, then the amount of Executive Bonuses shall be reduced to such amount as
will result in Employer retaining the applicable minimum Return on Equity, and
the reduced amount shall be divided equally between each of Executive and Young.
(ii) Payment. The Annual Bonus will be payable in
quarterly installments during the year in which it is earned, determined by
annualizing the quarterly net pre-tax profits, net after-tax profits and Return
on Equity for each of the first three quarters of the year, with a final
determination of the total Annual Bonus to be made within one business day
following the release of Employer's audited consolidated financial statements
for the year (the "Annual Bonus Determination Date"). Each installment will be
paid on or before the fifth business day following the date of certification by
the Executive Compensation Committee of the Board (the "Committee") that the
required performance levels have been met for the applicable quarter or year, in
the following manner:
(A) 50% will be paid in cash (as to which the forfeiture
conditions described in paragraph (B) below shall not apply); and
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<PAGE> 40
(B) 50% will be paid in common stock of Employer ("Common
Stock"), to be held in escrow by Employer until either of the following
forfeiture conditions have been met, as certified by the Committee:
(1) pre-tax net income (after deduction of
Executive Bonuses) for the full year following the Annual Bonus calculation year
must be at least 12.5% higher than pre-tax net income (after deduction of
Executive Bonuses) for the Annual Bonus calculation year (i.e., for the 1998
Annual Bonus, 1999 pre-tax net income must exceed 1998 pre-tax net income by
12.5%); or
(2) Return on Equity (after deduction of Executive
Bonuses) must be at least 25% for the full year following the Annual Bonus
calculation year (i.e., for the 1998 Annual Bonus, return on equity must be at
least 25% in 1999;
Upon certification by the Committee that the above conditions have been met, the
Common Stock shall be released to Executive. If the Committee determines that
the above conditions have not been met as of the time they are required to be
met, the Common Stock shall be forfeited by Executive and returned to Employer.
(C) The performance criteria specified in Section
2(b)(ii)(B) shall be applicable to the Common Stock issued as part of the Annual
Bonus for the year 2000 only if this Agreement renews beyond its initial term or
a new employment agreement is entered between Executive and Employer which
extends employment through at least the end of 2001; if neither of these
conditions is met, then the Common Stock issued as part of the Annual Bonus for
the year 2000 will be released to Executive upon expiration of this Agreement
without further restriction. For purposes of determining any termination
payments owed to Executive under any other provisions of this Agreement, any
determination of whether the forfeiture conditions described in Section
2(b)(ii)(B) are met for any year of or after a termination of Executive shall be
made using accounting principles consistent with those applied for the year
prior to termination of Executive.
(D) For purposes of determining the amount of Common Stock
to be paid to Executive pursuant to Section 2(b)(ii), fair market value of the
Common Stock will be determined quarterly at the end of each quarter in which
the Annual Bonus is earned as the highest of: (x) the closing price on the last
trading day of the applicable quarter; (y) the average closing price for the 10
trading days prior to the end of the applicable quarter; or (z) $10 per share.
(E) Employer will use its best efforts to register for
resale all Common Stock issued to Executive as provided in Section 2(c)(ii)(B)
with the Securities and Exchange Commission pursuant to a registration statement
on Form S-3 (or such other form as is then available to the Company), which
registration statement shall be kept current and effective until the Common
Stock so issued is no longer subject to restrictions on resale under the Rules
of the Securities and Exchange Commission.
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<PAGE> 41
(F) To the extent that the total amount of quarterly
payments of Annual Bonus during any calendar year exceed the final Annual Bonus
amount as determined on the basis of Employer's audited financial statements for
such year, the overpayment will be returned first from the restricted stock
issued to Executive and held in escrow by Employer, in an amount equal to the
dollar amount of the overpayment divided by the weighted average price per share
used to determine all prior quarterly payments of Annual Bonus during the
applicable year, with any remaining overpayment to be paid in cash or, at the
option of the Executive, in Common Stock then owned by Executive, valued at the
weighted average price per share used to determine all prior quarterly payments
of Annual Bonus during the applicable year.
(c) Special Bonus. In addition to the Base Salary and Annual Bonus,
Employer shall pay annually to Executive a special bonus (the "Special Bonus")
the amount of which shall be determined as provided in Section 2(c)(i) below,
and paid in the manner provided in Section 2(c)(ii) below.
(i) Calculation. The Special Bonus shall equal an additional one
percent (1%) of the annual pre-tax net income (before payment of the Special
Bonus but after payment of the Executive Bonuses) of Employer for each year of
the term, if the conditions specified in Section 2(c)(ii) are met for the
applicable year that the Special Bonus is earned and the year following the
applicable year.
(ii) Payment. The Special Bonus shall be payable in cash within
five (5) days of Committee certification that the one of the two alternative
conditions specified in Section 2(c)(ii)(A) is met and one of the two
alternative conditions specified in Section 2(c)(ii)(B) is met:
(A) comparing the Special Bonus year with the year prior
to the Special Bonus year:
(1) the pre-tax net income reported by Employer for
the applicable year is at least 25% higher than the pre-tax net income for the
year preceding the applicable Special Bonus year (i.e., if pre-tax net income
for 1998 is 25% higher than pre-tax net income for 1997, the condition specified
in this Section 2(b)(ii)(A) will be met for the 1998 Special Bonus); or
(2) the Return on Equity for the applicable year is
at least 25% (i.e., if the Return on Equity for 1998 is 25%, the condition
specified in this Section 2(b)(ii)(A) will be met for the 1998 Special Bonus);
and
(B) comparing the Special Bonus year with the year after
the Special Bonus year:
(1) the pre-tax net income reported by Employer for
the year following the applicable Special Bonus year is at least 25% higher than
the pre-tax net income
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<PAGE> 42
for the applicable Special Bonus year (i.e., if pre-tax net income for 1999 is
25% higher than pre-tax net income for 1998, the condition specified in this
Section 2(b)(ii)(B) will be met for the 1998 Special Bonus); or
(2) the Return on Equity for the year following the
applicable Special Bonus year is at least 25% (i.e., if the Return on Equity for
1999 is 25%, the condition specified in this Section 2(b)(ii)(B) will be met for
the 1998 Special Bonus);
provided that the performance criteria specified in this Section 2(c)(ii)(B)
shall be applicable to the Special Bonus for the year 2000 only if this
Agreement renews beyond its initial term or a new employment agreement is
entered between Executive and Employer which extends employment through at least
the end of 2001; if neither of these conditions is met, then the Special Bonus
for the year 2000 will be paid upon expiration of this Agreement if pre-tax net
income for 2000 was 25% higher than pre-tax net income for 1999 or the Return on
Equity was 25% for 2000. For purposes of determining any termination payments
owed to Executive under any other provisions of this Agreement, any
determination of whether the conditions described in this Section 2(c)(ii) are
met for any year of or after a termination of Executive shall be made using
accounting principles consistent with those applied for the year prior to
termination of Executive.
(d) Reimbursement of Expenses. Executive shall be reimbursed for
Executive's reasonable and actual out-of-pocket expenses incurred by Executive
in performance of Executive's duties and responsibilities hereunder, provided
that Executive shall first furnish to Employer proper vouchers and/or receipts.
(e) Benefit Plans. Executive shall be entitled to participate in, and
shall be included in, such insurance, pension, profit sharing, stock option,
stock purchase and other employee benefit plans, excluding the employee cash
bonus pool, of Employer as are in effect from time to time during the term of
this Agreement and provided to other senior executive officers of Employer,
including, but not limited to, Employer's Supplemental Executive Retirement
Plan, as amended (all of which are collectively referred to herein as the
"Benefit Plans").
(f) Perquisites. Executive shall also be entitled to all perquisites
provided in accordance with Employer's policy for senior management executives
from time to time in effect (all of which are collectively referred to herein as
the "Perquisites"). Notwithstanding the foregoing, in no event shall each or any
of the Perquisites provided pursuant to the terms of this Section 2(f) be lesser
in value than such perquisites as were provided to Executive by Employer for the
year ended December 31, 1997. Perquisites provided pursuant to this Section 2(f)
shall include, without limitation, use of an automobile or automobile
allowances, expense allowances, vacation days, sick days and holidays, and
medical, dental and life insurance benefits.
(g) Stock Options. Upon approval of this Agreement by the stockholders
of the Company, the Company shall grant a Stock Option for 100,000 shares of
Common Stock, at an exercise price equal to 100% of the fair market value of the
Common Stock on the date of grant. The Option shall have a term of ten years,
and shall be exercisable at any time during
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<PAGE> 43
the term beginning six months after the date of grant, and shall be evidenced by
a Stock Option Agreement in the form attached hereto as Exhibit A.
3. DISABILITY.
(a) Termination Upon Disability. If, on account of any physical or
mental disability, Executive shall fail or be unable to perform under this
Agreement for any period of one hundred twenty (120) consecutive days or for an
aggregate period of one hundred twenty (120) or more days during any consecutive
twelve-month period, Employer may, at its option, at any time thereafter, upon
written notice to Executive, terminate the employment relationship provided for
in this Agreement. In such event, Executive's requirement to render services
hereunder and Employer's requirement to compensate Executive hereunder shall
terminate and come to an end upon the date provided in such notice.
(b) Disability Payment. Upon a termination of this Agreement pursuant to
this Section 3, Executive shall be entitled to receive, in addition to any
earned and unpaid Base Salary through the date of termination and any earned and
unpaid Annual and Special Bonuses through the last full quarter prior to
termination, free and clear of the forfeiture provisions of Section 2(b)(B), and
without regard to the conditions of Section 2(c), the following disability
compensation:
(i) a lump sum payment to be paid on the effective date of
termination pursuant to this Section 3, which shall equal the full Annual Bonus
(including the cash value of the Common Stock portion of the Annual Bonus)
earned, if any, at the end of the prior year;
(ii) payment of any Special Bonus calculated on the pre-tax net
income for the year prior to termination if the pre-tax net income or Return on
Equity target was met for the Special Bonus applicable year, without regard to
the pre-tax net income or Return on Equity for the year of termination (i.e., if
a termination occurs in 1999, the 1998 Special Bonus is due if 1998 pre-tax net
income was 25% higher than the 1997 pre-tax net income, or the 1998 Return on
Equity was 25%, without regard to 1999 pre-tax net income or Return on Equity);
(iii) Executive's Base Salary for one year following termination
of this Agreement payable not less frequently than monthly; and
(iv) use of an automobile or automobile allowance, full
automobile insurance coverage, and health and life insurance coverage under
any health and life insurance policies maintained by Employer for its other
senior executives, all of which shall be provided pursuant to the terms of
Section 2(f) hereof and shall continue to be provided without interruption
for the greater of one year following the effective date of termination
pursuant to this Section 3 or the remainder of the term of this Agreement.
(c) Additional Payment. If, after the end of the fiscal year following
the effective date of termination pursuant to this Section 3, it is determined
that the Annual Bonus compensation which would have been earned by Executive for
such year if the Executive had
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<PAGE> 44
continued to be employed under this Agreement would have exceeded the Annual
Bonus actually paid, Employer shall pay Executive a lump sum equal to the
difference between the Annual Bonus amount previously paid to Executive and the
Annual Bonus amount that would have been earned by Executive for the year of
termination. Such amount shall be paid on the earlier of ten (10) days after the
issuance of Employer's annual certified financial report or one hundred and
twenty (120) days after the end of the fiscal year. Executive shall not be
obligated to reimburse Employer if the Annual Bonus amount paid by Employer upon
termination exceeds the amount of any Annual Bonus that would have been earned
for the year of termination.
(d) Release of Restricted Stock. Upon a termination of employment
pursuant to this Section 3, all Common Stock held in escrow by Employer pursuant
to Section 2(b)(ii)(B) hereof as of the date of termination shall be released to
Executive and all forfeiture conditions on such Common Stock shall be removed.
(e) Disability Insurance. Employer may, at its option, apply for
disability income insurance and, if so, any obligation on the part of Employer
to pay Executive any payments on account of any physical or mental disability of
Executive as specified above, shall be reduced by the amount of any payments to
Executive under any such disability income policy. Any payments to Executive
under any state disability insurance shall not reduce the amount payable to
Executive under this Agreement.
4. DEATH.
(a) Termination Upon Death. In the event of Executive's death during the
term hereof, this Agreement shall terminate immediately.
(b) Termination Payments. Executive's personal representative shall be
entitled to receive, as a death benefit, in addition to any earned and unpaid
Base Salary through the date of death, any earned and unpaid Annual and Special
Bonuses through the last full quarter prior to termination, free and clear of
the forfeiture provisions of Section 2(b)(B), and without regard to the
conditions of Section 2(c), through the last full quarter prior to Executive's
death, and any other payments which Executive's personal representative may be
entitled to receive under any Benefit Plans:
(i) a lump sum to be paid within five (5) days of Executive's
death equal to the full Annual Bonus (including the cash value of the Common
Stock portion of the Annual Bonus) earned by the Executive at the end of the
prior year plus any Special Bonus calculated on the pre-tax net income for the
year prior to termination if the pre-tax net income or Return on Equity target
was met for the Special Bonus applicable year, without regard to the pre-tax net
income or Return on Equity for the year of termination (i.e., if a termination
occurs in 1999, the 1998 Special Bonus is due if 1998 pre-tax net income was 25%
higher than the 1997 pre-tax net income, or the 1998 Return on Equity was 25%,
without regard to 1999 pre-tax net income or Return on Equity); and
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<PAGE> 45
(ii) a lump sum to be paid within five (5) days of Executive's
death equal to Executive's annual Base Salary.
(c) Additional Payment. If, after the end of the fiscal year in which
the Executive's death occurred, it is determined that the Annual Bonus
compensation which would have been earned by Executive for such year would have
exceeded the Annual Bonus for the prior year, Employer shall pay Executive's
personal representatives a lump sum equal to the difference between the Annual
Bonus amount previously paid to Executive's personal representatives and the
Annual Bonus amount that would have been earned by Executive for the year in
which his death occurred. Such amount shall be paid on the earlier of ten (10)
days after the issuance of Employer's annual certified financial report or one
hundred and twenty (120) days after the end of the fiscal year. Executive's
personal representatives shall not be obligated to reimburse Employer if the
Annual Bonus amount paid by Employer under this Section 4 exceeds the amount of
any Annual Bonus that would have been earned by Executive for the year in which
his death occurred.
(d) Release of Restricted Stock. All Common Stock held in escrow by
Employer pursuant to Section 2(b)(ii)(B) hereof as of the date of Executive's
death shall be released to Executive and all forfeiture conditions on such
Common Stock shall be removed.
(e) Life Insurance. Employer may maintain life insurance on the life of
Executive in favor of the Employer. Executive shall have no interest whatsoever
in any such policy or policies, except as otherwise provided in any split dollar
life insurance agreements, but Executive shall, at the request of Employer,
submit to such medical examinations, supply such information, consent to such
blood tests and execute such documents as may be required by the insurance
company or companies to whom Employer has applied for such insurance.
5. TERMINATION FOR CAUSE. Employer may discharge Executive at any time for
"Cause," which shall mean (i) theft or embezzlement by Executive from Employer
or its affiliates, (ii) fraud or other acts of dishonesty by Executive in the
conduct of Employer's business or the fulfillment of Executive's assigned
responsibilities hereunder, (iii) Executive's conviction of, or plea of nolo
contendere to, any felony or any crime involving moral turpitude, (iv)
Executive's willfully and knowingly taking any action which is materially
injurious to Employer's business or reputation. Within 10 business days
following receipt of written notice of termination for Cause, Executive shall
have the right to demand and, if demanded, to receive within 30 days, an
opportunity to respond and defend himself before the Board and to have the Board
by resolution confirm by a three-fourths affirmative vote that Employer has
grounds to terminate Executive for Cause. If the Board does not determine that
Cause exists, Executive shall have the option to treat his employment as not
having terminated or as having been terminated by Employer without cause as
defined in Section 6 herein. Without limiting the foregoing, nothing in this
Section 5 shall be construed to require that Executive demand a hearing before
the Board as a condition to pursuing any claim or action with respect to the
matters contained in this Agreement. The occurrence of any event constituting
cause for discharge shall permit, but not require, Employer to terminate
Executive for Cause; provided, however, that Employer's decision not to
terminate the Executive upon
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<PAGE> 46
the occurrence of an event constituting cause for discharge shall not operate as
a waiver of its rights provided in this Section 5 or otherwise.
If Employer terminates Executive for Cause, Employer shall be
obligated to provide to Executive only the Base Salary provided for in Section
2(a) herein, any earned and unpaid Annual Bonus through the last full quarter
prior to termination, plus any other benefits actually earned or accrued by
Executive through the date of termination of Executive, at the rate in effect on
the date of such termination. Any Common Stock held in escrow pursuant to
Section 2(b)(ii)(B) on the date of termination shall continue to be held in
escrow after termination of employment until the date for determination of
whether the conditions specified in Section 2(b)(ii)(B) are met; if such
conditions are met, the Common Stock held in escrow shall be released to
Executive, and if such conditions are not met, the Common Stock shall be
forfeited. Executive shall retain the right to receive any Special Bonus for
each year in which Executive was employed under this Agreement, subject to the
Company's attainment of the performance targets for such Special Bonus in
accordance with Section 2(c)(ii) hereof.
6. TERMINATION WITHOUT CAUSE. This Agreement may be terminated without Cause by
Employer or Executive upon 30 days prior written notice.
(a) Termination by Executive. If Executive terminates this Agreement for
any reason other than as provided in Section 7 hereof, Employer shall be
obligated to provide to Executive the Base Salary through the date of
termination provided for in Section 2(a) hereof, any earned and unpaid Annual
Bonus through the last full quarter prior to termination, plus any other
benefits actually earned or accrued by Executive through the date of termination
of Executive, at the rate in effect on the date of such termination. Any Common
Stock held in escrow pursuant to Section 2(b)(ii)(B) on the date of termination
shall continue to be held in escrow after termination of employment until the
date for determination of whether the conditions specified in Section
2(b)(ii)(B) are met; if such conditions are met, the Common Stock held in escrow
shall be released to Executive, and if such conditions are not met, the Common
Stock shall be forfeited. Executive shall retain the right to receive any
Special Bonus for each year in which Executive was employed under this
Agreement, subject to the Company's attainment of the performance targets for
such Special Bonus in accordance with Section 2(c)(ii) hereof.
(b) Termination by Employer. In the event of a termination of employment
by Employer without cause, except as otherwise provided in Sections 3, 4 or 7
hereof, Employer shall be required to provide, in addition to any earned and
unpaid Base Salary through the date of termination as provided for in Section
2(a) hereof, and any earned and unpaid Annual Bonus through the last full
quarter prior to termination, the following compensation to Executive
(collectively, the "Termination Payments"):
(i) Benefits. Use of an automobile or automobile allowance, full
automobile insurance coverage, and health and life insurance coverage under
any health and life insurance
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<PAGE> 47
policies maintained by Employer for its other senior executives, all of which
shall be provided pursuant to the terms of Section 2(f) herein and shall
continue to be provided without interruption for one year following the
effective date of termination pursuant to this Section 6;
(ii) Cash Payment. A lump sum payment, to be paid on the
effective date of termination pursuant to this Section 6, which shall consist
of:
(A) an amount equal to the annual Base Salary as then
adjusted;
(B) an amount equal to the Annual Bonus compensation
(including the cash value of the Common Stock portion of Annual Bonus) earned
by Executive at the end of the prior year;
(C) payment of any Special Bonus calculated on the pre-tax
net income for the year prior to termination if the pre-tax net income or Return
on Equity target was met for the Special Bonus applicable year, without regard
to the pre-tax net income or Return on Equity for the year of termination (i.e.,
if a termination occurs in 1999, the 1998 Special Bonus is due if 1998 pre-tax
net income was 25% higher than the 1997 pre-tax net income, or the 1998 Return
on Equity was 25%, without regard to 1999 pre-tax net income or Return on
Equity); and
(D) the cash value of all vacation, holiday and sick days
which have accrued up to the date of termination and which would have accrued
for one year following termination pursuant to this Section 6.
(c) Additional Cash Payment. Employer shall make an additional payment
to Executive, to be paid on the earlier of ten (10) days after the issuance of
Employer's annual certified financial report or one hundred and twenty (120)
days after the end of the fiscal year following the end of the calendar year of
termination, if it is determined that the Annual Bonus and/or the Special Bonus
compensation which would have been earned by Executive for the year of
termination if the Executive had continued to be employed under this Agreement
would have exceeded the Annual Bonus and/or Special Bonus amount actually paid
pursuant to Section 6(b)(ii), equal to the difference between the Annual Bonus
and/or Special Bonus amount previously paid to Executive pursuant to Section
6(b)(ii) and the Annual Bonus and/or Special Bonus amount that would have been
earned by Executive for the year of termination. (Executive shall not be
obligated to reimburse Employer if the Annual Bonus and/or Special Bonus amount
paid by Employer upon termination exceeds the amount of any Annual Bonus and/or
Special Bonus that would have been earned in the year of termination.)
(d) Release of Restricted Stock. All Common Stock held in escrow by
Employer pursuant to Section 2(b)(ii)(B) hereof as of the date of termination by
Employer under this Section 6 shall be released to Executive and all forfeiture
conditions on such Common Stock shall be removed.
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7. CORPORATE CHANGES.
(a) Definition. For purposes of this Section 7, a "Corporate Change"
shall be deemed to have occurred upon the occurrence of any one (or more) of the
following events: (i) a transaction in which Employer ceases to be an
independent publicly owned corporation that is required to file quarterly and
annual reports under the Securities Exchange Act of 1934, (ii) a sale or other
disposition of all or substantially all of the assets, or a majority of the
outstanding capital stock, of Employer (including but not limited to the assets
or stock of Employer's subsidiaries that results in all or substantially all of
the assets or stock of Employer on a consolidated basis being sold), (iii) as a
result of, or in connection with, any cash tender offer, exchange offer, merger
or other business combination, sale of assets or combination of the foregoing,
persons who were directors of Employer just prior to such event(s) shall cease
to constitute a majority of the Board, (iv) any person, including a group as
defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended,
becomes the beneficial owner of shares of Employer with respect to which twenty
percent (20%) or more of the total number of votes for the election of the Board
may be cast, (v) the Employer assigns to Executive duties, functions,
responsibilities or authority substantially inferior to the duties, functions,
responsibilities and authority contemplated by Section 1 (b) herein, or (vi)
Employer's stockholders cause a change in the majority of the members of the
Board within a twelve (12) month period; provided, however, that the election of
one or more new directors shall not be deemed to be a change in the membership
of the Board if the nomination of the newly elected directors was approved by
the vote of three-fourths of the directors then still in office who were
directors at the beginning of such twelve (12) month period.
(b) Payments. At any time within one year following the occurrence of a
Corporate Change, upon a termination of employment by Executive or by Employer
for any reason other than Cause as provided in Section 5 hereof, Executive shall
be entitled, in addition to any earned and unpaid Base Salary as of the date of
termination provided for in Section 2(a) hereof, and any earned and unpaid
Annual Bonus through the last full quarter prior to termination, to the
following payments and benefits (collectively, the "Corporate Changes
Termination Payment"):
(i) use of an automobile or automobile allowance, full automobile
insurance coverage, and health and life insurance coverage under any health
and life insurance policies maintained by Employer for its other senior
executive officers, all of which shall be provided pursuant to the terms of
Section 2(f) herein and shall continue to be provided without interruption for
eighteen (18) months following the effective date of termination;
(ii) a lump sum payment, to be paid within five (5) days after
the date of notice of termination by Executive or Employer, which shall consist
of:
(A) two times the annual Base Salary in effect on the date
of termination,
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(B) two times the Annual Bonus compensation (including the cash
value of the Common Stock portion of the Annual Bonus) earned by Executive at
the end of the prior year, and
(C) the cash value of all vacation, holiday and sick days
which have accrued up to the date of termination and which would have accrued
for eighteen (18) months following the date of termination;
(D) payment of any Special Bonus calculated on the pre-tax
net income for the year prior to termination if the pre-tax net income or Return
on Equity target was met for the Special Bonus applicable year, without regard
to the pre-tax net income or Return on Equity for the year of termination (i.e.,
if a termination occurs in 1999, the 1998 Special Bonus is due if 1998 pre-tax
net income was 25% higher than the 1997 pre-tax net income, or the 1998 Return
on Equity was 25%, without regard to 1999 pre-tax net income or Return on
Equity); and
(E) in lieu of the Special Bonus that might have been
earned for the year of termination, an additional payment equal to one percent
(1%) of the annualized pre-tax net income for the year of termination as
determined by annualizing the pre-tax net income for the year of termination up
to the last full month prior to the termination.
(iii) release of all Common Stock held in escrow by Employer
pursuant to Section 2(b)(ii)(B) hereof and removal of all forfeiture conditions
on such Common Stock.
(c) Condition of Closing. If Executive gives notice of termination
pursuant to this Section 7 prior to the closing of a transaction referred to in
Section 7(a)(i), (ii) or (iii) hereof, the Corporate Changes Termination Payment
must be made a condition to and must be paid concurrently with the closing of
such a transaction, and the successor entity must agree to assume Employer's
obligations under Sections 7(d) and (e) hereof.
(d) Additional Payment. If, following the end of the year in which a
termination occurs pursuant to this Section 7, it is determined that the value
of two times the full Annual Bonus compensation which would have been earned by
Executive for such year if the Executive had continued to be employed under this
Agreement would have exceeded the Annual Bonus amount actually paid pursuant to
Section 7(b)(ii)(B) hereof, Employer shall pay Executive a lump sum payment
equal to the difference between the Annual Bonus amount previously paid to
Executive and two times the Annual Bonus amount that would have been earned by
Executive in the termination year. Such amount shall be paid on the earlier of
ten (10) days after the issuance of Employer's annual certified financial report
or one hundred twenty (120) days after the end of the fiscal year. Executive
shall not be obligated to reimburse Employer for any Annual Bonus payment
included in the Corporate Changes Termination Payment in excess of any Annual
Bonus which would have been earned in the termination year.
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(e) Adjustment of Special Bonus Payment. If, following the end of the
year in which a termination occurs pursuant to this Section 7, it is determined
that the Special Bonus that would have been earned by Executive for such year if
the Executive had continued to be employed under this Agreement would have
exceeded the Special Bonus amount actually paid pursuant to Section 7(b)(ii)(E)
hereof, Employer shall pay Executive a lump sum payment equal to the difference
between the Special Bonus amount previously paid to Executive and the Special
Bonus amount that would have been earned by Executive in the termination year.
Alternatively, if it is determined that the Special Bonus that would have been
earned by Executive for such year if the Executive had continued to be employed
under this Agreement would have been less than the Special Bonus amount actually
paid pursuant to Section 7(b)(ii)(E) hereof, Executive shall pay Employer a lump
sum payment equal to the difference between the Special Bonus amount previously
paid to Executive and the Special Bonus amount that would have been earned by
Executive in the termination year. For purposes of this paragraph, annual
pre-tax net income and each of the components of annual pre-tax net income shall
be determined as consistently as possible with Employer's methods of
determination of such amounts prior to termination, with allocations of each
category of revenues and expenses to the extent necessary to reflect as closely
as possible the operations of Employer as if it were operated as a stand-alone
entity after the Corporate Change. In either case, the amount of the adjustment
shall be paid by the appropriate party on the earlier of ten (10) days after the
issuance of Employer's annual certified financial report or one hundred twenty
(120) days after the end of the fiscal year.
(f) Tax Limitations on Corporate Changes Payments. If the aggregate of
all payments, including but not limited to, Corporate Changes Termination
Payments specified in Section 7(b) hereof (the "Aggregate Amount"), would
constitute a "parachute payment" (as defined in Section 280G of the Internal
Revenue Code of 1986, as amended or supplemented (the "Code"), the Corporate
Changes Termination otherwise payable to the Executive pursuant to Section 7(b)
herein shall be equal to the higher of: (i) the amount (referred to herein as
the "Reduced Amount") that would result in no portion of the Aggregate Amount
being subject to the excise tax imposed by Section 4999 of the Code, or (ii) the
full Aggregate Amount if the net after-excise tax payments to Executive would
exceed the Reduced Amount. The determination of the Corporate Changes
Termination Payment, the Reduced Amount and the net after-tax amount payable to
Executive on the full Aggregate Amount shall be made by the Executive and the
Employer in good faith, and in the event they disagree, such determination shall
be made by means of arbitration to be conducted at the Employer's expense. Any
such arbitration shall be conducted in Los Angeles, California, by one
arbitrator, who shall be a member of a nationally recognized accounting firm
that is not then engaged by the Employer or any of its major stockholders, and
who shall be jointly designated by the parties. If the parties cannot agree on
the selection of an arbitrator, Employer's then current independent auditors
shall select such arbitrator. The findings of the arbitrator shall be conclusive
and binding on the parties. For purposes of this Section 7(e), the net after-tax
amount payable to Executive shall mean the present value, as determined in
accordance with Section 280G(d)(4) of the Code, of any payment or distribution
in the nature of compensation to or for Executive's benefit, whether paid or
payable pursuant to this Agreement or otherwise, net of all taxes
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imposed on the Executive with respect thereto under Sections 1 and 4999 of the
Code, determined by applying the highest marginal rate under Section 1 of the
Code.
8. RIGHTS TO PROPRIETARY INFORMATION.
(a) Proprietary Information. For purposes of this Agreement, the term
"Proprietary Information" means and includes: all written, oral and visual
information about Employer's customers, clients, employees, consultants and
brokers that is not readily known or available to the public, or that Executive
learns of or acquires through his employment by Employer; and financial
information, marketing techniques and materials, marketing and development
plans, broker lists, customer lists, other information concerning brokers and
customers, pricing information and policies, price lists, employee files,
corporate and business contacts and relationships, corporate and business
opportunities, telephone logs and messages, video or audio tapes and/or disks,
photographs, film and slides, including all negatives and positive and prints,
computer disks and files, rolodex cards, addresses and telephone numbers,
contracts, releases, other writings of any kind, and any and all other materials
of a proprietary nature to which Executive is exposed or has access as a
consequence of his employment by Employer. All of the Proprietary Information
is, and at all times shall be and remain, private and confidential and is the
sole and exclusive property of, and owned and controlled by Employer, regardless
of whether such Proprietary Information is in tangible or intangible form. The
parties understand that information that is generally known to the public, or
which Executive acquired other than as a consequence of his employment by
Employer, such as in the course of similar employment or work elsewhere, shall
not be deemed part of the Proprietary Information.
(b) Rights to Proprietary Information. All Proprietary Information shall
be the sole property of Employer, its successors and assigns, and Employer, its
successors and assigns shall be the sole owner of all patents, trademarks,
service marks and copyrights, and other rights (collectively referred to herein
as "Rights") pertaining to Proprietary Information. Executive hereby assigns to
Employer any rights Executive may have or acquire in Proprietary Information or
Rights pertaining to the Proprietary Information. Executive further agrees as to
all Proprietary Information to assist Employer or any person designated by it in
every necessary or appropriate manner (but at Employer's expense) to obtain and
from time to time enforce Rights relating to said Proprietary Information
throughout the universe. Executive will execute all documents for use in
applying for, obtaining and enforcing such Rights on such Proprietary
Information as Employer may desire, together with any assumptions thereof to
Employer or persons designated by it. Executive's obligation to assist Employer
or any person designated by it in obtaining and enforcing Rights relating to
Proprietary Information shall continue beyond the cessation of his employment;
provided, however, that Employer shall compensate Executive at a reasonable rate
after the cessation of employment for time actually spent by Executive upon
Employer's request for such assistance. In the event that Employer is unable,
after reasonable effort, to secure Executive's signature on any document or
documents needed to apply for or enforce any Right relating to Proprietary
Information, whether because of his physical or mental incapacity or for any
other reason whatsoever, Executive hereby irrevocably designates and appoints
Employer and its duly authorized
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officers and agents as his agents and attorneys-in-fact to act for and on his
behalf in the execution and filing of any such application and in furthering the
application for an enforcement of Rights with the same legal force and effect as
if such acts were performed by Executive.
(c) Confidential Information. At all times, both during his employment
and after the cessation of employment, whether the cessation is voluntary or
involuntary, for any reason or no reason, or by disability, Executive will keep
in strictest confidence and trust all Proprietary Information, and Executive
will not disclose, use, or induce or assist in the use or disclosure of any
Proprietary Information or Rights pertaining to Proprietary Information, or
anything related thereto, without the prior, express written consent of
Employer, except as may be necessary in the ordinary course of performing his
duties as an employee of Employer. Executive recognizes that Employer has
received and in the future will receive from third parties their confidential,
trade secret, or Proprietary Information subject to a duty on Employer's part to
maintain the confidentiality of such information and to use it only in
connection with the performance of his duties as an employee of Employer.
Executive agrees that Executive owes Employer and such third parties, during his
employment and thereafter, a duty to hold all such confidential, trade secret,
or Proprietary Information in the strictest confidence, and Executive will not
disclose, use, or induce or assist in the use or disclosure of any such
confidential, trade secret, or Proprietary Information without the prior,
express written consent of Employer, except as may be necessary in the ordinary
course of performing his duties as an employee of Employer consistent with
Employer's agreement with such third party.
(d) Work for Hire. Executive agrees that all material or other original
works of authorship written, created, or developed by Executive in connection
with his employment hereunder (whether alone or in conjunction with any other
person), and all rights of any and every kind whatsoever in and to the results
and proceeds of Executive's services rendered hereunder, whether or not such
rights are now known, recognized or contemplated, and the complete,
unconditional and unencumbered ownership in and to such materials, results and
proceeds for all purposes whatsoever shall be "works for hire," as that term is
defined in the United States Copyright Act (17 U.S.C. Section 101), and shall be
the sole and absolute property of Employer, its successors and assigns, and
Executive agrees that he/she does not have and will not claim to have, either
under this Agreement or otherwise, any right, title or interest of any kind or
nature whatsoever in or to said property.
(e) Disclosure to Employer. Executive will promptly disclose to
Employer, and Employer hereby agrees to receive such disclosures in confidence,
all discoveries, developments, designs, improvements, inventions, software
programs, processes, techniques, know-how, negative know-how and data, whether
or not patentable or registrable under patent, copyright or similar statutes or
reduced to practice, made or conceived or reduced to practice or learned by
Executive, either alone or jointly with others during the period of his
employment, for the purpose of permitting Employer to determine whether they
constitute Proprietary Information, or copyrightable or patentable material.
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9. NON-COMPETITION/NON-SOLICITATION.
(a) Non-Competition. During the period of his employment, Executive will
not directly or indirectly engage in any activity which competes with Employer,
or which Employer shall determine in good faith to be in competition with
Employer or any subsidiary or affiliate of Employer. In addition, during his
employment and after the cessation of employment, Executive will not, alone or
in concert with others, or on his own behalf, or on behalf of any other person,
in any way use or disclose Proprietary Information in order to solicit, entice,
or in any way divert any broker to do business with any competitor of Employer
or any subsidiary or affiliate of Employer; provided that it shall not be deemed
a breach of this obligation for the Executive, after termination of employment,
to conduct general solicitations of brokers or borrowers of Employer which are
not targeted specifically to Employer's brokers or borrowers. During his
employment, Executive agrees not to plan or otherwise take any preliminary
steps, either alone or in concert with others, or on his own behalf, or on
behalf of any other person, to set up or engage in any business enterprise that
would be in competition with Employer or any subsidiary or affiliate of
Employer.
(b) Non-Solicitation. During his employment and for a period of two (2)
years after the cessation of employment for any reason other than a termination
under Section 7(b) hereof, or for a period of one (1) year after a termination
of employment under Section 7(b), Executive will not, either directly or
indirectly, either alone or in concert with others or on his own behalf or on
behalf of any other person, solicit, divert, entice, recruit, or employ any
employee of or consultant to Employer, or any subsidiary or affiliate of
Employer, to leave employment with or otherwise terminate employment with
Employer or any subsidiary or affiliate of Employer or work for any competitor
of Employer or any subsidiary or affiliate of Employer.
(c) Enforcement. Executive recognizes that the immediate and continuous
performance of his obligations in this paragraph 9 is extremely important and
valuable to Employer because of the extensive and costly training given to its
employees and the knowledge gained by such employees of the Proprietary
Information used by Employer in its operations. In the event of his breach of
those obligations, Executive therefore agrees that Employer shall be entitled to
estimated or liquidated damages, as defined herein. For each former employee of
Employer whom Executive solicits, diverts, recruits, or employs in violation of
this paragraph 9, and for each broker or mortgage loan customer of Employer whom
such former employee handled for Employer and whom the former employee contacts
or otherwise services or works with for his benefit or for the benefit of anyone
in privity with Executive, including any competitor of Employer or any
subsidiary or affiliate of Employer with whom Executive accepts employment in
breach of this paragraph 9, Executive shall pay Employer liquidated damages. The
liquidated damages for each such broker or customer shall be (i) the amount of
profit earned by Employer from mortgage loan referrals from each broker, or the
amount of profit earned on loans to each mortgage loan customer, during the
twelve (12) months immediately preceding termination of such former Employer
with Employer, and (ii) the amount of cost to Employer to recruit and train a
replacement for each
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such former employee plus the first six (6) month's salary paid to the
replacement(s) for the former employee. If the former employee was not in a
position of have contacts with brokers or to otherwise generate business from
mortgage loan customers, the liquidated damages shall be the amount of the cost
to Employer to recruit and train a replacement(s) for the former employee.
Executive further agrees that the cost to recruit and train replacement(s) for
each former employee as described in this paragraph 9 will be part of Employer's
damages and that the profit formula for former employees who had broker or
mortgage loan business contact, and the first six (6) months salary paid to the
replacement(s) for former employees, are conservative estimates of the value, or
a portion of the value, of the former employee to Employer.
10. SURRENDER OF PROPRIETARY INFORMATION. In the event of the termination of his
employment, Executive will deliver to Employer all devices, records, sketches,
reports, proposals, broker information, lists, correspondence, equipment,
software, computer disks, documents, photographs, photostats, negatives,
undeveloped film, notes, drawings, specifications, tape recordings or other
electronic recordings, programs, data and other materials or property of any
nature belonging to Employer or pertaining to his work with Employer, and
Executive will not take with Executive, or allow a third party to take, any of
the foregoing or any reproduction of any of the foregoing.
11. SUCCESSORS; BINDING AGREEMENT.
(a) Successors. Employer will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of Employer to expressly assume
and agree to perform this Agreement in the same manner and to the same extent
that Employer would be required to perform it if no such succession had taken
place. Any failure of Employer to obtain such assumption and agreement prior to
the effectiveness of any such succession shall be a material breach of this
Agreement and shall entitle Executive to compensation from Employer in the same
amount and on the same terms as he would be entitled to hereunder if Employer
were to terminate employment pursuant to Section 7 hereof, except that for
purposes of implementing the foregoing, the day before any such succession
becomes effective shall be deemed the date that payment is due. As used in this
Agreement, "Employer" shall mean Employer as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
(b) Successors. This Agreement shall inure to the benefit of, and be
enforceable by, Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
Executive should die while any amount would still be payable to him hereunder if
he had continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to his devisees,
legatee or other designees, or if there is no such designee, to his estate.
12. NOTICES. All notices, requests, demands and other communications provided
for by this Agreement shall be in writing and shall be deemed to have been given
at the time
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delivered, if personally delivered, transmitted by facsimile transmission or
deposited for mailing at any general or branch United States Post Office
enclosed in a registered or certified postpaid envelope and addressed as
follows:
If to Employer:
PacificAmerica Money Center, Inc.
21031 Ventura Boulevard
Woodland Hills, CA 91364
Attention: Charles J. Siegel, Chief Financial Officer
with copies to:
Jeffer, Mangels, Butler & Marmaro
2121 Avenue of the Stars
Los Angeles, CA 90067
Attention: Catherine De Bono Holmes, Esq.
and
PacificAmerica Money Center, Inc.
21031 Ventura Boulevard
Woodland Hills, CA 91364
Attention: Board of Directors
If to Executive:
Joel R. Schultz
The parties hereto may designate a different place at which notice shall be
given, provided, however, that any such notice of change of address shall be
effective only upon receipt.
13. ENTIRE UNDERSTANDING. This Agreement sets forth the entire understanding of
the parties hereto with respect to the subject matter hereof and supersedes all
prior written or oral agreements. This Agreement specifically replaces the
Employment Agreement dated June 27, 1996, as amended by Amendment No. One
thereto dated as of April 17, 1997, and Amendment No. Two thereto dated as of
February 17, 1998 (the "Prior Employment Agreement"), for all periods beginning
January 1, 1998. To the extent of any inconsistencies between this Agreement and
Employer's Employee Handbook, as currently in effect and as amended from time
to time in the future, the provisions of this Agreement shall override
the provisions of the Handbook. This Agreement may not be modified, amended, or
terminated except by another instrument in writing executed by the parties
hereto.
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14. GOVERNING LAW. This Agreement and all rights, obligations and liabilities
arising hereunder shall be construed and enforced in accordance with the laws of
the State of California.
15. ATTORNEY'S FEES. In the event it becomes necessary to commence any
proceeding or action to enforce the provisions of this Agreement, the court
before whom such action shall be tried may award to the prevailing party all
costs and expenses thereof, including but not limited to reasonable attorneys
fees, the usual, customary and lawfully recoverable Court costs, and all other
expenses in connection therewith. Executive shall be deemed to be the prevailing
party if he is awarded any amounts in any such proceeding or action. Employer
shall pay and be responsible for all attorneys and related fees, expenses or
costs incurred by Executive, if Employer, or any stockholder of Employer
contests the validity or enforceability of this Agreement or any part hereof.
16. INTEREST ON AMOUNTS DUE. In addition to the amounts payable to Executive as
provided herein, Employer shall further be required to pay interest upon any
amount owed hereunder and not paid on the date such amount is owed, at a rate of
nine points above the Bank of America reference rate, as determined on the date
any such amount is due. If such interest rate exceeds the maximum interest
permitted by law, then the rate shall be the maximum rate of interest permitted
by law.
17. ADJUSTMENT OF AMOUNTS PREVIOUSLY PAID DURING 1998. If this Agreement is
approved by the stockholders at the 1998 Annual Meeting of Stockholders, the
Corporation shall make a one time adjustment payment, in stock or cash, as
appropriate under the terms of this Agreement, so that the total amount of
compensation paid to Executive for the period beginning January 1, 1998,
including the adjustment payment under this Section 17 and all payments made
under the Prior Employment Agreement relating to the period beginning January 1,
1998, equal to the total compensation that would have been paid had this
Agreement been in effect from January 1, 1998. The amount of Common Stock to be
issued for the 1998 first quarter bonus shall be based upon the fair market
value of the Common Stock, with fair market value determined in accordance with
Section 2(b)(ii)(C) hereof as of March 31, 1998.
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The parties hereto have executed this Agreement on the day and year
first above written.
PACIFICAMERICA MONEY CENTER, INC.
___________________________ By: _____________________________
JOEL R. SCHULTZ Charles J. Siegel
Chief Financial Officer
Attest:
By:________________________
Richard B. Fremed,
Corporate Secretary
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EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") is entered into as
of January 1, 1998, by and between PACIFICAMERICA MONEY CENTER, INC., a Delaware
corporation (hereinafter referred to as "Employer") and RICHARD D. YOUNG
(hereinafter referred to as "Executive"), upon the following terms and
conditions:
1. TERM OF AGREEMENT; DUTIES.
(a) Term. Employer hereby agrees to employ Executive as the Senior
Executive Vice President and Chief Operating Officer of Employer, President and
Chief Operating Officer of Pacific Thrift and Loan Company, Inc., a California
corporation ("Pacific Thrift"), and Senior Executive President and Chief
Operating Officer of PacificAmerica Money Centers, Inc., a Delaware corporation
("Centers"), both of which are operating subsidiaries of the Employer, for a
term commencing on the date hereof, subject to approval by the holders of a
majority of the outstanding shares of common stock of Employer, and expiring on
December 31, 2000. Executive hereby agrees to accept such employment for such
term, subject to earlier termination under the circumstances provided herein.
The term of this Agreement shall be extended automatically to cover successive
terms of one year commencing on each anniversary date of the date hereof after
the initial three-year term, unless, at least six months prior to the end of the
initial term or any renewal term hereof, Executive gives written notice to the
Board of Directors of Employer (the "Board"), or Employer gives written notice
to Executive, of an intent to terminate this Agreement at the end of such term.
(b) Duties. Executive, subject to the direction and control of the
Board, shall devote all of Executive's productive time, attention and energies
to discharging, and shall perform, such executive duties and managerial
responsibilities as may from time to time be specified by Employer, and will use
Executive's best efforts to promote the interests of Employer and its
subsidiaries and affiliates. The performance of such duties and responsibilities
shall be Executive's exclusive employment for compensation; provided, how ever,
that nothing herein contained shall be deemed to limit Executive's right, with
the consent of the Board, to engage in other activities that do not interfere
with Executive's duties hereunder.
2. COMPENSATION. As compensation for the services to be rendered by Executive
hereunder during the term of Executive's employment, including all services to
be rendered as an officer and executive of Employer, its subsidiaries and
affiliates, Employer agrees to pay Executive the following compensation:
(a) Base Salary. During the term of this Agreement, Employer
shall pay Executive a salary at an annual base rate of Three Hundred Seventy
Five Thousand Dollars ($375,000) per year, which shall be adjusted annually to
reflect any increase from the previous year in the Consumer Price Index for the
Los Angeles, California area (the "Base Salary"). The applicable Base Salary
shall be payable not less frequently than monthly in accordance
<PAGE> 59
with the regular salary procedure from time to time adopted by Employer. There
shall be deducted from all compensation paid to Executive such sums, including
but not limited to Social Security, income tax withholding, employment
insurance, and any and all other such deductions, as Employer is by law
obligated to withhold.
(b) Guaranteed Bonus. Employer shall pay Executive a guaranteed
bonus (the "Guaranteed Bonus") equal to $150,000, payable in three annual
installments of $50,000 each on July 1 of each year during the term of this
Agreement; provided that any unpaid installments shall be immediately due and
payable to Executive upon a termination of employment for any reason.
(c) Annual Bonus. In addition to the Base Salary, Employer shall
pay Executive an annual bonus (the "Annual Bonus"), the amount of which shall be
determined in the manner provided in Section 2(c)(i) below, and paid in the
manner provided in Section 2(c)(ii) below.
(i) Calculation. The Annual Bonus shall be equal to: (x)
two and one-half percent (2 1/2%) of the annual net pre-tax profits of Employer
(before deduction of the Annual Bonus payable to Executive and to Joel R.
Schultz under an employment agreement with Employer dated of even date herewith,
referred to herein collectively as "Executive Bonuses") if Employer earns annual
net after-tax profits (after payment of Executive Bonuses) equal to a minimum
annual Return on Equity (as defined below) in excess of ten percent (10%); or
(y) five percent (5%) of the annual net pre-tax profits of Employer (before
deduction of Executive Bonuses) if Employer earns annual net after-tax profits
(after payment of Executive Bonuses) equal to a minimum annual Return on Equity
in excess of twenty percent (20%).
As used in this Agreement, net pre-tax profits and net after-tax profits refer
to the net pre-tax profits and net-after tax profits of Employer on a
consolidated basis as determined under generally accepted accounting principles.
Any determination of the Annual Bonus for any year of or after a termination of
Executive for purposes of determining any termination payments owed to Executive
under any other provisions of this Agreement shall be made using accounting
principles consistent with those applied for the year prior to termination of
Executive. As used in this Agreement, Return on Equity means net-after tax
profits of Employer for the applicable year as a percentage of stockholders'
equity as of January 1 of the applicable year. To the extent that the total
Executive Bonuses determined under this formula result in the reduction of
annual net after-tax profits of Employer to an amount less than the applicable
minimum Return on Equity, then the amount of Executive Bonuses shall be reduced
to such amount as will result in Employer retaining the applicable minimum
Return on Equity, and the reduced amount shall be divided equally between each
of Executive and Schultz.
(ii) Payment. The Annual Bonus will be payable in
quarterly installments during the year in which it is earned, determined by
annualizing the quarterly net pre-tax profits, net after-tax profits and Return
on Equity for each of the first three quarters of the year, with a final
determination of the total Annual Bonus to be made within one business
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day following the release of Employer's audited consolidated financial
statements for the year (the "Annual Bonus Determination Date"). Each
installment will be paid on or before the fifth business day following the date
of certification by the Executive Compensation Committee of the Board (the
"Committee") that the required performance levels have been met for the
applicable quarter or year, in the following manner:
(A) 50% will be paid in cash (as to which the forfeiture
conditions described in paragraph (B) below shall not apply); and
(B) 50% will be paid in common stock of Employer ("Common
Stock"), to be held in escrow by Employer until either of the following
forfeiture conditions have been met, as certified by the Committee:
(1) pre-tax net income (after deduction of
Executive Bonuses) for the full year following the Annual Bonus calculation year
must be at least 12.5% higher than pre-tax net income (after deduction of
Executive Bonuses) for the Annual Bonus calculation year (i.e., for the 1998
Annual Bonus, 1999 pre-tax net income must exceed 1998 pre-tax net income by
12.5%); or
(2) Return on Equity (after deduction of Executive
Bonuses) must be at least 25% for the full year following the Annual Bonus
calculation year (i.e., for the 1998 Annual Bonus, return on equity must be at
least 25% in 1999);
Upon certification by the Committee that the above conditions have been met, the
Common Stock shall be released to Executive. If the Committee determines that
the above conditions have not been met as of the time they are required to be
met, the Common Stock shall be forfeited by Executive and returned to Employer.
(C) The performance criteria specified in Section
2(c)(ii)(B) shall be applicable to the Common Stock issued as part of the Annual
Bonus for the year 2000 only if this Agreement renews beyond its initial term or
a new employment agreement is entered between Executive and Employer which
extends employment through at least the end of 2001; if neither of these
conditions is met, then the Common Stock issued as part of the Annual Bonus for
the year 2000 will be released to Executive upon expiration of this Agreement
without further restriction. For purposes of determining any termination
payments owed to Executive under any other provisions of this Agreement, any
determination of whether the forfeiture conditions described in Section
2(c)(ii)(B) are met for any year of or after a termination of Executive shall be
made using accounting principles consistent with those applied for the year
prior to termination of Executive.
(D) For purposes of determining the amount of Common Stock
to be paid to Executive pursuant to Section 2(c)(ii), fair market value of the
Common Stock will be determined quarterly at the end of each quarter in which
the Annual Bonus is earned as the highest of: (x) the closing price on the last
trading day of the applicable quarter; (y) the
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average closing price for the 10 trading days prior to the end of the applicable
quarter; or (z) $10 per share.
(E) Employer will use its best efforts to register for
resale all Common Stock issued to Executive as provided in Section 2(c)(ii)(B)
with the Securities and Exchange Commission pursuant to a registration statement
on Form S-3 (or such other form as is then available to the Company), which
registration statement shall be kept current and effective until the Common
Stock so issued is no longer subject to restrictions on resale under the Rules
of the Securities and Exchange Commission.
(F) To the extent that the total amount of quarterly
payments of Annual Bonus during any calendar year exceed the final Annual Bonus
amount as determined on the basis of Employer's audited financial statements for
such year, the overpayment will be returned first from the restricted stock
issued to Executive and held in escrow by Employer, in an amount equal to the
dollar amount of the overpayment divided by the weighted average price per share
used to determine all prior quarterly payments of Annual Bonus during the
applicable year, with any remaining overpayment to be paid in cash or, at the
option of the Executive, in Common Stock then owned by Executive, valued at the
weighted average price per share used to determine all prior quarterly payments
of Annual Bonus during the applicable year.
(d) Special Bonus. In addition to the Base Salary, Annual Bonus
and Guaranteed Bonus, Employer shall pay annually to Executive a special bonus
(the "Special Bonus") the amount of which shall be determined as provided in
Section 2(d)(i) below, and paid in the manner provided in Section 2(d)(ii)
below.
(i) Calculation. The Special Bonus shall equal an
additional one-half of one percent (0.5%) of the annual pre-tax net income
(before payment of the Special Bonus but after payment of the Executive Bonuses)
of Employer for each year of the term, if the conditions specified in Section
2(d)(ii) are met for the applicable year that the Special Bonus is earned and
the year following the applicable year.
(ii) Payment. The Special Bonus shall be payable within
five (5) days of Committee certification that the one of the two alternative
conditions specified in Section 2(d)(ii)(A) is met and one of the two
alternative conditions specified in Section 2(d)(ii)(B) is met:
(A) comparing the Special Bonus year with the year prior
to the Special Bonus year:
(1) the pre-tax net income reported by Employer for
the applicable year is at least 25% higher than the pre-tax net income for the
year preceding the applicable Special Bonus year (i.e., if pre-tax net income
for 1998 is 25% higher than pre-tax net income for 1997, the condition specified
in this Section 2(d)(ii)(A) will be met for the 1998 Special Bonus); or
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(2) the Return on Equity for the applicable year is
at least 25% (i.e., if the Return on Equity for 1998 is 25%, the condition
specified in this Section 2(d)(ii)(A) will be met for the 1998 Special Bonus);
and
(B) comparing the Special Bonus year with the year after
the Special Bonus year:
(1) the pre-tax net income reported by Employer for
the year following the applicable Special Bonus year is at least 25% higher than
the pre-tax net income for the applicable Special Bonus year (i.e., if pre-tax
net income for 1999 is 25% higher than pre-tax net income for 1998, the
condition specified in this Section 2(d)(ii)(B) will be met for the 1998 Special
Bonus); or
(2) the Return on Equity for the year following the
applicable Special Bonus year is at least 25% (i.e., if the Return on Equity for
1999 is 25%, the condition specified in this Section 2(d)(ii)(B) will be met for
the 1998 Special Bonus);
provided that the performance criteria specified in this Section 2(d)(ii)(B)
shall be applicable to the Special Bonus for the year 2000 only if this
Agreement renews beyond its initial term or a new employment agreement is
entered between Executive and Employer which extends employment through at least
the end of 2001; if neither of these conditions is met, then the Special Bonus
for the year 2000 will be paid upon expiration of this Agreement if pre-tax net
income for 2000 was 25% higher than pre-tax net income for 1999 or the Return on
Equity was 25% for 2000. For purposes of determining any termination payments
owed to Executive under any other provisions of this Agreement, any
determination of whether the conditions described in this Section 2(d)(ii) are
met for any year of or after a termination of Executive shall be made using
accounting principles consistent with those applied for the year prior to
termination of Executive.
(e) Reimbursement of Expenses. Executive shall be reimbursed for
Executive's reasonable and actual out-of-pocket expenses incurred by Executive
in performance of Executive's duties and responsibilities hereunder, provided
that Executive shall first furnish to Employer proper vouchers and/or receipts.
(f) Benefit Plans. Executive shall be entitled to participate in, and
shall be included in, such insurance, pension, profit sharing, stock option,
stock purchase and other employee benefit plans, excluding the employee cash
bonus pool, of Employer as are in effect from time to time during the term of
this Agreement and provided to other senior executive officers of Employer,
including, but not limited to, Employer's Supplemental Executive Retirement
Plan, as amended (all of which are collectively referred to herein as the
"Benefit Plans").
(g) Perquisites. Executive shall also be entitled to all perquisites
provided in accordance with Employer's policy for senior management executives
from time to time in effect (all of which are collectively referred to herein as
the "Perquisites"). Notwithstanding the foregoing, in no event shall each or any
of the Perquisites provided pursuant to the terms of this Section 2(g) be lesser
in value than such perquisites as were provided to Executive by
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Employer for the year ended December 31, 1997. Perquisites provided pursuant to
this Section 2(g) shall include, without limitation, use of an automobile or
automobile allowances, expense allowances, vacation days, sick days and
holidays, and medical, dental and life insurance benefits.
3. DISABILITY.
(a) Termination Upon Disability. If, on account of any physical or
mental disability, Executive shall fail or be unable to perform under this
Agreement for any period of one hundred twenty (120) consecutive days or for an
aggregate period of one hundred twenty (120) or more days during any consecutive
twelve-month period, Employer may, at its option, at any time thereafter, upon
written notice to Executive, terminate the employment relationship provided for
in this Agreement. In such event, Executive's requirement to render services
hereunder and Employer's requirement to compensate Executive hereunder shall
terminate and come to an end upon the date provided in such notice.
(b) Disability Payment. Upon a termination of this Agreement pursuant to
this Section 3, Executive shall be entitled to receive, in addition to any
earned and unpaid Base Salary through the date of termination and any earned and
unpaid Annual and Special Bonuses through the last full quarter prior to
termination, free and clear of the forfeiture provisions of Section 2(c)(B), and
without regard to the conditions of Section 2(d), the following disability
compensation:
(i) a lump sum, payable in Common Stock (valued at the closing
price per share for the ten trading day period beginning five trading days prior
to termination and ending five trading days after termination) or cash, at
Employer's option, to be paid on the effective date of termination pursuant to
this Section 3, which shall equal the full Annual Bonus earned (including the
value of the Common Stock portion of the Annual Bonus), if any, at the end of
the prior year;
(ii) payment of any Special Bonus calculated on the pre-tax net
income for the year prior to termination if the pre-tax net income or Return on
Equity target was met for the Special Bonus applicable year, without regard to
the pre-tax net income or Return on Equity for the year of termination (i.e., if
a termination occurs in 1999, the 1998 Special Bonus is due if 1998 pre-tax net
income was 25% higher than the 1997 pre-tax net income, or the 1998 Return on
Equity was 25%, without regard to 1999 pre-tax net income or Return on Equity);
(iii) Executive's Base Salary for one year following termination
of this Agreement payable not less frequently than monthly;
(iv) the full amount of any unpaid installments of the Guaranteed
Bonus; and
(v) use of an automobile or automobile allowance, full automobile
insurance coverage, and health and life insurance coverage under any health
and life insurance policies maintained by Employer for its other senior
executives, all of which shall be provided pursuant to the terms of
Section 2(g) hereof and shall continue to be provided without interruption
for the greater of
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one year following the effective date of termination pursuant to this Section 3
or the remainder of the term of this Agreement.
(c) Additional Payment. If, after the end of the fiscal year following
the effective date of termination pursuant to this Section 3, it is determined
that the Annual Bonus compensation which would have been earned by Executive for
such year if the Executive had continued to be employed under this Agreement
would have exceeded the Annual Bonus actually paid, Employer shall pay Executive
a lump sum equal to the difference between the Annual Bonus amount previously
paid to Executive and the Annual Bonus amount that would have been earned by
Executive for the year of termination. Such amount shall be paid on the earlier
of ten (10) days after the issuance of Employer's annual certified financial
report or one hundred and twenty (120) days after the end of the fiscal year.
Executive shall not be obligated to reimburse Employer if the Annual Bonus
amount paid by Employer upon termination exceeds the amount of any Annual Bonus
that would have been earned for the year of termination.
(d) Release of Restricted Stock. Any Common Stock held in escrow
pursuant to Section 2(c)(ii)(B) on the date of termination shall continue to be
held in escrow after termination of employment until the date for determination
of whether the conditions specified in Section 2(c)(ii)(B) are met; if such
conditions are met, the Common Stock held in escrow shall be released to
Executive, and if such conditions are not met, the Common Stock shall be
forfeited.
(e) Disability Insurance. Employer may, at its option, apply for
disability income insurance and, if so, any obligation on the part of Employer
to pay Executive any payments on account of any physical or mental disability of
Executive as specified above, shall be reduced by the amount of any payments to
Executive under any such disability income policy. Any payments to Executive
under any state disability insurance shall not reduce the amount payable to
Executive under this Agreement.
4. DEATH.
(a) Termination Upon Death. In the event of Executive's death during the
term hereof, this Agreement shall terminate immediately.
(b) Termination Payments. Executive's personal representative shall be
entitled to receive, as a death benefit, in addition to any earned and unpaid
Base Salary through the date of death, any earned and unpaid Annual and Special
Bonuses through the last full quarter prior to termination, free and clear of
the forfeiture provisions of Section 2(c)(B), and without regard to the
conditions of Section 2(d), through the last full quarter prior to Executive's
death, and any other payments which Executive's personal representative may be
entitled to receive under any Benefit Plans:
(i) a lump sum, payable in Common Stock (valued at the closing
price per share for the ten trading day period beginning five trading days prior
to termination and ending
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five trading days after termination) or cash, at Employer's option, to be paid
within five (5) days of Executive's death, equal to the full Annual Bonus
(including the value of the Common Stock portion of the Annual Bonus) earned
by the Executive at the end of the prior year plus any Special Bonus calculated
on the pre-tax net income for the year prior to termination if the pre-tax net
income or Return on Equity target was met for the Special Bonus applicable year,
without regard to the pre-tax net income or Return on Equity for the year of
termination (i.e., if a termination occurs in 1999, the 1998 Special Bonus is
due if 1998 pre-tax net income was 25% higher than the 1997 pre-tax net income,
or the 1998 Return on Equity was 25%, without regard to 1999 pre-tax net income
or Return on Equity); and;
(ii) a lump sum to be paid in cash within five (5) days of
Executive's death equal to Executive's annual Base Salary; and
(iii) the full amount of any unpaid installments of the
Guaranteed Bonus.
(c) Additional Payment. If, after the end of the fiscal year in which
the Executive's death occurred, it is determined that the Annual Bonus
compensation which would have been earned by Executive for such year would have
exceeded the Annual Bonus for the prior year, Employer shall pay Executive's
personal representatives a lump sum equal to the difference between the Annual
Bonus amount previously paid to Executive's personal representatives and the
Annual Bonus amount that would have been earned by Executive for the year in
which his death occurred. Such amount shall be paid on the earlier of ten (10)
days after the issuance of Employer's annual certified financial report or one
hundred and twenty (120) days after the end of the fiscal year. Executive's
personal representatives shall not be obligated to reimburse Employer if the
Annual Bonus amount paid by Employer under this Section 4 exceeds the amount of
any Annual Bonus that would have been earned by Executive for the year in which
his death occurred.
(d) Release of Restricted Stock. Any Common Stock held in escrow
pursuant to Section 2(c)(ii)(B) on the date of death shall continue to be held
in escrow until the date for determination of whether the conditions specified
in Section 2(c)(ii)(B) are met; if such conditions are met, the Common Stock
held in escrow shall be released to Executive's personal representative, and if
such conditions are not met, the Common Stock shall be forfeited.
(e) Life Insurance. Employer may maintain life insurance on the life of
Executive in favor of the Employer. Executive shall have no interest whatsoever
in any such policy or policies, except as otherwise provided in any split dollar
life insurance agreements, but Executive shall, at the request of Employer,
submit to such medical examinations, supply such information, consent to such
blood tests and execute such documents as may be required by the insurance
company or companies to whom Employer has applied for such insurance.
5. TERMINATION FOR CAUSE. Employer may discharge Executive at any time for
"Cause," which shall mean (i) theft or embezzlement by Executive from Employer
or its affiliates, (ii) fraud or other acts of dishonesty by Executive in the
conduct of Employer's business or the fulfillment of Executive's assigned
responsibilities hereunder, (iii) Executive's conviction of, or plea of nolo
contendere to, any felony or any crime involving moral
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turpitude, (iv) Executive's willfully and knowingly taking any action which is
materially injurious to Employer's business or reputation. Within 10 business
days following receipt of written notice of termination for Cause, Executive
shall have the right to demand and, if demanded, to receive within 30 days, an
opportunity to respond and defend himself before the Board and to have the Board
by resolution confirm by a three-fourths affirmative vote that Employer has
grounds to terminate Executive for Cause. If the Board does not determine that
Cause exists, Executive shall have the option to treat his employment as not
having terminated or as having been terminated by Employer without cause as
defined in Section 6 herein. Without limiting the foregoing, nothing in this
Section 5 shall be construed to require that Executive demand a hearing before
the Board as a condition to pursuing any claim or action with respect to the
matters contained in this Agreement. The occurrence of any event constituting
cause for discharge shall permit, but not require, Employer to terminate
Executive for Cause; provided, however, that Employer's decision not to
terminate the Executive upon the occurrence of an event constituting cause for
discharge shall not operate as a waiver of its rights provided in this Section 5
or otherwise.
If Employer terminates Executive for Cause, Employer shall be
obligated to provide to Executive only the earned and unpaid Base Salary
provided for in Section 2(a) hereof through the date of termination, any earned
and unpaid Annual Bonus through the last full quarter prior to termination, any
unpaid installments of the Guaranteed Bonus, plus any other benefits actually
earned or accrued by Executive through the date of termination of Executive, at
the rate in effect on the date of such termination. Any Common Stock held in
escrow pursuant to Section 2(c)(ii)(B) on the date of termination shall continue
to be held in escrow after termination of employment until the date for
determination of whether the conditions specified in Section 2(c)(ii)(B) are
met; if such conditions are met, the Common Stock held in escrow shall be
released to Executive, and if such conditions are not met, the Common Stock
shall be forfeited. Executive shall retain the right to receive any unpaid
Special Bonus for each year in which Executive was employed under this
Agreement, subject to the Company's attainment of the performance targets for
such Special bonus in accordance with Section 2(d)(ii) hereof.
6. TERMINATION WITHOUT CAUSE. This Agreement may be terminated without Cause by
Employer or Executive upon 30 days prior written notice.
(a) Termination by Executive. If Executive terminates this Agreement for
any reason other than as provided in Section 7 hereof, Employer shall be
obligated to provide to Executive the earned and unpaid Base Salary through the
date of termination as provided for in Section 2(a) hereof, any earned and
unpaid Annual Bonus through the last full quarter prior to termination, any
unpaid installment of Guaranteed Bonus provided for in Section 2(b) hereof, plus
any other benefits actually earned or accrued by Executive through the date of
termination of Executive, at the rate in effect on the date of such termination.
All Common Stock issued to Executive under Section 2(c)(ii) (B) and held in
escrow by Employer shall be forfeited upon termination by Executive. Executive
shall retain the right to receive any Special Bonus for each year in which
Executive was employed under this Agreement, subject to the Company's
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attainment of the performance targets for such Special Bonus in accordance with
Section 2(d)(ii) hereof.
(b) Termination by Employer. In the event of a termination of employment
by Employer without Cause, except as otherwise provided in Sections 3, 4 or 7
hereof, Employer shall be required to provide, in addition to any earned and
unpaid Base Salary through the date of termination as provided for in Section
2(a) hereof and any earned and unpaid Annual Bonus through the last full quarter
prior to termination (subject to escrow of the Common Stock portion of the
Annual Bonus in accordance with the provisions of Section 7(e) hereof), the
following compensation to Executive (collectively, the "Termination Payments"):
(i) Benefits. Use of an automobile or automobile
allowance, full automobile insurance coverage, and health insurance coverage
under any health insurance policies maintained by Employer for its other senior
executives, all of which shall be provided pursuant to the terms of Section 2(g)
herein and shall continue to be provided without interruption for one year
following the effective date of termination pursuant to this Section 6;
(ii) Cash Payment. A lump sum payment, to be paid on the
effective date of termination pursuant to this Section 6, which shall consist
of:
(A) an amount equal to the full annual Base Salary
as then adjusted;
(B) an amount equal to any unpaid installments of
the Guaranteed Bonus;
(C) an amount equal to one-half of the Annual Bonus
compensation (including the cash value of the Common Stock portion of the Annual
Bonus) earned by Executive at the end of the prior year; and
(D) the cash value of all vacation, holiday and
sick days which have accrued up to the date of termination and which would have
accrued for six months following termination pursuant to this Section 6.
(c) Additional Cash Payment. Employer shall make an additional payment
to executive, to be paid on the earlier of ten (10) days after the issuance of
Employer's annual certified financial report or one hundred and twenty (120)
days after the end of the fiscal year following the end of the calendar year of
termination, if it is determined that one-half the Annual Bonus which would have
been earned by Executive for the year of termination if the Executive had
continued to be employed under this Agreement would have exceeded the amount
actually paid pursuant to Section 6(b)(ii)(c), equal to the difference between
the amount previously paid to Executive pursuant to Section 6(b)(ii)(c) and
one-half of the Annual Bonus that would have been earned by Executive for the
year of termination. (Executive shall not be obligated to reimburse Employer if
the Annual Bonus
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amount paid by Employer upon termination exceeds one-half of the amount of any
Annual Bonus that would have been earned in the year of termination.)
(d) Special Bonus Payment. Executive shall retain the right to payment
of any Special Bonus for each year in which Executive was employed under this
Agreement, subject to the Company's attainment of the performance targets for
such Special Bonus in accordance with Section 2(d)(ii) hereof.
(e) Release of Restricted Stock. Any Common Stock held in escrow
pursuant to Section 2(c)(ii)(B) on the date of termination shall continue to be
held in escrow until the date for determination of whether the conditions
specified in Section 2(c)(ii)(B) are met; if such conditions are met, the Common
Stock held in escrow shall be released to Executive, and if such conditions are
not met, the Common Stock shall be forfeited.
7. CORPORATE CHANGES.
(a) Definition. For purposes of this Section 7, a "Corporate Change"
shall be deemed to have occurred upon the occurrence of any one (or more) of the
following events: (i) a transaction in which Employer ceases to be an
independent publicly owned corporation that is required to file quarterly and
annual reports under the Securities Exchange Act of 1934, (ii) a sale or other
disposition of all or substantially all of the assets, or a majority of the
outstanding capital stock, of Employer (including but not limited to the assets
or stock of Employer's subsidiaries that results in all or substantially all of
the assets or stock of Employer on a consolidated basis being sold), (iii) as a
result of, or in connection with, any cash tender offer, exchange offer, merger
or other business combination, sale of assets or combination of the foregoing,
persons who were directors of Employer just prior to such event(s) shall cease
to constitute a majority of the Board, (iv) any person, including a group as
defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended,
becomes the beneficial owner of shares of Employer with respect to which twenty
percent (20%) or more of the total number of votes for the election of the Board
may be cast, or (v) Employer's stockholders cause a change in the majority of
the members of the Board within a twelve (12) month period; provided, however,
that the election of one or more new directors shall not be deemed to be a
change in the membership of the Board if the nomination of the newly elected
directors was approved by the vote of three-fourths of the directors then still
in office who were directors at the beginning of such twelve (12) month period.
(b) Payments. At any time within one year following the occurrence of a
Corporate Change, upon a termination of employment by Executive or by Employer
for any reason other than Cause as provided in Section 5 hereof, Executive shall
be entitled, in addition to any earned and unpaid Base Salary as of the date of
termination provided for in Section 2(a) hereof, and any earned and unpaid
Annual Bonus (subject to the escrow of the Common Stock portion of the Annual
Bonus as provided in Section 7(c)) through the last full quarter prior to
termination, and any unpaid installments of the Guaranteed Bonus, to the
following payments and benefits (collectively, the "Corporate Changes
Termination Payment"):
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(i) use of an automobile or automobile allowance, full automobile
insurance coverage, and health and life insurance coverage under any health
and life insurance policies maintained by Employer for its other senior
executive officers, all of which shall be provided pursuant to the terms of
Section 2(g) herein and shall continue to be provided without interruption
for eighteen (18) months following the effective date of termination;
(ii) a lump sum payment, to be paid in cash within five (5) days
after the date of notice of termination by Executive or Employer, which shall
consist of:
(A) an amount equal to the full annual Base Salary in
effect on the date of termination;
(B) an amount equal to any unpaid installments of the
Guaranteed Bonus;
(C) an amount equal to the Annual Bonus compensation
(including the cash value of the Common Stock portion of the Annual Bonus)
earned by Executive at the end of the prior year; and
(D) the cash value of all vacation, holiday and sick days
which have accrued up to the date of termination and which would have accrued
for eighteen (18) months following the date of termination.
(c) Release of Restricted Stock After One Year. In lieu of the
forfeiture conditions of Section 2(c)(ii)(B), all Common Stock held in escrow by
Employer pursuant to Section 2(c)(ii)(B) hereof as of the date of the Corporate
Change shall be released to Executive and all forfeiture conditions on such
Common Stock removed upon completion by Executive of 12 full months of
employment with Employer following the Corporate Change, or earlier upon a
termination of employment by Employer for any reason other than "Cause" or a
termination of employment by Executive for "good reason," which shall consist of
any of the following events: (x) Employer shall fail to pay or shall reduce the
Base Salary, Annual Bonus or any other compensation provided herein, except as
permitted hereunder, or shall otherwise breach any material provision hereof
which breach is not cured within 10 days after receipt of notice thereof from
Executive; (y) Employer shall fail to cause Executive to remain at least a
Senior Executive Vice President of Employer with substantial operating authority
over Employer or one of its subsidiaries; or (z) Employer shall require
Executive's primary services to be rendered in an area other than the Los
Angeles metropolitan area.
(d) Special Bonus Payment. Executive shall retain the right to any
Special Bonus for each year in which Executive was employed under this
Agreement, upon completion by Executive of 12 full months of employment with
Employer following the Corporate Change, or earlier upon a termination of
employment by Employer for any reason other than "Cause" or a termination of
employment by Executive for "good reason" as defined in paragraph (c) above,
without regard to the performance targets for such Special Bonus provided in
Section
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2(d)(ii) hereof for the year in which the Corporate Change occurs or any year
following the Corporate Change.
(e) Condition of Closing. If Executive gives notice of termination
pursuant to this Section 7 prior to the closing of a transaction referred to in
Section 7(a)(i), (ii) or (iii) hereof, the Corporate Changes Termination Payment
must be made a condition to and must be paid concurrently with the closing of
such a transaction, and the successor entity must agree to assume Employer's
obligations under Sections 7(c) and (d) hereof.
(f) Tax Limitations on Corporate Changes Payments. If the aggregate of
all payments, including but not limited to, Corporate Changes Termination
Payments specified in Section 7(b) hereof (the "Aggregate Amount"), would
constitute a "parachute payment" (as defined in Section 280G of the Internal
Revenue Code of 1986, as amended or supplemented (the "Code"), the Corporate
Changes Termination otherwise payable to the Executive pursuant to Section 7(b)
herein shall be equal to the higher of: (i) the amount (referred to herein as
the "Reduced Amount") that would result in no portion of the Aggregate Amount
being subject to the excise tax imposed by Section 4999 of the Code, or (ii) the
full Aggregate Amount if the net after-tax payments to Executive would exceed
the Reduced Amount. The determination of the Corporate Changes Termination
Payment, the Reduced Amount and the net after-tax amount payable to Executive on
the full Aggregate Amount shall be made by the Executive and the Employer in
good faith, and in the event they disagree, such determination shall be made by
means of arbitration to be conducted at the Employer's expense. Any such
arbitration shall be conducted in Los Angeles, California, by one arbitrator,
who shall be a member of a nationally recognized accounting firm that is not
then engaged by the Employer or any of its major stockholders, and who shall be
jointly designated by the parties. If the parties cannot agree on the selection
of an arbitrator, Employer's then current independent auditors shall select such
arbitrator. The findings of the arbitrator shall be conclusive and binding on
the parties. For purposes of this Section 7(e), the net after-tax amount payable
to Executive shall mean the present value, as determined in accordance with
Section 280G(d)(4) of the Code, of any payment or distribution in the nature of
compensation to or for Executive's benefit, whether paid or payable pursuant to
this Agreement or otherwise, net of all taxes imposed on the Executive with
respect thereto under Sections 1 and 4999 of the Code, determined by applying
the highest marginal rate under Section 1 of the Code.
8. RIGHTS TO PROPRIETARY INFORMATION.
(a) Proprietary Information. For purposes of this Agreement, the term
"Proprietary Information" means and includes: all written, oral and visual
information about Employer's customers, clients, employees, consultants and
brokers that is not readily known or available to the public, or that Executive
learns of or acquires through his employment by Employer; and financial
information, marketing techniques and materials, marketing and development
plans, broker lists, customer lists, other information concerning brokers and
customers, pricing information and policies, price lists, employee files,
corporate and business contacts and relationships, corporate and business
opportunities, telephone logs and messages, video or audio tapes and/or disks,
photographs, film and slides, including all negatives and positive and
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prints, computer disks and files, rolodex cards, addresses and telephone
numbers, contracts, releases, other writings of any kind, and any and all other
materials of a proprietary nature to which Executive is exposed or has access as
a consequence of his employment by Employer. All of the Proprietary Information
is, and at all times shall be and remain, private and confidential and is the
sole and exclusive property of, and owned and controlled by Employer, regardless
of whether such Proprietary Information is in tangible or intangible form. The
parties understand that information that is generally known to the public, or
which Executive acquired other than as a consequence of his employment by
Employer, such as in the course of similar employment or work elsewhere, shall
not be deemed part of the Proprietary Information.
(b) Rights to Proprietary Information. All Proprietary Information shall
be the sole property of Employer, its successors and assigns, and Employer, its
successors and assigns shall be the sole owner of all patents, trademarks,
service marks and copyrights, and other rights (collectively referred to herein
as "Rights") pertaining to Proprietary Information. Executive hereby assigns to
Employer any rights Executive may have or acquire in Proprietary Information or
Rights pertaining to the Proprietary Information. Executive further agrees as to
all Proprietary Information to assist Employer or any person designated by it in
every necessary or appropriate manner (but at Employer's expense) to obtain and
from time to time enforce Rights relating to said Proprietary Information
throughout the universe. Executive will execute all documents for use in
applying for, obtaining and enforcing such Rights on such Proprietary
Information as Employer may desire, together with any assumptions thereof to
Employer or persons designated by it. Executive's obligation to assist Employer
or any person designated by it in obtaining and enforcing Rights relating to
Proprietary Information shall continue beyond the cessation of his employment;
provided, however, that Employer shall compensate Executive at a reasonable rate
after the cessation of employment for time actually spent by Executive upon
Employer's request for such assistance. In the event that Employer is unable,
after reasonable effort, to secure Executive's signature on any document or
documents needed to apply for or enforce any Right relating to Proprietary
Information, whether because of his physical or mental incapacity or for any
other reason whatsoever, Executive hereby irrevocably designates and appoints
Employer and its duly authorized officers and agents as his agents and
attorneys-in-fact to act for and on his behalf in the execution and filing of
any such application and in furthering the application for an enforcement of
Rights with the same legal force and effect as if such acts were performed by
Executive.
(c) Confidential Information. At all times, both during his employment
and after the cessation of employment, whether the cessation is voluntary or
involuntary, for any reason or no reason, or by disability, Executive will keep
in strictest confidence and trust all Proprietary Information, and Executive
will not disclose, use, or induce or assist in the use or disclosure of any
Proprietary Information or Rights pertaining to Proprietary Information, or
anything related thereto, without the prior, express written consent of
Employer, except as may be necessary in the ordinary course of performing his
duties as an employee of Employer. Executive recognizes that Employer has
received and in the future will receive from third parties their confidential,
trade secret, or Proprietary Information subject to a duty on
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Employer's part to maintain the confidentiality of such information and to use
it only in connection with the performance of his duties as an employee of
Employer. Executive agrees that Executive owes Employer and such third parties,
during his employment and thereafter, a duty to hold all such confidential,
trade secret, or Proprietary Information in the strictest confidence, and
Executive will not disclose, use, or induce or assist in the use or disclosure
of any such confidential, trade secret, or Proprietary Information without the
prior, express written consent of Employer, except as may be necessary in the
ordinary course of performing his duties as an employee of Employer consistent
with Employer's agreement with such third party.
(d) Work for Hire. Executive agrees that all material or other original
works of authorship written, created, or developed by Executive in connection
with his employment hereunder (whether alone or in conjunction with any other
person), and all rights of any and every kind whatsoever in and to the results
and proceeds of Executive's services rendered hereunder, whether or not such
rights are now known, recognized or contemplated, and the complete,
unconditional and unencumbered ownership in and to such materials, results and
proceeds for all purposes whatsoever shall be "works for hire," as that term is
defined in the United States Copyright Act (17 U.S.C. Section 101), and shall be
the sole and absolute property of Employer, its successors and assigns, and
Executive agrees that he/she does not have and will not claim to have, either
under this Agreement or otherwise, any right, title or interest of any kind or
nature whatsoever in or to said property.
(e) Disclosure to Employer. Executive will promptly disclose to
Employer, and Employer hereby agrees to receive such disclosures in confidence,
all discoveries, developments, designs, improvements, inventions, software
programs, processes, techniques, know-how, negative know-how and data, whether
or not patentable or registrable under patent, copyright or similar statutes or
reduced to practice, made or conceived or reduced to practice or learned by
Executive, either alone or jointly with others during the period of his
employment, for the purpose of permitting Employer to determine whether they
constitute Proprietary Information, or copyrightable or patentable material.
9. NON-COMPETITION/NON-SOLICITATION.
(a) Non-Competition. During the period of his employment, Executive will
not directly or indirectly engage in any activity which competes with Employer,
or which Employer shall determine in good faith to be in competition with
Employer or any subsidiary or affiliate of Employer. In addition, during his
employment and after the cessation of employment, Executive will not, alone or
in concert with others, or on his own behalf, or on behalf of any other person,
in any way use or disclose Proprietary Information in order to solicit, entice,
or in any way divert any broker to do business with any competitor of Employer
or any subsidiary or affiliate of Employer; provided that it shall not be deemed
a breach of this obligation for the Executive, after termination of employment,
to conduct general solicitations of brokers or borrowers of Employer which are
not targeted specifically to Employer's brokers or borrowers. During his
employment, Executive agrees not to plan or otherwise take any preliminary
steps, either alone or in concert
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with others, or on his own behalf, or on behalf of any other person, to set up
or engage in any business enterprise that would be in competition with Employer
or any subsidiary or affiliate of Employer.
(b) Non-Solicitation. During his employment and for a period of two (2)
years after the cessation of employment, Executive will not, either directly or
indirectly, either alone or in concert with others or on his own behalf or on
behalf of any other person, solicit, divert, entice, recruit, or employ any
employee of or consultant to Employer, or any subsidiary or affiliate of
Employer, to leave employment with or otherwise terminate employment with
Employer or any subsidiary or affiliate of Employer or work for any competitor
of Employer or any subsidiary or affiliate of Employer.
(c) Enforcement. Executive recognizes that the immediate and continuous
performance of his obligations in this paragraph 9 is extremely important and
valuable to Employer because of the extensive and costly training given to its
employees and the knowledge gained by such employees of the Proprietary
Information used by Employer in its operations. In the event of his breach of
those obligations, Executive therefore agrees that Employer shall be entitled to
estimated or liquidated damages, as defined herein. For each former employee of
Employer whom Executive solicits, diverts, recruits, or employs in violation of
this paragraph 9, and for each broker or mortgage loan customer of Employer whom
such former employee handled for Employer and whom the former employee contacts
or otherwise services or works with for his benefit or for the benefit of anyone
in privity with Executive, including any competitor of Employer or any
subsidiary or affiliate of Employer with whom Executive accepts employment in
breach of this paragraph 9, Executive shall pay Employer liquidated damages. The
liquidated damages for each such broker or customer shall be (i) the amount of
profit earned by Employer from mortgage loan referrals from each broker, or the
amount of profit earned on loans to each mortgage loan customer, during the
twelve (12) months immediately preceding termination of such former Employer
with Employer, and (ii) the amount of cost to Employer to recruit and train a
replacement for each such former employee plus the first six (6) month's salary
paid to the replacement(s) for the former employee. If the former employee was
not in a position of have contacts with brokers or to otherwise generate
business from mortgage loan customers, the liquidated damages shall be the
amount of the cost to Employer to recruit and train a replacement(s) for the
former employee. Executive further agrees that the cost to recruit and train
replacement(s) for each former employee as described in this paragraph 9 will be
part of Employer's damages and that the profit formula for former employees who
had broker or mortgage loan business contact, and the first six (6) months
salary paid to the replacement(s) for former employees, are conservative
estimates of the value, or a portion of the value, of the former employee to
Employer.
10. SURRENDER OF PROPRIETARY INFORMATION. In the event of the termination of his
employment, Executive will deliver to Employer all devices, records, sketches,
reports, proposals, broker information, lists, correspondence, equipment,
software, computer disks, documents, photographs, photostats, negatives,
undeveloped film, notes, drawings, specifications, tape recordings or other
electronic recordings, programs, data and other
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materials or property of any nature belonging to Employer or pertaining to his
work with Employer, and Executive will not take with Executive, or allow a third
party to take, any of the foregoing or any reproduction of any of the foregoing.
11. SUCCESSORS; BINDING AGREEMENT.
(a) Successors. Employer will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of Employer to expressly assume
and agree to perform this Agreement in the same manner and to the same extent
that Employer would be required to perform it if no such succession had taken
place. Any failure of Employer to obtain such assumption and agreement prior to
the effectiveness of any such succession shall be a material breach of this
Agreement and shall entitle Executive to compensation from Employer in the same
amount and on the same terms as he would be entitled to hereunder if Employer
were to terminate employment pursuant to Section 7 hereof, except that for
purposes of implementing the foregoing, the day before any such succession
becomes effective shall be deemed the date that payment is due. As used in this
Agreement, "Employer" shall mean Employer as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
(b) Successors. This Agreement shall inure to the benefit of, and be
enforceable by, Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
Executive should die while any amount would still be payable to him hereunder if
he had continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to his devisees,
legatee or other designees, or if there is no such designee, to his estate.
12. NOTICES. All notices, requests, demands and other communications provided
for by this Agreement shall be in writing and shall be deemed to have been given
at the time delivered, if personally delivered, transmitted by facsimile
transmission or deposited for mailing at any general or branch United States
Post Office enclosed in a registered or certified postpaid envelope and
addressed as follows:
If to Employer:
PacificAmerica Money Center, Inc.
21031 Ventura Boulevard
Woodland Hills, CA 91364
Attention: Joel R. Schultz Chief Executive Officer
with copies to:
Jeffer, Mangels, Butler & Marmaro
2121 Avenue of the Stars
Los Angeles, CA 90067
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Attention: Catherine De Bono Holmes, Esq.
and
PacificAmerica Money Center, Inc.
21031 Ventura Boulevard
Woodland Hills, CA 91364
Attention: Board of Directors
If to Executive:
Richard D. Young
----------------------
----------------------
The parties hereto may designate a different place at which notice shall be
given, provided, however, that any such notice of change of address shall be
effective only upon receipt.
13. ENTIRE UNDERSTANDING. This Agreement sets forth the entire understanding of
the parties hereto with respect to the subject matter hereof and supersedes all
prior written or oral agreements. This Agreement specifically replaces the
Employment Agreement dated June 27, 1996, as amended by Amendment No. One
thereto dated as of February 17, 1998 (the "Prior Employment Agreement"), for
all periods beginning January 1, 1998. To the extent of any inconsistencies
between this Agreement and Employer's Employee Handbook, as currently in effect
and as amended from time to time in the future, the provisions of this
Agreement shall override the provisions of the Handbook. This Agreement may not
be modified, amended, or terminated except by another instrument in writing
executed by the parties hereto.
14. GOVERNING LAW. This Agreement and all rights, obligations and liabilities
arising hereunder shall be construed and enforced in accordance with the laws of
the State of California.
15. ATTORNEY'S FEES. In the event it becomes necessary to commence any
proceeding or action to enforce the provisions of this Agreement, the court
before whom such action shall be tried may award to the prevailing party all
costs and expenses thereof, including but not limited to reasonable attorneys
fees, the usual, customary and lawfully recoverable Court costs, and all other
expenses in connection therewith. Executive shall be deemed to be the prevailing
party if he is awarded any amounts in any such proceeding or action. Employer
shall pay and be responsible for all attorneys and related fees, expenses or
costs incurred by Executive, if Employer, or any stockholder of Employer
contests the validity or enforceability of this Agreement or any part hereof.
16. ADJUSTMENT OF AMOUNTS PREVIOUSLY PAID DURING 1998. If this Agreement is
approved by the stockholders at the 1998 Annual Meeting of Stockholders,
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Employer shall make a one time adjustment payment, in stock or cash, as
appropriate under the terms of this Agreement, so that the total amount of
compensation paid to Executive for the period beginning January 1, 1998,
including the adjustment payment under this Section 17 and all payments made
under the Prior Employment Agreement relating to the period beginning January 1,
1998, equal to the total compensation that would have been paid had this
Agreement been in effect from January 1, 1998. The amount of Common Stock to be
issued for the 1998 first quarter bonus shall be based upon the fair market
value of the Common Stock determined in accordance with Section 2(b)(ii)(C)
hereof as of March 31, 1998.
The parties hereto have executed this Agreement on the day and year
first above written.
PACIFICAMERICA MONEY CENTER, INC.
___________________________ By: _____________________________
RICHARD D. YOUNG Joel R. Schultz
Chief Executive Officer
Attest:
By:________________________
Richard B. Fremed,
Corporate Secretary
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