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EMPLOYMENT AGREEMENT
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THIS AGREEMENT, dated as of the 1st day of December, 1995 by and between
Gary K. Nuttall (the "Executive") and Regency Affiliates, Inc. (the "Company").
WITNESSETH:
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WHEREAS, the Company wishes to obtain the future services of the Executive
for the Company; and
WHEREAS, the Executive is willing, upon the terms and conditions herein set
forth, to provide services hereunder;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. NATURE OF EMPLOYMENT
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The Company hereby employs the Executive, and the Executive agrees to
accept such employment as the President and Chief Executive Officer of the
Company and to undertake such duties and responsibilities as may be reasonably
assigned to Executive from time to time by the Board of Directors of the
Company. As an inducement for Executive to enter into this Employment Agreement,
the Company shall issue 466,667 shares of its common stock to the Executive upon
execution of this Employment Agreement by the Executive and the Company. In the
event that the Executive is discharged for cause, within one (1) year of the
date hereof, as detailed in Section 4.(c), or resigns within one (1) year of the
date hereof, the Executive shall return 233,333 shares of the Company's common
stock to the Company.
2. EXTENT OF EMPLOYMENT
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(a) During the Term of Employment, the Executive shall perform his
obligations hereunder faithfully, diligently and to the best of his ability,
under the direction of the Board of Directors of the Company (the "Board").
(b) During the Term of Employment (except for vacation periods, (holidays)
and reasonable periods of illness or other incapacity), the Executive shall
devote such of his business time, energy and skill as Executive shall reasonably
consider appropriate after consultation with the Board to the performance of his
duties, responsibilities and obligations hereunder, understanding that the
Executive may devote business time, energy and skills to business ventures
unrelated to Regency. The Executive shall not be required to keep detailed time
sheets or records of the time spent on the Company's affairs, but shall be
accountable to the Board in respect thereof.
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3. LOCATION
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During the Term of Employment, the Executive shall perform his duties
hereunder at his home or such other place as shall be agreed upon by the
Executive and the Board. The Executive shall, however, also travel to other
locations at such time as may be appropriate in the performance of his duties.
4. TERMS OF EMPLOYMENT
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The "Term of Employment" shall commence upon execution of this Agreement
and continue until the thirtieth day after The Executive notifies the Board of
Directors of the Company of his decision not to continue his employment with the
Company; provided, that the Term of Employment may be terminated at any time by
the Company as follows:
(a) If the Executive fails to perform his duties under this Agreement on
account of illness or other incapacity which continues for a period of six
consecutive calendar months, the Corporation may give notice to the Executive to
terminate this Agreement on a date not less than 30 days thereafter (the "Notice
Period"); and if the Executive has not resumed full performance of his duties
under this Agreement within such Notice Period, then the Executive's employment
under this Agreement will terminate 30 days after the date provided in the
notice ("Termination Date"). The Executive's right to exercise warrants granted
by this Agreement or subsequent awards of warrants, options or the like shall be
exercisable by the Executive at the Executive's sole discretion.
(b) If the Executive dies, the spouse or estate of the Executive shall be
entitled to receive the base compensation and pro-rated bonus to which the
Executive would have been entitled had the Term of Employment not been
terminated, for a ninety-day period beginning with such termination. The
Executive's rights upon any such termination to warrants, options, perquisites,
and benefits payable under other benefit plans shall be exercisable by the
spouse or estate of the Executive and such termination shall not be in
derogation of any rights that the Executive may then have to such.
(c) The Corporation may terminate the Executive's employment for just cause
at any time by giving written notice thereof to the Executive. (The date of such
notice is the "Termination Date" unless otherwise provided in the notice).
Within 30 days after the Termination Date the Corporation shall pay to the
Executive his Base Salary as then in effect which has accrued to the Termination
Date, and the Executive's rights upon such termination to warrants, options,
perquisites, and benefits payable under other benefit plans shall be exercisable
by the Executive at his sole discretion. For the purposes of this subparagraph,
"just cause" shall mean willful and deliberate misconduct by the Executive or a
breach by the Executive of the provisions of this Agreement which, in either
case, is detrimental in a significant way to the interests of the Corporation.
(d) Termination of the Executive's employment by the Corporation for any
reason not specified in subparagraphs (a), (b),or (c) of this Section 4 shall
not constitute a breach by the Corporation of this Agreement In such event, the
Executive shall continue to receive the Base Salary
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and other compensation and benefits (as detailed under Sections 5,6,7, & 8
below) that he would have received if he had continued his employment with the
Corporation in the same position he occupied on the date his employment was
terminated until twelve months following the termination of the Executive's
employment, as severance. If the Executive presents an acquisition with
attendant financing to the Board which the Board believes would be in the best
interest of the Company to pursue, but the proposed acquisition economics given
the Cash Flow Bonus (as defined below) that the Company would be required to pay
under Section 5.(b) if it completed this transaction would be unacceptable to
the Board, and the Executive and the Board are unable to reach a mutually
satisfactory agreement as to an alternative form, timing or amount of the Cash
Flow Bonus, the Executive acknowledges that the Board would have the right to
terminate the Executive's employment without cause. In such event, if the
Company completed the transaction which was the subject of this dispute, the
Executive's compensation for the twelve months following the Executive's
termination would be calculated without regard to the cash flow provided by the
disputed transaction. In the event of a breach of this Agreement, the Executive
shall have recourse to all remedies at law or in equity, including the recovery
of damages.
5. COMPENSATION
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(a) BASE COMPENSATION:
During the Term of Employment, the Company shall pay to the
Executive as base compensation for his services in equal semi-monthly
installments of $3,000 each, to be adjusted on January 1 of every year by any
increase in the Consumer Price Index for All Urban Consumers, U.S. city average,
as published by the U.S. Department of Labor Bureau of Labor Statistics ("CPI").
(b) CASH FLOW BONUSES:
The Executive will be paid a bonus equal to 20.0 percent of the
sum of the Company's "Net Cash provided (or used) by Operations" (excluding
financing activities) and "Distributions from Partnerships" or distributions
from or sales of other passive investments (from the Company's Consolidated
Statement of Cash Flows) and "Income Tax Expense" (from the Company's
Consolidated Statement of Operations) as reported in the Financial Statements of
the Company each year before such bonus (the "Cash Flow Bonus"), as illustrated
in Exhibit A, provided, however, that distributions from proceeds of sale or
refinancing of the Security Land and Development Company Limited Partnership
shall only be included to the extent that such cash flows exceed the amount at
which this investment is reported on the Company's financial statements and of
the previous quarterly reporting period. The Cash Flow Bonus shall be paid by
January 31 of the Following year based on the unaudited financial statements of
the Company, with any final adjustments made upon the completion of the audited
financial statements of the Company. The Company may elect, at the end of each
year, to pay 50 percent of of the Cash Flow Bonus in the form of warrants (the
"Warrants") to purchase the Company Stock of the Company at a price equal to 50
percent of the average bid price for the stock for the week ended December 1,
1996, for the period from December 1, 1995 to December 31, 1996 and, thereafter,
at 50 percent of the average bid
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price for the stock for the fourth calendar quarter of each year for which such
bonus is payable (the "Warrant Price").
(c) FINANCING BONUSES:
For the period from December 1, 1995 to December 31, 1996, upon
the funding of any financing for the Company secured solely by the Company's
investment in the Security Land and Development Company Limited Partnership, the
Executive shall be paid a bonus (the "Financing Bonus") equal to 10 percent of
such financing, in cash. At the option of the Company, half of the Financing
Bonus may be paid in cash at funding of such financing and half of which may be
paid in the form of the Company's Common Stock, which stock will be valued at 50
percent of the average bid price for the stock for the week ended December 1,
1995 (the "Stock Fair Market Value"). Alternatively, at the option of the
Company, part of the issuance of Common Stock may be in the form of Warrants.
(d) MECHANICS OF WARRANT ISSUES TO THE EXECUTIVE:
If the Company elects to pay the Executive a portion of any of
the above described bonuses in the form of Warrants, the Company shall
irrevocably agree to pay to the Executive in an amount equal to that portion of
the bonus to be paid in the form of Warrants (the "Agreement to Pay"). The
number of Warrants issued under any provision of this Section 5 shall be equal
to the amount of the bonus to be paid by the issuance of Warrants divided by the
Warrant Price.
Any Agreement to Pay issued by the Company to the Executive
shall carry an interest rate equal to the mid-term Treasury rate, which interest
shall accrue and be paid in addition to the Executive's compensation each year.
The Agreement to Pay, and accrued interest thereon, shall be applied to the
Warrant Price should the Executive decide to purchase the Company's stock by the
exercise of the Warrant
If the per share Warrant Price is less than the par value of the
Common Stock (the "Stock Spread"), and if the Executive exercises the Warrant
and purchases the stock, at the option of the Executive, the Company will
either, at the option of the Executive:
(i) declare such Stock Spread multiplied by the number of
shares purchased by the exercise of the Warrant (the "Warrant Spread") to be
additional compensation paid to the Executive; or
(ii) allow the Executive to issue a non-recourse note to
the Company in the amount of the Warrant Spread (the "Note"), which Note would
accrue interest at the mid-term Treasury rate, be secured only by the stock
received by the Executive and become due and payable upon the sale of the stock
acquired by the exercise of the Warrant or the Executive leaving the employment
of the Company.
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The Executive may elect to finance the Warrant Spread partly
under 5.(d)(i) above and partly under 5.(d)(ii) above, and may elect to convert
any portion, or all of the financing provided under alternative 5.(d)(ii) above
and the accrued interest on the Note, as compensation under 5.(d)(i) above in
periods subsequent to the Initial election by the Executive.
(e) INCENTIVE STOCK OPTIONS:
The Executive will be granted options to purchase 450,000 common
shares of the Company at the greater of the Stock Fair Market Value of the
Company's common stock (as determined under Section 5.(c) above) or the par
value of the common stock at date of grant. The Company agrees to reserve
450,000 shares from its 1988 Incentive Stock Option Plan to meet the
requirements of this paragraph. The options shall become exercisable and shall
remain exercisable until the expiration date as provided for in the Plan, at the
rate of 150,000 shares for each $.03 annual increase in the per share book value
of the Company (excluding the effects of the non-cash income accrual on the
Company's investment in the Security Land and Development Company Limited
Partnership, and the effects of any noncash interest expense on indebtedness of
the Company secured by this asset), or any pro rata portion thereof if less
than $.03 per share. Executive shall have the right, with respect to the
exercise of any such options, to follow the mechanisms as set forth under
Section 5.(d) above with respect to the payment of the option exercise price.
6. BENEFITS
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During the Term of Employment, and to the extent reasonably
available, The Executive and his wife shall receive medical insurance coverage.
The Company shall maintain insurance that will entitle The Executive to receive
$50,000 per year in the event he suffers a mental or physical disability that
prevents him from remaining an employee of the Company, and shall provide such
other appropriate benefits to him as are reasonably acceptable to the Board of
Directors of the Company. At such time as directors' and officers' insurance
shall become reasonably available to the Company, the Executive shall be added
to the Company's policy as an additional insured.
7. VEHICLE ALLOWANCE
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During the Term of Employment, the Company shall pay The Executive a
vehicle allowance of $600 per month, which allowance shall increase each January
1 by any increase in the CPI index as described above. The Executive shall not
be required to account for the expenditure of this allowance.
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8. REIMBURSEMENT OF EXPENSES
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During the Term of Employment, the Company shall reimburse The
Executive for documented travel, entertainment and other expenses reasonably
incurred by The Executive in connection with the performance of his duties. Such
expenses shall include compensation actually paid by the Executive at market
rates for secretarial and other business related services provided by Brenda
Nuttall or by a third-party. The Executive may also incur expense directly in
behalf of Regency. The Executive shall be reimbursed for the reasonable fees and
expenses of legal and tax advisors to review this Agreement, subject to a cap of
$2,000. Upon completion of any financing for the Company in 1996, the Executive
shall be reimbursed all out of pocket expenses incurred in the negotiation,
closing and accounting for the Company's investment in the Security Land and
Development Partnership Limited Partnership, subject to a cap of $2,000.
9. APPOINTMENT AS A DIRECTOR OF THE COMPANY
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Upon execution of this Agreement, the Executive shall be appointed as
a member of the Company's Board of Directors.
10. DISCLOSURE OF CONFLICTS OF INTEREST: NONCOMPETITION; CONFIDENTIAL
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INFORMATION
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(a) DISCLOSURE OF CONFLICTS OF INTEREST:
Since it is understood that the Executive shall devote business
time, energy and skills to business ventures unrelated to Regency, the Executive
shall, at least annually, disclose to the Board of Directors of the Company
transactions unrelated to the Company in which he has participated. Where
transactions may represent an investment opportunity for the Company, before
pursuing other alternatives, The Executive will seek direction from a
sub-committee of Company's Board of Directors. The Executive shall use his good
faith judgement as to whether or not he should seek such advice of the
sub-committee of the Company Board of Directors.
(b) NONCOMPETITION;
Executive promises that, during the term of his employment with
the Company, he will not engage in any business or activity in competition with
the Company within the United States of America, either directly, whether for
himself or a third party, without the express written permission of the
Employer.
Executive promises that for a period of two (2) years following
the termination of his employment with the Company he will not, either directly
or indirectly, whether for himself or a third party, without the express written
permission of the Employer, pursue any business opportunity that was actively
pursued by the Company during his tenure of employment and not abandoned by the
Company.
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(c) CONFIDENTIAL INFORMATION:
The Executive promises that he will not at any time during or
after his employment, and without the Company's express written permission,
reveal or use for his own benefit or the benefit of a third party, any trade
secret, customer list or information, sales data, business plans, or other
confidential information related to the Company's business.
(d) REMEDIES:
The parties agree that the violation or threatened violation by
the Executive of his undertakings hereunder, will cause the Company irreparable
harm for which damages will be inadequate or unascertainable. Accordingly, in
such case the Company shall be entitled to appropriate temporary and permanent
injunctive relief, in addition to all other legal and equitable relief.
If a court finds that the scope or duration, or both, of the
restrictions stated in this contract is excessive, the court is requested to
determine the maximum lesser scope or duration, or both, that the court
considers reasonable, and the Executive agrees that the lesser restriction
determined by the court shall be as binding as if originally part of this
contract. Nothing in this contract shall be construed as an admission by either
party that the scope or duration of the restrictions stated herein are
excessive.
11. INDEMNIFICATION OF EXECUTIVE
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The Executive shall not be liable, responsible or accountable in
damages or otherwise to the Company or any Shareholder of the Company for any
loss or damage incurred by reason of any act or omission performed or omitted by
the Executive in good faith either on behalf of the Company or in furtherance of
the interests of the Company and in a manner reasonably believed by him to be
within the scope of authority granted to him by the Company or by law, provided
that the Executive was not guilty of gross negligence, fraud or bad faith, or
willful misconduct with respect to such acts or omissions. The Company shall
indemnify and hold harmless the Executive if the Executive is a party or is
threatened to be made a party to any threatened, or pending or completed action,
suit or proceeding whether civil, criminal, administrative or investigative
(including any action by or in the right of the Company), by reason of any acts
or omissions or alleged acts or omissions arising out of his activities as an
employee of the Company, if such activities were performed in good faith either
on behalf of the Company or in furtherance of the interests of the Company, and
in a manner reasonably believed by the Executive to be within the scope of the
authority conferred by the Company or by law, against losses, damages or
expenses for which he has not otherwise been reimbursed (including attorneys'
fees, judgements, fines and amounts paid in settlement) actually and reasonably
incurred by the Executive in connection with such action, suit or proceeding,
so long as the Executive was not guilty of gross negligence, fraud, bad faith,
willful misconduct with respect to such acts or omissions. The Company shall
pay the expenses as and when incurred by the Executive in defending a civil
or criminal action, suit or proceeding in advance
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of the final disposition of such action, suit or proceeding, upon receipt of an
undertaking by the Executive to repay such payment if there shall be
adjudication or determination that indemnification should not be provided
hereunder.
12. NOTICE
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Any notice, request, demand or other communication required or
permitted to be given under this Agreement shall be given in writing and if
delivered personally, or sent by certified or registered mail, return receipt
requested, as follows (or to such other addressee or address as shall be set
forth in a notice given in the same manner):
If to the Executive: Gary K. Nuttall
381 Robinwood Lane
Wheaton, Illinois 60187
If to the Company: Regency Affiliates, Inc.
10842 Old Mill Road, Suite #5
Omaha, Nebraska 68154
Any such notices shall be deemed to be given on the date personally
delivered or such return receipt is issued.
13. ARBITRATION
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It is agreed that in the event that any disagreement, dispute,
controversy or claim arises out of or in relation to or in connection with this
Agreement or breach thereof, the parties shall seek to solve the matter amicably
through discussions between the parties. Each party agrees to consider in good
faith any reasonable request by the other party to engage in mediation or any
other means of alternative dispute resolution short of arbitration. Only if the
parties fail to resolve such disagreement, dispute, controversy, claim or breach
by amicable arrangement and compromise within 60 days, may the aggrieved party
seek arbitration as set forth herein. Any disagreement, dispute, controversy or
claim with respect to the validity of this Agreement or arising out of or in
relation to the construction or interpretation of this Agreement, or breach
hereof, shall be finally settled by binding arbitration. The arbitration shall
take place in Cleveland, Ohio in accordance with the rules of the American
Arbitration Association or as the parties shall otherwise agree. The arbitration
shall be brought before three (3) arbitrators, one (1) each appointed by the
respective parties and one (1) additional arbitrator selected by the two (2)
appointed arbitrators. Judgement upon the award rendered by the arbitrator may
be entered in any court having jurisdiction thereof. The arbitrators shall have
the power, in addition to the power of determining the merits of the
arbitration, to determine the scope and limits of discovery and to enforce the
rights, remedies, procedures, duties, liabilities and obligations of discovery
by the imposition of the same terms, conditions, consequences, liabilities,
sanctions, and penalties as can be or may be imposed on the like circumstances
in a civil action by a State Court of the State of Ohio under the provisions of
the
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Ohio Rules of Civil Procedure, except the power to order the arrest or
imprisonment of a person. Each party shall absorb its own costs of arbitration,
including attorney's fees, and the parties shall split equally any arbitrators'
fees.
Notwithstanding the section above, the parties shall have recourse to
the courts of Ohio for the purpose of obtaining any injunctive relief remedy as
permitted by the laws of the State of Ohio.
14. SEVERABILITY
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Whenever possible, each provision of this Agreement will be
interpreted in such manner so as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
15. WAIVER OF BREACH
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The waiver by the Company or the Executive of a breach of any
provision of this Agreement by the other party shall not operate, or be
construed, as a waiver of any other breach of such other party. Each of the
parties (and third party beneficiaries) to this Agreement will be entitled to
enforce its rights under this Agreement specifically, to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights existing in its favor.
16. AMENDMENT: ENTIRE AGREEMENT
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This Agreement may not be changed orally but only by an agreement in
writing agreed to by the party against whom enforcement of any waiver, change,
modification, extension or discharge is sought. This Agreement embodies the
entire agreement and understanding of the parties hereto in respect of the
subject matter of this Agreement, and supersedes and replaces all prior
Agreements, understandings and commitments with respect to such subject matter.
17. GOVERNING LAW
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This Agreement shall be governed by, construed, applied and enforced
in accordance with the Laws of the State of Ohio, and no doctrine of choice of
law shall be used to apply any law other than that of Ohio, and no defense,
counterclaim or right of set-off given or allowed by the laws of any other state
or jurisdiction, or arising out of the enactment, modification or repeal of any
law, regulation, or ordinance or decree of any foreign jurisdiction, shall be
interposed in any action hereon.
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IN WITNESS WHEREOF, the parties hereto have set their hands as of the
day and year first above written.
EXECUTIVE: /s/ Gary K. Nuttall
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Gary K. Nuttall
REGENCY AFFILIATES, INC.
By: /s/ Eunice M. Antosh
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Its: Secretary of the Board
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EXHIBIT A
10Q 9 MONTH $ ANNUALIZED $
LINE ITEM NAME PAGE # AMOUNT AMOUNT
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Net Cash Provided (or used) by Operating Activies 6 (273,308) (364,410)
Distributions from Partnerships 6 100,000 100,000 1
Income Taxes 5 103,000 137,000
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EBTDA for Purposes of Calculating the "Cash Flow (70,308) (127,410)
Bonus"
Cash Flow Bonus @ 20% of EBTDA (if positive) n/a 0
<FN>
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1 Not annualized since this is received only once each year.
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