Exhibit 10.1
EXECUTION COPY
SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement")
is entered into as of August 6, 1999 (the "Effective Date"), by and between
AMERICAN CAPITAL STRATEGIES, LTD., a Delaware corporation (the "Company"), and
DAVID GLADSTONE (the "Employee").
W I T N E S S E T H:
WHEREAS, the Company and the Employee entered into an Employment
Agreement dated as of April 2, 1997 and an Amended and Restated Employment
Agreement dated as of August 18, 1997 [sic] (collectively, the "Old Agreement")
pursuant to which the Company employed the Employee on the terms and conditions
set forth therein; and
WHEREAS, the Company and the Employee desire to amend and restate the
Old Agreement in its entirety, on the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained herein, and for other
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE 1
Definitions and Interpretations
1.1. Definitions
For purposes of this Agreement, except as otherwise expressly provided
or unless the context otherwise requires, the following terms shall have the
following respective meanings:
"Annual Bonus Plan" shall have the meaning specified in Section 3.2.
"Base Salary" shall have the meaning specified in Section 3.1.
"Board of Directors" shall mean the Board of Directors of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Compensation Committee" shall mean the Compensation Committee of the
Board of Directors or such other entity as may be designated for a particular
function by the Board of Directors.
"Confidential Information" shall have the meaning specified in Section
5.1(a).
-2-
"Continuation Period" shall have the meaning specified in Section
4.4(b).
"Disability" shall mean a physical or mental condition of Employee
that, in the good faith judgment of not less than a majority of the entire
membership of the Board of Directors, prevents Employee from being able to
perform the services required under this Agreement and which results in the
Employee becoming eligible for long-term disability benefits (if such benefits
are provided by the Company). If any dispute arises as to whether a Disability
has occurred, or whether a Disability has ceased and the Employee is able to
resume duties, then such dispute shall be referred to a licensed physician
appointed by the president of the Medical Society or similar organization in
Washington, D.C., at the request of either party. The Employee shall submit to
such examinations and provide information as such physician may request and the
determination of such physician as to the Employee's physical or mental
condition shall be binding and conclusive on the parties. The Company shall pay
the cost of any such physician and examination.
"Dispute" shall have the meaning specified in Article 6.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Executive Officers" shall refer to the President, the Chairman of the
Board, the Vice-Chairman of the Board, all Executive Vice Presidents and all
other officers designated as Executive Officers by the Board of Directors.
"Expiration Date" shall have the meaning specified in Section 2.2.
"Good Reason" shall mean any of the following:
(1) without Employee's express written consent, a material adverse
alteration in the nature or status of Employee's position,
functions, duties or responsibilities with the Company;
(2) a material breach by the Company of any material provision of
this Agreement which, if capable of being remedied, remains
unremedied for more than 15 days after written notice thereof
is given by Employee to the Company;
(3) without Employee's express written consent, the relocation of
the principal executive offices of the Company outside the
greater Washington, D.C. area or the Company's requiring
Employee to be based other than at such principal executive
offices;
(4) any purported termination by the Company of Employee's
employment not in accordance with the provisions of this
Agreement;
-3-
(5) the failure of the Company to obtain any assumption agreement
required by Section 7.5(a);
(6) the amendment, modification or repeal of any provision of the
Company's Certificate of Incorporation or by-laws, if such
amendment, modification or repeal would materially adversely
affect Employee's rights to indemnification by the Company;
(7) change of control of the Company that would result in the
control of 25% or more of the Company's voting shares by one
Person or a group of Persons acting in concert other than such
entities as may own voting securities as of August 28, 1997;
or
(8) the determination by the Employee that there exists a
significant difference between the Employee and the Board of
Directors regarding either the method of operating the Company
or the direction of the Company.
"IPO" shall mean the initial underwritten public offering of the
securities of the Company, which became effective on August 29, 1997.
"ISO Plan" shall have the meaning specified in Section 3.3.
"Misconduct" shall mean (1) the willful and continued failure by
Employee to perform substantially his duties described in Section 2.3 (other
than any such failure resulting from Employee's incapacity due to physical or
mental illness) after two (2) written notices of such failure have been given to
Employee by the Company's Board of Directors and Employee has had a reasonable
period (not to exceed 15 days from the second notice) to correct such failure;
or (2) the commission by Employee of acts that are dishonest and demonstrably
injurious to the Company (monetarily or otherwise) in any material respect. For
purposes of this definition, (i) no act or failure to act on Employee's part
shall be considered "Misconduct" if done or omitted to be done by Employee in
good faith and in the reasonable belief that such act or failure to act was in
the best interest of the Company or in furtherance of Employee's duties and
responsibilities described in Section 2.3 and (ii) no disagreements between the
Board of Directors and the Employee regarding the direction or the operations of
the Company shall be construed as "Misconduct" and, further, material breaches
or violations by Employee of any material provision of this Agreement or any
material violation by the Employee of the Company's employment policy manual
shall be defined as "Misconduct."
"Notice of Discontinuance" shall have the meaning specified in Section
2.2.
"Notice of Employment Continuation" shall mean a notice delivered in
accordance with Section 4.11.
-4-
"Notice of Termination" shall mean a notice purporting to terminate
Employee's employment in accordance with Section 4.1 or 4.2. Such notice shall
specify the effective date of such termination, which date shall not be less
than 30 (one (1) day in the case of a termination by the Company for Misconduct)
or more than 60 days after the date such notice is given. If such termination is
by Employee for Good Reason or by the Company for Disability or Misconduct, such
notice shall set forth in reasonable detail the reason for such termination and
the facts and circumstances claimed to provide a basis therefor. Any notice
purporting to terminate Employee's employment which is not in compliance with
the requirements of this definition shall be ineffective.
"Person" shall mean and include an individual, a partnership, a joint
venture, a corporation, a trust and an unincorporated organization.
"Target Bonus" shall have the meaning specified in Section 3.2.
"Term" shall have the meaning specified in Section 2.2.
"Termination Date" shall mean the termination date specified in a
Notice of Termination delivered in accordance with this Agreement.
1.2. Interpretations
(a) In this Agreement, unless a clear contrary intention appears,
(i) the words "herein," "hereof" and "hereunder" and other words of similar
import refer to this Agreement as a whole and not to any particular Article,
Section or other subdivision, (ii) reference to any Article or Section, means
such Article or Section hereof, (iii) the words "including" (and with
correlative meaning "include") means including, without limiting the generality
of any description preceding such term, and (iv) where any provision of this
Agreement refers to action to be taken by either party, or which such party is
prohibited from taking, such provision shall be applicable whether such action
is taken directly or indirectly by such party.
(b) The Article and Section headings herein are for convenience
only and shall not affect the construction hereof.
ARTICLE 2
Employment: Term, Positions and Duties, Etc.
2.1. Employment
The Company agrees to employ Employee and Employee agrees to accept
employment with the Company, in each case on the terms and conditions set forth
in this Agreement.
-5-
2.2. Term of Employment
Unless sooner terminated pursuant to Article 4, the term of Employee's
employment under this Agreement (the "Term") shall continue until the fifth
anniversary of the IPO (the "Expiration Date"); provided, however, that on the
third anniversary of the IPO and on each anniversary thereafter (each such
anniversary being an "Extension Anniversary"), the Expiration Date shall be
automatically extended one additional year unless, at least six months prior to
an Extension Anniversary, (i) either party shall give written notice to the
other (a "Notice of Discontinuance") that no such automatic extension shall
occur on the next succeeding Extension Anniversary and each Extension
Anniversary thereafter, or (ii) either party shall give a Notice of Termination
to the other party pursuant to Section 4.1 or 4.2, as the case may be. No Notice
of Discontinuance given by the Company shall be effective unless given pursuant
to instructions set forth in a resolution duly adopted by the affirmative vote
of at least a majority of the entire membership of the Board of Directors.
2.3. Positions and Duties
(a) While employed hereunder, Employee shall serve as the
Vice-Chairman of the Board of Directors of the Company. The duties as
Vice-Chairman shall be (i) to serve as Chairman of the Board of Directors in the
Chairman's absence or inability to serve, (ii) to introduce other Executive
Officers of the Company to and facilitate communications with principal
stockholders and prospective stockholders of the Company, (iii) to serve as a
member of the Executive Committee of the Board of Directors and the Company's
Credit Committee and (iv) such additional duties and responsibilities
commensurate with such office as from time to time may be reasonably assigned to
him by the Board of Directors; provided, that such additional duties and
additional duties that may be assigned to the Employee pursuant to the Company's
By-laws shall not be inconsistent with or impose material additional duties on
the Employee than the duties set forth in clauses (i)-(iii) above. While
employed hereunder, Employee shall (i) report directly to the Board of Directors
of the Company and (ii) observe and comply with all lawful policies, directions
and instructions of the Board of Directors that are consistent with the
foregoing provisions of this paragraph (a).
(b) The Company agrees to use its reasonable best efforts to cause
Employee to be elected or appointed, or re-elected or re-appointed, as a member
of the Board of Directors and the Executive Committee of the Board of Directors
(if such a committee exists) and a nonvoting ex officio member all other
committees, other than the Compensation Committee, at all times during the Term.
(c) While employed hereunder, Employee shall devote such portion
of his business time, attention, skill and efforts as is necessary to complete
the faithful and efficient performance of his duties hereunder. It is
acknowledged and agreed that Employee serves as the Chairman of the Board and
Chief Executive Officer of American Security Inc., a Delaware corporation
("AMSE"), and that, in connection with the initial public offering of AMSE,
Employee will enter into an Employment Agreement
-6-
whereunder Employee shall be required to devote a substantial portion of his
business time, attention, skill and efforts to the faithful and efficient
performance of his duties thereunder and not accept employment with any Person
(other than the Company). Accordingly, the Company agrees that Employee's
undertakings with respect to AMSE are authorized and consistent with Employee's
undertakings to the Company (as the same are amended hereby), and that the
Company hereby releases Employee from any obligation to the Company not
expressly set forth in this Agreement. In addition, Employee may engage in the
following activities: (i) serve on corporate, civic, religious, educational or
charitable boards or committees and (ii) manage his personal investments
including being a consultant, board member or adviser, to such investments and
activities.
(d) While employed hereunder and subject to his rights under
Section 2.3(c), Employee shall conduct himself in such a manner as not to
knowingly prejudice, in any material respect, the reputation of the Company in
the fields of business in which it is engaged or with the investment community
or the public at large.
2.4. Place of Employment
Employee's place of employment hereunder shall be at the Company's
principal executive offices in the greater Washington, D.C. area or such other
area that is mutually agreeable to both parties.
ARTICLE 3
Compensation and Benefits
3.1. Base Salary
(a) For services rendered by Employee under this Agreement, the
Company shall pay to Employee an annual base salary ("Base Salary") of $150,000.
The Board of Directors or its Compensation Committee shall review the Base
Salary at least annually and may adjust the amount of the Base Salary at any
time as the Board of Directors or the Compensation Committee may deem
appropriate in their sole discretion.
(b) The Base Salary shall be payable in accordance with the
Company's payroll practice for Executive Officers as earned.
3.2. Annual Bonus Plan
During the Term, the Company shall maintain and the Employee shall be
entitled to participate in an incentive bonus plan (the "Annual Bonus Plan")
which will be determined by the Board of Directors, which will provide for the
payment of cash bonuses to eligible executives of the Company at specified times
during the year and within 90 days of the end of each fiscal year based on the
Company's financial performance and other appropriate factors for that year or a
portion thereof. Under the Annual Bonus Plan, Employee shall be eligible to earn
a target bonus (the "Target Bonus") each year equal to 200% of Employee's Base
Salary for such year based on
-7-
criteria established by the Compensation Committee, and the performance of the
Company against such criteria. The establishment of such criteria and of the
necessary performance targets for partial or full earning of the Target Bonus
shall be at the sole reasonable discretion of the Compensation Committee;
provided, however, that Employee shall be entitled to a Target Bonus each year
equal to at least five percent (5%) of the maximum Target Bonus. During the
calendar year 1997 and the year in which the Expiration Date occurs, the Target
Bonus which would be payable shall be prorated and paid based on the number of
days in such year actually occurring during the Term.
3.3. Long-term Incentive Compensation
The Company has established the 1997 Stock Option Plan (as amended from
time to time, the "ISO Plan"), which provides key employees of the Company with
ownership interests in the Company (the "ISO Plan"). Under the ISO Plan,
Employee was granted options to purchase 608,782 shares of common stock. To the
extent permissible, such options shall be characterized as Incentive Stock
Options as defined in Section 422 of the Code. In addition, as of even date
herewith, the Company and the employee have entered into an Option Exercise
Agreement (the "Option Exercise Agreement") and a Split Dollar Agreement (the
"Split Dollar Agreement") pursuant to which the Employee exercised such options,
the Company lent certain amounts to the Employee used in connection with such
exercise and a split dollar variable life insurance policy program was
established to provide collateral for such loans and to provide further benefits
to the Employee. The Employee shall participate in all other long-term
compensation incentive plans of the Company in accordance with their terms,
except that while other Executive Officers may receive additional options under
the ISO Plan and other long-term incentive stock options, stock appreciation
rights and other similar programs adopted subsequent to the IPO, Employee has no
expectation of or right to additional options or participation in such plans.
3.4. Vacation
While employed hereunder, Employee shall be entitled to vacation
benefits in accordance with the vacation policy adopted by the Company from time
to time for senior executives in general, but in no event shall Employee's
annual vacation be less than four weeks or such greater number of vacation days
as the Board of Directors may approve from time to time in its sole discretion.
Employee shall not be entitled to accumulate and carryover unused vacation time
from year to year, except to the extent permitted in accordance with the
Company's vacation policy for senior executives in general, nor shall Employee
be entitled to compensation for unused vacation time except as provided in
Section 4.3(a).
3.5. Business Expenses
The Company shall, in accordance with the rules and policies that it
may establish from time to time for senior executives, reimburse Employee for
business expenses reasonably incurred in the performance of Employee's duties.
Requests for
-8-
reimbursement for such expenses must be accompanied by appropriate
documentation. Examples of reimbursable expenses include parking, mileage
charges, air fares and hotel accommodations while traveling on Company business.
3.6. Other Benefits
Employee shall be entitled to receive all employee benefits, fringe
benefits and other perquisites that may be offered by the Company to its
Executive Officers as a group, including, without limitation, (i) participation
by Employee and, where applicable, Employee's dependents, in the various
employee benefit plans or programs (including, without limitation, pension
plans, profit sharing plans, stock plans, health plans, life insurance, parking
and disability insurance) generally provided to Executive Officers of the
Company, subject to meeting the eligibility requirements with respect to each of
such benefit plans or programs, (ii) club memberships, (iii) automobile
allowances, and (iv) financial planning allowances. However, nothing in this
Section 3.6 shall be deemed to prohibit the Company from making any changes in
any of the plans, programs or benefits described herein, provided such changes
apply to all similarly situated Executive Officers.
3.7. Indemnification
The Company agrees to defend, indemnify and hold harmless the Employee
from and against any liability and expenses arising by reason of Employee's
acting as a director or officer of the Company or any Company subsidiary or
affiliate, or any portfolio company of the Company, in accordance with and to
the fullest extent permitted by law. The Company shall maintain Directors and
Officers liability insurance for the Employee in such amounts of coverage as are
reasonably available to the Company and to the extent such is attainable at
reasonable cost and are permitted by law.
ARTICLE 4
Termination of Employment
4.1. Termination by Employee
Employee may, at any time prior to the Expiration Date, terminate his
employment hereunder for any reason by delivering a Notice of Termination to the
Chairman of the Board of Directors.
4.2. Termination by the Company
The Company may, at any time prior to the Expiration Date, terminate
Employee's employment hereunder for any reason by delivering a Notice of
Termination to Employee; provided, however, that in no event shall the Company
be entitled to terminate Employee's employment prior to the Expiration Date
unless the Board of Directors shall duly adopt, by the affirmative vote of at
least a majority of the entire membership of the Board of Directors, a
resolution authorizing such termination Should
-9-
the Company deliver a Notice of Termination, the Employee may within five days
of such notice resign in lieu of being terminated, but such resignation shall
otherwise be treated as a termination by the Company for purposes of this
Article 4.
4.3. Payment of Accrued Base Salary, Vacation Pay, etc.
(a) Promptly upon the termination of Employee's employment for any
reason (including death), the Company shall pay to Employee (or his estate) a
lump sum amount for (i) any unpaid Base Salary earned hereunder prior to the
Termination Date, (ii) all unused vacation time accrued by Employee as of the
Termination Date in accordance with Section 3.4, (iii) all unpaid benefits
earned or vested, as the case may be, by Employee as of the Termination Date
under any and all incentive or deferred compensation plans or programs of the
Company and (iv) any amounts in respect of which Employee has requested, and is
entitled to, reimbursement in accordance with Section 3.5.
(b) A termination of Employee's employment in accordance with this
Agreement shall not alter or impair any of Employee's accrued rights or benefits
as of the Termination Date under any employee benefit plan or program maintained
by the Company, in each case except as provided therein or in any written
agreement entered into between the Company and Employee pursuant thereto.
4.4. Additional Rights in Connection With Disability
In the event that the Company terminates an Employee by delivering a
Notice of Termination to Employee stating that such Termination is by reason of
a Disability, the Employee shall be entitled to the benefits and payments set
forth in this Section 4.4 in addition to such other applicable rights as may be
provided elsewhere in this Agreement:
(a) Base Salary and Target Bonus. The Company shall continue to
pay to Employee the Base Salary in effect as of the date on which the Notice of
Termination was delivered for two (2) years following the Termination Date (but
in no event less than 365 days) (such period being the "Continuation Period")
which amount shall be reduced by any amount payable to Employee under any
disability plan maintained by the Company for the benefit of Employee. In
addition, the Employee shall be entitled to continue to participate in the
Annual Bonus Plan for two (2) years following the Termination Date with the
second anniversary of the Termination Date being the Expiration Date for
purposes of Section 3.2.
(b) Insurance Benefits, etc. The Company shall at all times during
the Continuation Period, without charge to Employee or Employee's dependents,
cause Employee and Employee's eligible dependents to be covered by and to
participate in, to the fullest extent allowable under the terms thereof, all
life, accidental death and dismemberment and health insurance plans and programs
that may be offered to the senior officers of the Company so that Employee will
receive, at all times during the
-10-
Continuation Period, the same benefits under such plans and programs as Employee
would have been entitled to receive had he remained an Executive Officer of the
Company. In no event shall Employee's continuation period for purposes of Part 6
of Title I of the Employee Retirement Income Security Act of 1974, as amended
("COBRA"), begin prior to the end of Employee's coverage under the Company's
group health plan as provided in this paragraph (b).
(c) Options. All loans to the Employee in connection with the
prior exercise of any options under the ISO Plan (or similar plan) shall be due
and payable within 60 days of employment termination.
Should the Employee's Disability end during the pendency of the Term,
the Company may discontinue the payments contemplated by this Section 4.4 if it
offers to reemploy Employee under the terms of this Agreement, but no such offer
shall affect the terms of Section 4.4(c) above.
4.5. Additional Rights in Connection With Terminations by Employee for
Good Reason or by the Company for Other than Misconduct or
Disability
In the event that Employee terminates his employment pursuant to
Section 4.1 for Good Reason or if the Company terminates Employee's employment
with the Company pursuant to Section 4.2 for other than Misconduct or a
Disability, the Employee shall be entitled to the payments and benefits set
forth in this Section 4.5 in addition to such other applicable rights as may be
provided elsewhere in this Agreement:
(a) Base Salary and Target Bonus. The Company shall continue to
pay to Employee the Base Salary in effect as of the date on which the Notice of
Termination for the Continuation Period. In addition, the Employee shall be
entitled to continue to participate in the Annual Bonus Plan for two (2) years
following the Termination Date with the second anniversary of the Termination
Date being the Expiration Date for purposes of Section 3.2. The amount payable
to Employee under this paragraph (a) is in lieu of, and not in addition to, any
severance payment due to or become due to Employee under any separate agreement
or contract between Employee and the Company or pursuant to any severance
payment plan, program or policy of the Company.
(b) Insurance Benefits, etc. The Company shall at all times during
the Continuation Period, without charge to Employee or Employee's dependents,
cause Employee and Employee's eligible dependents to be covered by and to
participate in, to the fullest extent allowable under the terms thereof, all
life, accidental death and dismemberment and health insurance plans and programs
that may be offered to the senior officers of the Company so that Employee will
receive, at all times during the Continuation Period, the same benefits under
such plans and programs as Employee would have been entitled to receive had he
remained an Executive Officer of the Company; provided, however, in the event
Employee becomes covered during the Continuation Period by another employer's
group plan or programs which provide
-11-
benefits to Employee and his dependents comparable to those being provided to
Employee under this paragraph (b) (provided with respect to any such group
health plan, such plan does not contain any exclusion or limitation with respect
to any pre-existing conditions), then the Company's similar plans and programs
shall no longer be liable for any benefits under this paragraph (b). In no event
shall Employee's COBRA continuation period begin prior to the end of Employee's
coverage under the Company's group health plan as provided in this paragraph
(b).
(c) Options. All options of the Employee under the ISO Plan (or
similar plan) that have not vested as of Employee's Termination Date shall vest
and shall become immediately exercisable. All loans to the Employee in
connection with the prior exercise of any options under the ISO Plan (or similar
plan) shall be due and payable within 60 days of employment termination.
(d) Release. Notwithstanding anything in this Section 4.5 to the
contrary, as a condition to the receipt of any benefit under this Section 4.5,
Employee must first execute and deliver to the Company a mutual release as set
out in exhibit 4.5(d) hereto (which the Company shall be obligated to execute
upon Employee's delivery thereof), releasing the Company, its officers, Board of
Directors, employees and agents from any and all claims and from any and all
causes of action of any kind or character that Employee may have arising out of
Employee's employment with the Company or the termination of such employment,
but excluding any claims and causes of action that Employee may have arising
under or based upon this Agreement.
4.6. Additional Rights in the Event of Death
In the event that the Employee's employment is terminated as a result
of his death, the Employee's estate and/or his beneficiaries shall be entitled
to the payments and benefits set forth in this Section 4.6 in addition to such
other applicable rights as may be set forth elsewhere in this Agreement:
(a) Target Bonus. The Employee's estate shall be entitled to
receive the Target Bonus that the deceased employee would have been entitled to
have received in the year in which the death occurred.
(b) Insurance Benefits, etc. The Company shall pay the cost for
dependents of the Employee for insurance coverage that they are entitled to
obtain from the Company following the Employee's death pursuant to COBRA but not
less than 18 months.
(c) Options. All options of the Employee under the ISO Plan (or
similar plan) that have not vested as of Employee's death and that would vest
within one year thereof shall vest immediately upon the Employee's death and
shall remain exercisable by the Employee's estate for the shorter of 18 months
following the Employee's death and their original term. All loans to the
Employee in connection with the prior exercise of any options under the ISO Plan
(or similar plan) shall be due the earlier of 60 days following the Employee's
death and their original term.
-12-
4.7. Additional Rights in the Event of Termination by Resignation Other
than for Good Reason
In the event that the Employee terminates his employment pursuant to
Section 4.1 without Good Reason, he shall be entitled to the rights set forth in
this Section 4.7 in addition to such other applicable rights as may be set forth
elsewhere in this Agreement:
Options. All loans to the Employee in connection with the prior exercise of any
options under the ISO Plan (or similar plan) be due and payable within 60 days
of employment termination.
4.8. Additional Rights in the Event of Termination for Employee's
Misconduct
In the event that the Company terminates Employee's employment with the
Company pursuant to Section 4.2 for Employee's Misconduct, Employee shall be
entitled to the rights set forth in this Section 4.8 in addition to such other
applicable rights as may be set forth elsewhere in this Agreement:
(a) Options. All previously vested options under the ISO Plan
shall remain exercisable for the shorter of 90 days following the Termination
Date and their original term. All loans to the Employee in connection with the
prior exercise of any options under the ISO Plan (or similar plan) shall be due
the earlier of 60 days following the Employee's Termination Date and their
original term.
4.9. Non-exclusivity of Rights
Nothing in this Agreement shall prevent or limit Employee's continuing
or future participation in any plan, program, policy or practice provided by the
Company for which Employee may qualify, nor shall anything herein limit or
otherwise affect such rights as Employee may have under any other contract or
agreement with the Company. Amounts which are vested benefits or which Employee
is otherwise entitled to receive under any plan, policy, practice or program of
or any contract or agreement with the Company at or subsequent to the
Termination Date shall be payable in accordance with such plan, policy, practice
or program or contract or agreement except as explicitly modified by this
Agreement.
4.10. Company to Pay Benefits During Pendency of Dispute
Either party may, within ten (10) days after its receipt of a Notice of
Termination given by the other party or a Notice of Employment Continuation from
the Employee specifying that Good Reason exists, provide notice to the other
party that a dispute exists concerning the circumstances set forth in such
notice, in which event such dispute shall be resolved in accordance with Article
6. Notwithstanding the pendency of any such dispute and notwithstanding any
provision herein to the contrary, the Company will (i) continue to pay Employee
the Base Salary in effect when the notice giving rise to the
-13-
dispute was given and (ii) continue Employee as a participant in all
compensation and benefit plans in which Employee was participating when the
notice giving rise to the dispute until the dispute is finally resolved or, with
respect to a Notice of Employee, the date of termination specified in such
notice, if earlier, but, in each case, not past the Expiration Date. If (x)(i)
the Company gives a Notice of Termination to Employee and (ii) Employee disputes
the termination as contemplated by this Section 4.10, or (y)(i) the Employee
gives a Notice of Termination for Good Reason or a Notice of Employment
Continuation specifying that Good Reason exists and (ii) the Company disputes
that Good Reason exists as contemplated by this Section 4.10, and, in either
case, (z) such dispute is finally resolved in favor of the Company in accordance
with Article 6, then Employee shall be required to repay to the Company amounts
paid to Employee under this Section 4.10 (including the value of benefits
received) but only if, and to the extent, Employee is not otherwise entitled to
receive such amounts under this Agreement. The period for the delivery of a
Notice of Employment Continuation shall be extended in the event of the delivery
of a notice in accordance with the first sentence of this Section 4.10 until
thirty (30) days following the resolution of such dispute.
4.11. Employment Continuation.
If the Employee has a "Purchase Note" outstanding under the Exercise
Agreement, the Employee is entitled to receive Deferred Payments under Section
5.3(c) of the Exercise Agreement or the "Unamortized Premium Payment" under the
Split Dollar Agreement is greater than zero, the Employee shall have the right
either (i) in lieu of delivering a Notice of Termination in accordance with
Section 4.1 or (ii) within thirty (30) days of the Company's delivery of a
Notice of Termination in accordance with Section 4.2 (other than in connection
with a Termination for Employee's Misconduct), to deliver a Notice of Employment
Continuation. If applicable, the Employee may specify in such Notice of
Employment Continuation that Good Reason exists. The period for delivery of a
Notice of Employment Continuation shall be subject to extension in accordance
with Section 4.10. Upon the delivery of a Notice of Employment Continuation,
this Agreement shall terminate and be of no further force or effect and
Employee's employment with the Company shall be governed instead by a
Supplemental Employment Agreement in the form of Exhibit 4.11 hereto that will
be executed and delivered by the Company and the Employee immediately upon the
delivery of such Notice of Employment Continuation.
ARTICLE 5
Confidential Information and Non-Solicitation
5.1. Confidential Information
(a) Employee recognizes that the services to be performed by him
hereunder are special, unique, and extraordinary and that, by reason of his
employment with the Company, he may acquire Confidential Information concerning
the operation of the Company, the use or disclosure of which would cause the
Company substantial loss
-14-
and damages which could not be readily calculated and for which no remedy at law
would be adequate. Accordingly, Employee agrees that he will not (directly or
indirectly) at any time, whether during or after his employment hereunder, (i)
knowingly use for an improper personal benefit or for the benefit of another
Person with whom Employee is affiliated any Confidential Information that he may
learn or has learned by reason of his employment with the Company or (ii)
disclose any such Confidential Information to any Person except (A) in the
performance of his obligations to the Company hereunder, (B) as required by
applicable law, (C) in connection with the enforcement of his rights under this
Agreement, (D) in connection with any disagreement, dispute or litigation
(pending or threatened) between Employee and the Company or (E) with the prior
written consent of the Board of Directors. As used herein, "Confidential
Information" includes information with respect to Subject Investments (as
defined herein, but excluding for purposes of this Section 5.1 information
concerning US Investigations Services, Inc. ("USIS") or information provided by
USIS); provided, however, that such term, shall not include any information that
(x) is or becomes generally known or available other than as a result of a
disclosure by Employee, (y) is or becomes known or available to Employee on a
non-confidential basis from a source (other than the Company) which, to
Employee's knowledge, is not prohibited from disclosing such information to
Employee by a legal, contractual, fiduciary or other obligation to the Company
or (z) with regard to Subject Investments, is or becomes known or available to
Employee other than by or through the Company.
(b) Employee confirms that all Confidential Information is the
exclusive property of the Company. All business records, papers and documents
kept or made by Employee while employed by the Company relating to the business
of the Company shall be and remain the property of the Company at all times.
Upon the request of the Company at any time, Employee shall promptly deliver to
the Company, and shall retain no copies of, any written materials, records and
documents made by Employee or coming into his possession while employed by the
Company concerning the business or affairs of the Company other than personal
materials, records and documents (including notes and correspondence) of
Employee not containing proprietary information relating to such business or
affairs. Notwithstanding the foregoing, Employee shall be permitted to retain
copies of, or have access to, all such materials, records and documents relating
to any disagreement, dispute or litigation (pending or threatened) between
Employee and the Company.
(c) The Company recognizes that the Employee maintains his
contacts and his domain name "DAVIDGLADSTONE.COM" on the computer system and
that the list of contacts and his domain name will remain the exclusive
ownership of the Employee and that information shall not be deemed confidential
or subject to the terms of sections 5.1 or 5.2.
5.2. Covenant Not to Compete or Solicit
(a) While employed hereunder and for the period of (i) one (1)
year thereafter or (ii) two (2) years after the Termination Date, if this
Agreement is terminated earlier and the Employee is entitled to receive
compensation and benefits under Section
-15-
4.5 (the "Restricted Period"), Employee, unless he receives the prior written
consent of the Board of Directors shall not own an interest in, manage, operate,
join, control, lend money or render financial or other assistance to or
participate in or be connected with, as an officer, employee, partner,
stockholder, consultant or otherwise, any Person (each, a "Subject Person") (i)
that competes with the Company or any wholly-owned subsidiary of the Company in
investing or consulting with small or medium sized businesses in the United
States with regard to change in control transactions, a result of which is an
employee stock ownership plan that owns more than 15% of the subject business or
(ii) that solicits, for the purpose of providing debt or equity financing, or
provides debt or equity financing to any Person (each, a "Subject Investment")
(A) who is listed on Appendix A hereto, (B) to whom the Company or a
wholly-owned subsidiary of the Company is currently a lender or in which the
Company or a subsidiary of the Company is currently an investor other than as a
result of the ownership of publicly-traded securities or (C) where the Employee
first learns of a lending or investing opportunity with regard to such Person
from or through the Company. The Board of Directors shall not unreasonably
withhold its consent to a transaction whereby a Subject Person would purchase a
controlling interest in a Subject Investment, provided that in connection with
such a purchase, the Company receives an aggregate fee (whether from the efforts
of Employee or otherwise) computed at the sum of three-quarters of one percent
(0.75%) of the purchase consideration up to a maximum of $1,750,000.
(b) Employee has carefully read and considered the provisions of
this Section 5.2 and, having done so, agrees that the restrictions set forth in
this Section 5.2 (including the Restricted Period, scope of activity to be
restrained and the geographical scope) are fair and reasonable and are
reasonably required for the protection of the interests of the Company, its
officers, directors, employees, creditors and shareholders. Employee understands
that the restrictions contained in this Section 5.2 may limit his ability to
engage in a business similar to the Company's business, but acknowledges that he
will receive sufficiently high remuneration and other benefits from the Company
hereunder to justify such restrictions.
(c) During the Restricted Period, Employee shall not, whether for
his own account or for the account of any other Person (excluding the Company),
intentionally (i) solicit, endeavor to entice or induce any employee of the
Company to terminate his employment with the Company or accept employment with
anyone else or (ii) interfere in a similar manner with the business of the
Company, except for those employees who the Company and Employee agree are
exempt from the applicability of this paragraph at the time of hiring.
(d) In the event that any provision of this Section 5.2 relating
to the Restricted Period or the areas of restriction shall be declared by a
court of competent jurisdiction to exceed the maximum time period or areas such
court deems reasonable and enforceable, the Restricted Period or areas of
restriction deemed reasonable and enforceable by the court shall become and
thereafter be the maximum time period and/or areas.
-16-
5.3. Stock Ownership
Nothing in this Agreement shall prohibit Employee from acquiring or
holding any issue of stock or securities of any Person that has any securities
registered under Section 12 of the Exchange Act, listed on a national securities
exchange or quoted on the automated quotation system of the National Association
of Securities Dealers, Inc. so long as (i) Employee is not deemed to be an
"affiliate" of such Person as such term is used in paragraphs (c) and (d) of
Rule 145 under the Securities Act of 1933, as amended, and (ii) Employee and
members of his immediate family do not own or hold more than 3% of any voting
securities of any such Person.
5.4. Injunctive Relief
Employee acknowledges that a breach of any of the covenants contained
in this Article 5 may result in material irreparable injury to the Company for
which there is no adequate remedy at law, that it will not be possible to
measure damages for such injuries precisely and that, in the event of such a
breach, any payments remaining under the terms of this Agreement shall cease and
the Company shall be entitled to obtain a temporary restraining order or a
preliminary or permanent injunction restraining Employee from engaging in
activities prohibited by this Article 5 or such other relief as may required to
specifically enforce any of the covenants contained in this Article 5. Employee
agrees to and hereby does submit to in personam jurisdiction before each and
every such court for that purpose.
ARTICLE 6
Dispute Resolution
In the event a dispute shall arise between the parties as to whether
the provisions of this Agreement have been complied with (a "Dispute"), the
parties agree to resolve such Dispute in accordance with the following
procedure:
(a) A meeting shall be held promptly between the Parties, attended
by (in the case of the Company) by one or more individuals with decision-making
authority regarding the Dispute, to attempt in good faith to negotiate a
resolution of the Dispute.
(b) If, within 10 days after such meeting, the parties have not
succeeded in negotiating a resolution of the Dispute, the parties agree to
submit the Dispute to mediation in accordance with the Commercial Mediation
Rules of the American Arbitration Association except that Disputes with regard
to the existence of a Disability shall be resolved in accordance with the
definition of the term "Disability" above.
(c) The parties will jointly appoint a mutually acceptable
mediator, seeking assistance in such regard from the American Arbitration
Association if they have been unable to agree upon such appointment within 10
days following the 10-day period referred to in clause (b) above.
-17-
(d) Upon appointment of the mediator, the parties agree to
participate in good faith in the mediation and negotiations relating thereto for
15 days.
(e) If the parties are not successful in resolving the Dispute
through mediation within such 15-day period, the parties agree that the Dispute
shall be settled by arbitration in accordance with the Expedited Procedures of
the Commercial Arbitration Rules of the American Arbitration Association.
(f) The fees and expenses of the mediator/arbitrators shall be
borne solely by the non-prevailing party or, in the event there is no clear
prevailing party, as the mediator/arbitrators deem appropriate.
(g) The Company shall reimburse Employee, on a current basis, for
50% of all reasonable legal fees and expenses, if any, incurred by Employee in
connection with any Dispute; provided, however, that in the event the resolution
of such Dispute in accordance with this Article 6 includes a finding denying, in
all material respects, Employee's claims in such Dispute, Employee shall be
required to reimburse the Company, over a period not to exceed 12 months from
the date of such resolution, for all sums advanced to Employee with respect to
such Dispute pursuant to this paragraph (g).
(h) Except as provided above, each party shall pay its own costs
and expenses (including, without limitation, attorneys' fees) relating to any
mediation/arbitration proceeding conducted under this Article 6.
(i) All mediation/arbitration conferences and hearings will be
held in the greater Washington, D.C. area.
(j) In the event there is any disputed question of law involved in
any arbitration proceeding, such as the proper legal interpretation of any
provision of this Agreement, the arbitrators shall make separate and distinct
findings of all facts material to the disputed question of law to be decided
and, on the basis of the facts so found, express their conclusion of the
question of law. The facts so found shall be conclusive and binding on the
parties, but any legal conclusion reached by the arbitrators from such facts may
be submitted by either party to a court of law for final determination by
initiation of a civil action in the manner provided by law. Such action, to be
valid, must be commenced within 20 days after receipt of the arbitrators'
decision. If no such civil action is commenced within such 20-day period, the
legal conclusion reached by the arbitrators shall be conclusive and binding on
the parties. Any such civil action shall be submitted, heard and determined
solely on the basis of the facts found by the arbitrators. Neither of the
parties shall, or shall be entitled to, submit any additional or different facts
for consideration by the court. In the event any civil action is commenced under
this paragraph (b), the party who prevails or substantially prevails (as
determined by the court) in such civil action shall be entitled to recover from
the other party all costs, expenses and reasonable attorneys' fees incurred by
the prevailing party in connection with such action and on appeal.
-18-
(k) Except as limited by paragraph (b) above, the parties agree
that judgment upon the award rendered by the arbitrators may be entered in any
court of competent jurisdiction. In the event legal proceedings are commenced to
enforce the rights awarded in an arbitration proceeding, the party who prevails
or substantially prevails in such legal proceeding shall be entitled to recover
from the other party all costs, expenses and reasonable attorneys' fees incurred
by the prevailing party in connection with such legal proceeding and on appeal.
(l) Except as provided above, (i) no legal action may be brought
by either party with respect to any Dispute and (ii) all Disputes shall be
determined only in accordance with the procedures set forth above.
ARTICLE 7
Miscellaneous
7.1. No Mitigation or Offset
The provisions of this Agreement are not intended to, nor shall they be
construed to, require that Employee mitigate the amount of any payment provided
for in this Agreement by seeking or accepting other employment, nor shall the
amount of any payment provided for in this Agreement be reduced by any
compensation earned by Employee as the result of employment by another employer
or otherwise. Without limitation of the foregoing, the Company's obligations to
make the payments to Employee required under this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any set off,
counterclaim, recoupment, defense or other claim, right or action that the
Company may have against Employee, except that the Company may deduct from any
amount required to be reimbursed to the Company by Employee under Section 4.7 or
Article 6(a) the amount of any payment which the Company is then required to
make to Employee hereunder.
7.2. Assignability
The obligations of Employee hereunder are personal and may not be
assigned or delegated by Employee or transferred in any manner whatsoever, nor
are such obligations subject to involuntary alienation, assignment or transfer.
The Company shall have the right to assign this Agreement and to delegate all
rights, duties and obligations hereunder as provided in Section 7.5.
7.3. Notices
All notices and all other communications provided for in the Agreement
shall be in writing and addressed (i) if to the Company, at its principal office
address or such other address as it may have designated by written notice to
Employee for purposes hereof, directed to the attention of the Board of
Directors with a copy to the Secretary of the Company and (ii) if to Employee,
at his residence address on the records of the
-19-
Company or to such other address as he may have designated to the Company in
writing for purposes hereof. Each such notice or other communication shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, except that any
notice of change of address shall be effective only upon receipt.
7.4. Severability
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
7.5. Successors: Binding Agreement
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company, by agreement in form
and substance reasonable acceptable to Employee, to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain such agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement. As used herein, the
term "Company" shall include any successor to its business and/or assets as
aforesaid which executes and delivers the Agreement provided for in this Section
7.5 or which otherwise becomes bound by all terms and provisions of this
Agreement by operation of law.
(b) This Agreement and all rights of Employee hereunder shall
inure to the benefit of and be enforceable by Employee's personal or legal
representatives, executors, administrators, successors, heirs, distributes,
devisees and legatees. If Employee should die while any amounts would 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
Employee's devisee, legatee, or other designee or, if there be no such designee,
to Employee's estate.
7.6. Tax Matters
(a) The Company shall withhold from all payments hereunder all
applicable taxes (federal, state or other) which it is required to withhold
therefrom unless Employee has otherwise paid (or made other arrangements
satisfactory) to the Company the amount of such taxes.
(b) Notwithstanding anything to the contrary in this Agreement, in
the event that any payment or distribution by Company or any affiliate of
Company to or for the benefit of Employee, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise (a "Payment"), would be subject to the excise tax imposed by Section
4999 of the Internal Revenue Code of 1986, as amended, or any
-20-
interest or penalties with respect to such excise tax (such excise tax, together
with any such interest or penalties, are hereinafter collectively referred to as
the "Excise Tax"), Company shall pay to Employee an additional payment (a
"Gross-up Payment") in an amount such that after payment by Employee of all
taxes (including any interest or penalties imposed with respect to such taxes),
including any Excise Tax imposed on any Gross-up Payment, Employee retains an
amount of the Gross-up Payment equal to the Excise Tax imposed upon the
Payments. Company and Employee shall make an initial determination as to whether
a Gross-up Payment is required and the amount of any such Gross-up Payment.
Employee shall notify Company immediately in writing of any claim by the
Internal Revenue Service which, if successful, would require Company to make a
Gross-up Payment (or a Gross-up Payment in excess of that, if any, initially
determined by Company and Employee) promptly and in any event within 15 days of
the receipt of such claim. Company shall notify Employee in writing at least
five days prior to the due date of any response required with respect to such
claim if it plans to contest the claim. If Company decides to contest such
claim, Employee shall cooperate fully with Company in such action; provided,
however, Company shall bear and pay directly or indirectly all costs and
expenses (including additional interest and penalties) incurred in connection
with such action and shall indemnify and hold Employee harmless, on an after-tax
basis, for any Excise Tax or income tax, including interest and penalties with
respect thereto, imposed as a result of Company's action. If, as a result of
Company's action with respect to a claim, Employee receives a refund of any
amount paid by Company with respect to such claim, Employee shall promptly pay
such refund to Company. If Company fails to timely notify Employee whether it
will contest such claim or Company determines not to contest such claim, then
Company shall immediately pay to Employee the portion of such claim, if any,
which it has not previously paid to Employee.
7.7. Amendments and Waivers
No provision of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing and signed
by Employee and such member of the Board of Directors as may be specifically
authorized by the Board of Directors. No waiver by either party hereto at any
time of any breach by the other party hereto of, or in compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time.
7.8. Entire Agreement, Termination of Other Agreements
This Agreement is an integration of the parties' agreement and no
agreement or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not set forth expressly in this Agreement.
-21-
7.9. Governing Law
THE VALIDITY, INTERPRETATION, CONSTRUCTION AND PERFORMANCE OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF MARYLAND WITHOUT REGARD
TO ITS CONFLICT OF LAWS PROVISION.
7.10. Counterparts
This Agreement may be executed in or more counterparts, each of which
shall be deemed to be an original, but all of which together will constitute one
and the same instrument.
-22-
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date first above written.
AMERICAN CAPITAL STRATEGIES, LTD.
By: /s/
-------------------------
Malon Wilkus, President
EMPLOYEE:
/s/
---------------------------
David Gladstone
1161 Crest Lane
McLean, VA 22101
-23-
APPENDIX A
CERTAIN SUBJECT INVESTMENTS
US Investigations Services, Inc.
Arrow Shirt Company
Gans Tire, Inc.
National Forge Co.
Those entities listed below from the Company deal stream report dated August __,
1998:
7-Iron - 02
Piedmont - 91
Porky - 54
Bike - 97
Fast - 63
Tyco - 59
Bicycle - 22
Cowboy
Knish
Cats
Blue Angel - 18
Expansion - 82
Tonka - 25
Shamu
On Time - 30
Horse
Sweepstakes
Nightlight - 5
Portage - 94
Knights - 57
Cheese
Laurel - 17
Homestead
Spurs - 98
Wire - 65
Upstream - 87
Robinson
Suround - 62
Dough - 53
Bridge - 92
EXHBIT 4.5(d)
RELEASE AGREEMENT
THIS RELEASE AGREEMENT (the "Agreement"), is made as of the ____
day of ______, _____, by and between AMERICAN CAPITAL STRATEGIES, LTD., a
Delaware corporation with its principal place of business at 3 Bethesda Metro
Center, Suite 860, Bethesda, Maryland (the "Corporation"), and DAVID J.
GLADSTONE, an individual residing at 1161 Crest Lane, McLean, Virginia 22101
("Gladstone").
W I T N E S S E T H:
WHEREAS, the parties hereto are parties to a certain Second Amended
and Restated Employment Agreement dated as of August 6, 1999 (the "Employment
Agreement"); and
WHEREAS, the execution and delivery of this Release Agreement as of
the date hereof is a requirement of Section 4.5(d) thereof.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
agreements and covenants herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
1. Mutual Release.
(a) Gladstone, on his own behalf and on behalf of his heirs,
representatives and assigns, hereby waives, releases, and forever and
irrevocably discharges the Corporation, and its agents, attorneys, officers,
directors, employees, successors and assigns (collectively, the "Corporation
Released Parties") from any and all obligations, debts, demands, claims and
liabilities of every kind and nature, either in law or in equity, that Gladstone
may now have, may in the future have or may ever have had, against the
Corporation Released Parties arising in any manner from or in any manner
related, directly or indirectly, to Gladstone's service or employment as a
director, officer and/or an employee of the Corporation including, without
limitation, the circumstances relating to the termination thereof; excepting
only the continuing obligations of the Corporation resulting from the provisions
of the Employment Agreement, and the Option Exercise Agreement and the Split
Dollar Agreement, each entered into by and among the parties hereto bearing the
date of August 6, 1999 (collectively, the "Surviving Agreements").
(b) The Corporation, on its own behalf and on behalf of its
successors and assigns, hereby waives, releases, and forever and irrevocably
discharges Gladstone, and his agents, attorneys, heirs, representatives and
assigns (collectively, the "Gladstone Released Parties") from any and all
obligations, debts,
-25-
demands, claims and liabilities of every kind and nature, either in law or in
equity, that the Corporation may now have, may in the future have or may ever
have had against the Gladstone Released Parties arising in any manner from or in
any manner related to, directly or indirectly, Gladstone's service or employment
as a director, officer and/or an employee of the Corporation including, without
limitation, the circumstances relating to the termination thereof; excepting
only the continuing obligations of Gladstone resulting from the provisions of
the Surviving Agreements.
2. Miscellaneous. This Agreement constitutes the entire agreement
between the parties hereto with regard to the subject matter hereof and
supersedes all prior negotiations, representations and agreements, either
written or oral, between them except for the Surviving Agreements. There are no
conditions, agreements, or representations between the parties except those
expressed herein. This Agreement may be altered, modified, amended, or repealed
only by a duly executed written instrument signed by the parties hereto. This
Agreement shall be governed by the law of the State of Maryland, without giving
effect to the conflicts of laws provisions thereof. Each party binds himself or
itself and his or its heirs, successors, legal representatives and assigns in
respect to all covenants and agreements contained herein. Except as specifically
contemplated herein, nothing herein shall be construed as giving any right or
benefit hereunder to anyone other than the parties hereto.
-26-
IN WITNESS WHEREOF, the parties have executed this Agreement under
seal as of the date first hereinabove written.
GLADSTONE:
WITNESS:
- ------------------ --------------------------------- (Seal)
David J. Gladstone
AMERICAN CAPITAL STRATEGIES, LTD.,
A Delaware Corporation
By: (Seal)
---------------------------------
Name:
---------------------------
Title
---------------------------
Exhibit 4.11
SUPPLEMENTAL EMPLOYMENT AGREEMENT
THIS SUPPLEMENTAL EMPLOYMENT AGREEMENT (the "Agreement") is entered
into as of _______, ____ (the "Effective Date"), by and between AMERICAN CAPITAL
STRATEGIES, LTD., a Delaware corporation (the "Company"), and DAVID GLADSTONE
(the "Employee").
W I T N E S S E T H:
WHEREAS, the Company and the Employee are parties to a Second Amended
and Restated Employment Agreement dated as of August 6, 1999 (the "Old
Agreement"), pursuant to which the Company employed the Employee on the terms
and conditions set forth therein;
WHEREAS, the Employee delivered a Notice of Employment Continuation
pursuant to the Old Agreement and pursuant thereto the Old Agreement was
terminated and this Agreement became effective and the parties desire to amend
and restate the Old Agreement in its entirety, on the terms and conditions
herein set forth; and
WHEREAS, the parties hereto are also parties to an Option Exercise
Agreement dated as of August 6, 1999 ( the "Option Exercise Agreement"), and a
Split Dollar Agreement dated as of ______, 1999 (the "Split Dollar Agreement").
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained herein, and for other
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE 1
Definitions and Interpretations
1.1. Definitions
For purposes of this Agreement, except as otherwise expressly provided
or unless the context otherwise requires, the following terms shall have the
following respective meanings:
"Base Salary" shall have the meaning specified in Section 3.1.
"Board of Directors" shall mean the Board of Directors of the Company.
"Compensation Committee" shall mean the Compensation Committee of the
Board of Directors or such other entity as may be designated for a particular
function by the Board of Directors.
"Confidential Information" shall have the meaning specified in Section
5.1(a).
"Continuation Period" shall have the meaning specified in Section
3.4(a).
"Dispute" shall have the meaning specified in Article 6.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Executive Officers" shall refer to the President, the Chairman of the
Board, the Vice-Chairman of the Board, all Executive Vice Presidents and all
other officers designated as Executive Officers by the Board of Directors.
"Expiration Date" shall have the meaning specified in Section 2.2.
"ISO Plan" shall have the meaning specified in Section 3.3.
"Misconduct" shall mean the conviction of Employee for commission of a
felony that is injurious to the Company (monetarily or otherwise) in any
material respect.
"Notice of Termination" shall mean a notice purporting to terminate
Employee's employment in accordance with Section 4.1 or 4.2. Such notice shall
specify the effective date of such termination, which date shall not be less
than 10 days (one (1) day in the case of a termination by the Company for
Misconduct).
"Person" shall mean and include an individual, a partnership, a joint
venture, a corporation, a trust and an unincorporated organization.
"Term" shall have the meaning specified in Section 2.2.
"Termination Date" shall mean the termination date specified in a
Notice of Termination delivered in accordance with this Agreement.
1.2. Interpretations
(a) In this Agreement, unless a clear contrary intention appears,
(i) the words "herein," "hereof" and "hereunder" and other words of similar
import refer to this Agreement as a whole and not to any particular Article,
Section or other subdivision, (ii) reference to any Article or Section, means
such Article or Section hereof, (iii) the words "including" (and with
correlative meaning "include") means including, without limiting the generality
of any description preceding such term, and (iv) where any provision of this
Agreement refers to action to be taken by either party, or which such party is
-2-
prohibited from taking, such provision shall be applicable whether such action
is taken directly or indirectly by such party.
(b) The Article and Section headings herein are for convenience
only and shall not affect the construction hereof.
ARTICLE 2
Employment: Term, Positions and Duties, Etc.
2.1. Employment
The Company agrees to employ Employee and Employee agrees to accept
employment with the Company, in each case on the terms and conditions set forth
in this Agreement.
2.2. Term of Employment
Unless sooner terminated pursuant to Article 4, the term of Employee's
employment under this Agreement (the "Term") shall continue until the later to
occur of (i) repayment in full of all Payment Notes (as defined in and issued
pursuant to the Option Exercise Agreement), (ii) such date as the Employer's
Interest in the Policy (as such terms are defined in the Split Dollar Agreement)
is zero and (iii) the expiration of the Continuation Period.
2.3. Positions and Duties
(a) While employed hereunder, Employee shall serve as the
Assistant Secretary of the Company. The Employee's duties as Assistant Secretary
shall be limited to providing consulting services to the Company with regard to
matters previously attended to by the Employee as an employee of the
Corporation. Nothing herein shall obligate the Employee to spend more than 10
hours per year on Company business. While employed hereunder, Employee shall
report to the Board of Directors or such person as is designated by the Board of
Directors.
(b) The Company agrees to use its reasonable best efforts to cause
Employee to be elected or appointed as an Assistant Secretary of the Company.
(c) While employed hereunder, Employee shall be entitled to
undertake other employment not otherwise in violation of the terms of this
Agreement. It is acknowledged and agreed that Employee serves as the chairman of
the Board and Chief Executive Officer of American Security, Inc., a Delaware
corporation ("AMSE"), and that, in connection with the initial public offering
of AMSE, Employee will enter into an Employment Agreement whereunder Employee
shall be required to devote a substantial portion of his business time,
attention, skill and efforts to the faithful and efficient performance of his
duties thereunder and not accept employment with any Person (other
-3-
than the Company). Accordingly, the Company agrees that Employee's undertakings
with respect to AMSE are authorized and consistent with Employee's undertakings
to the Company (as the same are amended hereby), and that the Company hereby
releases Employee from any obligation to the Company not expressly set forth in
this Agreement.
ARTICLE 3
Compensation and Benefits
3.1. Base Salary
For services rendered by Employee under this Agreement, the Company
shall pay to Employee an annual base salary ("Base Salary") of $200.
3.2. Other Benefits
(a) Employee shall not be entitled to receive any employee
benefits, fringe benefits and other perquisites that may be offered by the
Company to its officers or employees except as specifically provided herein
except that Employee shall be entitled to continue participation in the benefits
provided under the Split Dollar Agreement and Option Exercise Agreement.
(b) The Company agrees to defend, indemnify and hold harmless the
Employee from and against any liability and expenses arising by reason of
Employee's acting as an officer of the Company, in accordance with and to the
fullest extent permitted by law. The Company shall maintain directors and
officers liability insurance for the Employee in such amounts of coverage as are
reasonably available to the Company and to the extent such is attainable at
reasonable cost and permitted by law.
3.3. Payment of Accrued Base Salary, Vacation Pay, etc.
The Company shall pay to Employee a lump sum amount for (i) any unpaid
Base Salary earned under the Old Agreement prior to the Effective Date, (ii) all
unused vacation time accrued by Employee as of the Effective Date in accordance
with Section 3.4 of the Old Agreement, (iii) all unpaid benefits earned or
vested, as the case may be, by Employee as of the Effective Date under any and
all incentive or deferred compensation plans or programs of the Company and (iv)
any amounts in respect of which Employee has requested, and is entitled to,
reimbursement in accordance with Section 3.5 of the Old Agreement as of the
Effective Date.
3.4. Additional Rights in Connection With Disability
In the event that prior to the delivery by the Employee of his Notice
of Employment Continuation, the Company had delivered a Notice of Termination to
-4-
Employee stating that such Termination was for reason of a Disability, the
Employee shall be entitled to the benefits and payments set forth in this
Section 3.4:
(a) Base Salary and Target Bonus. The Company shall continue to
pay to Employee the Base Salary under the Old Agreement in effect as of the date
on which the Notice of Termination was delivered for two (2) years following the
Effective Date (but in no event less than 365 days) (such period being the
"Continuation Period") which amount shall be reduced by any amount payable to
Employee under any disability plan maintained by the Company for the benefit of
Employee. In addition, the Employee shall be entitled to continue to participate
in the Annual Bonus Plan (as defined in the Old Agreement) for two (2) years
following the Effective Date with the second anniversary of the Effective Date
being the Expiration Date for purposes of Section 3.2 of the Old Agreement.
(b) Insurance Benefits, etc. The Company shall at all times during
the Continuation Period, without charge to Employee or Employee's dependents,
cause Employee and Employee's eligible dependents to be covered by and to
participate in, to the fullest extent allowable under the terms thereof, all
life, accidental death and dismemberment and health insurance plans and programs
that may be offered to the senior officers of the Company so that Employee will
receive, at all times during the Continuation Period, the same benefits under
such plans and programs as Employee would have been entitled to receive had he
remained an Executive Officer of the Company. In no event shall Employee's
continuation period for purposes of Part 6 of Title I of the Employee Retirement
Income Security Act of 1974, as amended ("COBRA"), begin prior to the end of
Employee's coverage under the Company's group health plan as provided in this
paragraph (b).
(c) End of Disability. Should the Employee's Disability (as
defined in the Old Agreement) end during the pendency of the payments and
benefits contemplated under this Section 3.4, the Company may discontinue such
payments and benefits if it offers to reemploy Employee under the terms of the
Old Agreement.
3.5. Additional Rights in Connection With Terminations by Employee for
Good Reason or by the Company for Other than Misconduct or
Disability
In the event that Employee delivered a statement with his Notice of
Employment Continuation that Good Reason (as defined in the Old Agreement)
exists or if the Company delivered a Notice of Termination pursuant to Section
4.2 of the Old Agreement and did not specify that Misconduct or a Disability
exists, the Employee shall also be entitled to the payments and benefits set
forth in this Section 3.5:
(a) Base Salary and Target Bonus. The Company shall continue to
pay to Employee the Base Salary under the Old Agreement in effect as of the
Effective Date for the Continuation Period. In addition, the Employee shall be
entitled to continue to
-5-
participate in the Annual Bonus Plan for two (2) years following the Effective
Date with the second anniversary of the Effective Date being the Expiration Date
for purposes of Section 3.2 of the Old Agreement. The amount payable to Employee
under this paragraph (a) is in lieu of, and not in addition to, any severance
payment due to or become due to Employee under any separate agreement or
contract between Employee and the Company or pursuant to any severance payment
plan, program or policy of the Company.
(b) Insurance Benefits, etc. The Company shall at all times during
the Continuation Period, without charge to Employee or Employee's dependents,
cause Employee and Employee's eligible dependents to be covered by and to
participate in, to the fullest extent allowable under the terms thereof, all
life, accidental death and dismemberment and health insurance plans and programs
that may be offered to the senior officers of the Company so that Employee will
receive, at all times during the Continuation Period, the same benefits under
such plans and programs as Employee would have been entitled to receive had he
remained an Executive Officer of the Company; provided, however, in the event
Employee becomes covered during the Continuation Period by another employer's
group plan or programs which provide benefits to Employee and his dependents
comparable to those being provided to Employee under this paragraph (b)
(provided with respect to any such group health plan, such plan does not contain
any exclusion or limitation with respect to any pre-existing conditions), then
the Company's similar plans and programs shall no longer be liable for any
benefits under this paragraph (b). In no event shall Employee's COBRA
continuation period begin prior to the end of Employee's coverage under the
Company's group health plan as provided in this paragraph (b).
(c) Release. Notwithstanding anything in this Section 3.5 to the
contrary, as a condition to the receipt of any benefit under this Section 3.5,
Employee must first execute and deliver to the Company a mutual release as set
out in Exhibit 35(d) hereto (which the Company shall be obligated to execute
upon Employee's delivery thereof), releasing the Company, its officers, Board of
Directors, employees and agents from any and all claims and from any and all
causes of action of any kind or character that Employee may have arising out of
Employee's employment with the Company on or prior to the Effective Date, but
excluding any claims and causes of action that Employee may have arising under
or based upon this Agreement.
ARTICLE 4
Termination of Employment
4.1. Termination by Employee
Employee may, at any time prior to the Expiration Date, terminate his
employment hereunder for any reason by delivering a Notice of Termination to the
Chairman of the Board of Directors.
-6-
4.2. Termination by the Company
The Company may, at any time prior to the Expiration Date, terminate
Employee's employment hereunder for any reason by delivering a Notice of
Termination to Employee; provided, however, that such notice may be delivered
only if the Employee has committed Misconduct.
4.3. Company to Pay Benefits During Pendency of Dispute
The Employee, within ten (10) days after its receipt of a Notice of
Termination given by the Company, provide notice to the Company that a dispute
exists concerning the occurrence of Misconduct, in which event such dispute
shall be resolved in accordance with Article 6. Notwithstanding the pendency of
any such dispute and notwithstanding any provision herein to the contrary, the
Company will (i) continue to pay Employee all salary in effect when the notice
giving rise to the dispute was given and (ii) continue Employee as a participant
in all compensation and benefit plans in which Employee was participating when
the notice giving rise to the dispute until the dispute is finally resolved. If
such dispute is finally resolved in favor of the Company in accordance with
Article 6, the Employee shall be required to repay to the Company amounts paid
to Employee under this Section 4.3 (including the value of benefits received).
4.4. Non-exclusivity of Rights.
Nothing in this Agreement shall prevent or limit Employee's continuing
or future participation in any plan, program, policy or practice provided by the
Company for which Employee may qualify, nor shall anything herein limit or
otherwise affect such rights as Employee may have under any other contract or
agreement with the Company. Amounts that are vested benefits or that Employee is
otherwise entitled to receive under any plan, policy, practice or program of or
any contract or agreement with the Company at or subsequent to the Effective
Date shall be payable in accordance with such plan, policy, practice or program
or contract or agreement except as explicitly modified by this Agreement.
ARTICLE 5
Confidential Information and Non-Solicitation
5.1. Confidential Information
(a) Employee recognizes that the services to be performed by him
hereunder are special, unique, and extraordinary and that, by reason of his
employment with the Company, he may acquire Confidential Information concerning
the operation of the Company, the use or disclosure of which would cause the
Company substantial loss
-7-
and damages which could not be readily calculated and for which no remedy at law
would be adequate. Accordingly, Employee agrees that he will not (directly or
indirectly) at any time, whether during or after his employment hereunder, (i)
knowingly use for an improper personal benefit or for the benefit of another
Person with whom Employee is affiliated any Confidential Information that he may
learn or has learned by reason of his employment with the Company or (ii)
disclose any such Confidential Information to any Person except (A) in the
performance of his obligations to the Company hereunder, (B) as required by
applicable law, (C) in connection with the enforcement of his rights under this
Agreement, (D) in connection with any disagreement, dispute or litigation
(pending or threatened) between Employee and the Company or (E) with the prior
written consent of the Board of Directors. As used herein, "Confidential
Information" includes information with respect to Subject Investments (as
defined herein, but excluding for purposes of this Section 5.1 information
concerning US Investigations Services, Inc. ("USIS") or information provided by
USIS)); provided, however, that such term, shall not include any information
that (x) is or becomes generally known or available other than as a result of a
disclosure by Employee, (y) is or becomes known or available to Employee on a
non-confidential basis from a source (other than the Company) which, to
Employee's knowledge, is not prohibited from disclosing such information to
Employee by a legal, contractual, fiduciary or other obligation to the Company
or (z) with regard to Subject Investments, is or becomes known or available to
Employee other than by or through the Company.
(b) Employee confirms that all Confidential Information is the
exclusive property of the Company. All business records, papers and documents
kept or made by Employee while employed by the Company relating to the business
of the Company shall be and remain the property of the Company at all times.
Upon the request of the Company at any time, Employee shall promptly deliver to
the Company, and shall retain no copies of, any written materials, records and
documents made by Employee or coming into his possession while employed by the
Company concerning the business or affairs of the Company other than personal
materials, records and documents (including notes and correspondence) of
Employee not containing proprietary information relating to such business or
affairs. Notwithstanding the foregoing, Employee shall be permitted to retain
copies of, or have access to, all such materials, records and documents relating
to any disagreement, dispute or litigation (pending or threatened) between
Employee and the Company.
(c) The Company recognizes that the Employee maintains his
contacts and his domain name "DAVIDGLADSTONE.COM" on the Company's computer
system and that the list of contacts and his domain name will remain the
exclusive ownership of the Employee and that information shall not be deemed
confidential or subject to the terms of sections 5.1 or 5.2.
-8-
5.2. Covenant Not to Compete or Solicit
(a) At the election of the Employee, for one (1) year after the
Effective Date (the "Restricted Period"), Employee, unless he receives the prior
written consent of the Board of Directors shall not own an interest in, manage,
operate, join, control, lend money or render financial or other assistance to or
participate in or be connected with, as an officer, employee, partner,
stockholder, consultant or otherwise, any Person (each, a "Subject Person") (i)
that competes with the Company or any wholly-owned subsidiary of the Company in
investing or consulting with small or medium sized businesses in the United
States with regard to change in control transactions, a result of which is an
employee stock ownership plan that owns more than 15% of the subject business or
(ii) that solicits, for the purpose of providing debt or equity financing, or
provides debt or equity financing to any Person (each, a "Subject Investment")
(A) who is listed on Appendix B hereto, (B) to whom the Company or a
wholly-owned subsidiary of the Company is currently a lender or in which the
Company or a subsidiary of the Company is currently an investor other than as a
result of the ownership of publicly-traded securities or (C) where the Employee
first learns of a lending or investing opportunity with regard to such Person
from or through the Company. The Board of Directors shall not unreasonably
withhold its consent to a transaction whereby a Subject Person would purchase a
controlling interest in a Subject Investment, provided that in connection with
such a purchase, the Company receives an aggregate fee (whether from the efforts
of Employee or otherwise) computed at the sum of three-quarters of one percent
(0.75%) of the purchase consideration up to a maximum of $1,750,000. The
Employee may only elect to be subject to this Section 5.2 by providing written
notice of such election to the Company before the Effective Date or within
thirty (30) days thereafter and may be renewed for successive additional one (1)
year periods by providing written notice to the Company not less than twenty
(20) days before the expiration of the Restricted Period then in effect.
(b) Employee has carefully read and considered the provisions of
this Section 5.2 and, having done so, agrees that the restrictions set forth in
this Section 5.2 (including the Restricted Period, scope of activity to be
restrained and the geographical scope) are fair and reasonable and are
reasonably required for the protection of the interests of the Company, its
officers, directors, employees, creditors and shareholders. Employee understands
that the restrictions contained in this Section 5.2 may limit his ability to
engage in a business similar to the Company's business, but acknowledges that he
will receive sufficiently high remuneration and other benefits from the Company
hereunder to justify such restrictions.
(c) During the Restricted Period, Employee shall not, whether for
his own account or for the account of any other Person (excluding the Company),
intentionally (i) solicit, endeavor to entice or induce any employee of the
Company to terminate his employment with the Company or accept employment with
anyone else or (ii) interfere in a similar manner with the business of the
Company, except for those employees who the Company and Employee agree are
exempt from the applicability of this paragraph at the time of hiring.
-9-
(d) In the event that any provision of this Section 5.2 relating
to the Restricted Period or the areas of restriction shall be declared by a
court of competent jurisdiction to exceed the maximum time period or areas such
court deems reasonable and enforceable, the Restricted Period or areas of
restriction deemed reasonable and enforceable by the court shall become and
thereafter be the maximum time period and/or areas.
5.3. Stock Ownership
Nothing in this Agreement shall prohibit Employee from acquiring or
holding any issue of stock or securities of any Person that has any securities
registered under Section 12 of the Exchange Act, listed on a national securities
exchange or quoted on the automated quotation system of the National Association
of Securities Dealers, Inc. so long as (i) Employee is not deemed to be an
"affiliate" of such Person as such term is used in paragraphs (c) and (d) of
Rule 145 under the Securities Act of 1933, as amended, and (ii) Employee and
members of his immediate family do not own or hold more than 3% of any voting
securities of any such Person.
5.4. Injunctive Relief
Employee acknowledges that a breach of any of the covenants contained
in this Article 5 may result in material irreparable injury to the Company for
which there is no adequate remedy at law, that it will not be possible to
measure damages for such injuries precisely and that, in the event of such a
breach, any payments remaining under the terms of this Agreement shall cease and
the Company shall be entitled to obtain a temporary restraining order or a
preliminary or permanent injunction restraining Employee from engaging in
activities prohibited by this Article 5 or such other relief as may required to
specifically enforce any of the covenants contained in this Article 5. Employee
agrees to and hereby does submit to in personam jurisdiction before each and
every such court for that purpose.
ARTICLE 6
Dispute Resolution
In the event a dispute shall arise between the parties as to whether
the provisions of this Agreement have been complied with (a "Dispute"), the
parties agree to resolve such Dispute in accordance with the following
procedure:
(a) A meeting shall be held promptly between the Parties, attended
by (in the case of the Company) by one or more individuals with decision-making
authority regarding the Dispute, to attempt in good faith to negotiate a
resolution of the Dispute.
(b) If, within 10 days after such meeting, the parties have not
succeeded in negotiating a resolution of the Dispute, the parties agree to
submit the Dispute to mediation in accordance with the Commercial Mediation
Rules of the American
-10-
Arbitration Association except that Disputes with regard to the existence of a
Disability shall be resolved in accordance with the definition of the term
"Disability" above.
(c) The parties will jointly appoint a mutually acceptable
mediator, seeking assistance in such regard from the American Arbitration
Association if they have been unable to agree upon such appointment within 10
days following the 10-day period referred to in clause (b) above.
(d) Upon appointment of the mediator, the parties agree to
participate in good faith in the mediation and negotiations relating thereto for
15 days.
(e) If the parties are not successful in resolving the Dispute
through mediation within such 15-day period, the parties agree that the Dispute
shall be settled by arbitration in accordance with the Expedited Procedures of
the Commercial Arbitration Rules of the American Arbitration Association.
(f) The fees and expenses of the mediator/arbitrators shall be
borne solely by the non-prevailing party or, in the event there is no clear
prevailing party, as the mediator/arbitrators deem appropriate.
(g) The Company shall reimburse Employee, on a current basis, for
50% of all reasonable legal fees and expenses, if any, incurred by Employee in
connection with any Dispute; provided, however, that in the event the resolution
of such Dispute in accordance with this Article 6 includes a finding denying, in
all material respects, Employee's claims in such Dispute, Employee shall be
required to reimburse the Company, over a period not to exceed 12 months from
the date of such resolution, for all sums advanced to Employee with respect to
such Dispute pursuant to this paragraph (g).
(h) Except as provided above, each party shall pay its own costs
and expenses (including, without limitation, attorneys' fees) relating to any
mediation/arbitration proceeding conducted under this Article 6.
(i) All mediation/arbitration conferences and hearings will be
held in the greater Washington, D.C. area.
(j) In the event there is any disputed question of law involved in
any arbitration proceeding, such as the proper legal interpretation of any
provision of this Agreement, the arbitrators shall make separate and distinct
findings of all facts material to the disputed question of law to be decided
and, on the basis of the facts so found, express their conclusion of the
question of law. The facts so found shall be conclusive and binding on the
parties, but any legal conclusion reached by the arbitrators from such facts may
be submitted by either party to a court of law for final determination by
initiation of a civil action in the manner provided by law. Such action, to be
valid, must be commenced within 20 days after receipt of the arbitrators'
decision. If no such civil action is commenced within such 20-day period, the
-11-
legal conclusion reached by the arbitrators shall be conclusive and binding on
the parties. Any such civil action shall be submitted, heard and determined
solely on the basis of the facts found by the arbitrators. Neither of the
parties shall, or shall be entitled to, submit any additional or different facts
for consideration by the court. In the event any civil action is commenced under
this paragraph (b), the party who prevails or substantially prevails (as
determined by the court) in such civil action shall be entitled to recover from
the other party all costs, expenses and reasonable attorneys' fees incurred by
the prevailing party in connection with such action and on appeal.
(k) Except as limited by paragraph (b) above, the parties agree
that judgment upon the award rendered by the arbitrators may be entered in any
court of competent jurisdiction. In the event legal proceedings are commenced to
enforce the rights awarded in an arbitration proceeding, the party who prevails
or substantially prevails in such legal proceeding shall be entitled to recover
from the other party all costs, expenses and reasonable attorneys' fees incurred
by the prevailing party in connection with such legal proceeding and on appeal.
(l) Except as provided above, (i) no legal action may be brought
by either party with respect to any Dispute and (ii) all Disputes shall be
determined only in accordance with the procedures set forth above.
ARTICLE 7
Miscellaneous
7.1. No Mitigation or Offset
The provisions of this Agreement are not intended to, nor shall they be
construed to, require that Employee mitigate the amount of any payment provided
for in this Agreement by seeking or accepting other employment, nor shall the
amount of any payment provided for in this Agreement be reduced by any
compensation earned by Employee as the result of employment by another employer
or otherwise. Without limitation of the foregoing, the Company's obligations to
make the payments to Employee required under this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any set off,
counterclaim, recoupment, defense or other claim, right or action that the
Company may have against Employee, except that the Company may deduct from any
amount required to be reimbursed to the Company by Employee under Section 4.7 or
Article 6(a) the amount of any payment which the Company is then required to
make to Employee hereunder.
7.2. Assignability
The obligations of Employee hereunder are personal and may not be
assigned or delegated by Employee or transferred in any manner whatsoever, nor
are such obligations subject to involuntary alienation, assignment or transfer.
The Company shall have the
-12-
right to assign this Agreement and to delegate all rights, duties and
obligations hereunder as provided in Section 7.5.
7.3. Notices
All notices and all other communications provided for in the Agreement
shall be in writing and addressed (i) if to the Company, at its principal office
address or such other address as it may have designated by written notice to
Employee for purposes hereof, directed to the attention of the Board of
Directors with a copy to the Secretary of the Company and (ii) if to Employee,
at his residence address on the records of the Company or to such other address
as he may have designated to the Company in writing for purposes hereof. Each
such notice or other communication shall be deemed to have been duly given when
delivered or mailed by United States registered mail, return receipt requested,
postage prepaid, except that any notice of change of address shall be effective
only upon receipt.
7.4. Severability
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
7.5. Successors: Binding Agreement
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company, by agreement in form
and substance reasonable acceptable to Employee, to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain such agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement. As used herein, the
term "Company" shall include any successor to its business and/or assets as
aforesaid which executes and delivers the Agreement provided for in this Section
7.5 or which otherwise becomes bound by all terms and provisions of this
Agreement by operation of law.
(b) This Agreement and all rights of Employee hereunder shall
inure to the benefit of and be enforceable by Employee's personal or legal
representatives, executors, administrators, successors, heirs, distributes,
devisees and legatees. If Employee should die while any amounts would 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
Employee's devisee, legatee, or other designee or, if there be no such designee,
to Employee's estate.
-13-
7.6. Tax Matters
(a) The Company shall withhold from all payments hereunder all
applicable taxes (federal, state or other) which it is required to withhold
therefrom unless Employee has otherwise paid (or made other arrangements
satisfactory) to the Company the amount of such taxes.
(b) Notwithstanding anything to the contrary in this Agreement, in
the event that any payment or distribution by Company or any affiliate of
Company to or for the benefit of Employee, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise (a "Payment"), would be subject to the excise tax imposed by Section
4999 of the Internal Revenue Code of 1986, as amended, or any interest or
penalties with respect to such excise tax (such excise tax, together with any
such interest or penalties, are hereinafter collectively referred to as the
"Excise Tax"), Company shall pay to Employee an additional payment (a "Gross-up
Payment") in an amount such that after payment by Employee of all taxes
(including any interest or penalties imposed with respect to such taxes),
including any Excise Tax imposed on any Gross-up Payment, Employee retains an
amount of the Gross-up Payment equal to the Excise Tax imposed upon the
Payments. Company and Employee shall make an initial determination as to whether
a Gross-up Payment is required and the amount of any such Gross-up Payment.
Employee shall notify Company immediately in writing of any claim by the
Internal Revenue Service which, if successful, would require Company to make a
Gross-up Payment (or a Gross-up Payment in excess of that, if any, initially
determined by Company and Employee) promptly and in any event within 15 days of
the receipt of such claim. Company shall notify Employee in writing at least
five days prior to the due date of any response required with respect to such
claim if it plans to contest the claim. If Company decides to contest such
claim, Employee shall cooperate fully with Company in such action; provided,
however, Company shall bear and pay directly or indirectly all costs and
expenses (including additional interest and penalties) incurred in connection
with such action and shall indemnify and hold Employee harmless, on an after-tax
basis, for any Excise Tax or income tax, including interest and penalties with
respect thereto, imposed as a result of Company's action. If, as a result of
Company's action with respect to a claim, Employee receives a refund of any
amount paid by Company with respect to such claim, Employee shall promptly pay
such refund to Company. If Company fails to timely notify Employee whether it
will contest such claim or Company determines not to contest such claim, then
Company shall immediately pay to Employee the portion of such claim, if any,
which it has not previously paid to Employee.
7.7. Amendments and Waivers
No provision of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing and signed
by Employee and such member of the Board of Directors as may be specifically
authorized by the Board of Directors. No waiver by either party hereto at any
time of any breach by the other party hereto of, or in compliance with, any
condition or provision of this Agreement
-14-
to be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time.
7.8. Entire Agreement, Termination of Other Agreements
This Agreement is an integration of the parties' agreement and, except
with regard to such definitions as are set forth in the Old Agreement and are
specifically referenced herein, no agreements, oral, written or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party that are not set forth expressly in this Agreement.
7.9. Governing Law
THE VALIDITY, INTERPRETATION, CONSTRUCTION AND PERFORMANCE OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF MARYLAND WITHOUT REGARD
TO ITS CONFLICT OF LAWS PROVISION.
7.10. Counterparts
This Agreement may be executed in or more counterparts, each of which
shall be deemed to be an original, but all of which together will constitute one
and the same instrument.
-15-
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date first above written.
AMERICAN CAPITAL STRATEGIES, LTD.
By:
-----------------------------
Malon Wilkus, President
EMPLOYEE:
--------------------------------
David Gladstone
1161 Crest Lane
McLean, VA 22101
-16-
APPENDIX A
CERTAIN SUBJECT INVESTMENTS
US Investigations Services, Inc.
Arrow Shirt Company
Gans Tire, Inc.
National Forge Co.
Those entities listed below from the Company deal stream report dated August __,
1998:
7-Iron - 02
Piedmont - 91
Porky - 54
Bike - 97
Fast - 63
Tyco - 59
Bicycle - 22
Cowboy
Knish
Cats
Blue Angel - 18
Expansion - 82
Tonka - 25
Shamu
On Time - 30
Horse
Sweepstakes
Nightlight - 5
Portage - 94
Knights - 57
Cheese
Laurel - 17
Homestead
Spurs - 98
Wire - 65
Upstream - 87
Robinson
Suround - 62
Dough - 53
Bridge - 92
-17-
EXHIBIT 3.5(d)
RELEASE AGREEMENT
THIS RELEASE AGREEMENT (the "Agreement"), is made as of the ____
day of ______, _____, by and between AMERICAN CAPITAL STRATEGIES, LTD., a
Delaware corporation with its principal place of business at 3 Bethesda Metro
Center, Suite 860, Bethesda, Maryland (the "Corporation"), and DAVID J.
GLADSTONE, an individual residing at 1161 Crest Lane, McLean, Virginia 22101
("Gladstone").
W I T N E S S E T H:
WHEREAS, the parties hereto are parties to a certain Supplemental
Employment Agreement dated as of ________ (the "Employment Agreement"); and
WHEREAS, the execution and delivery of this Release Agreement as of
the date hereof is a requirement of Section 3.5(d) thereof.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
agreements and covenants herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
1. Mutual Release.
(a) Gladstone, on his own behalf and on behalf of his heirs,
representatives and assigns, hereby waives, releases, and forever and
irrevocably discharges the Corporation, and its agents, attorneys, officers,
directors, employees, successors and assigns (collectively, the "Corporation
Released Parties") from any and all obligations, debts, demands, claims and
liabilities of every kind and nature, either in law or in equity, that Gladstone
may now have, may in the future have or may ever have had, against the
Corporation Released Parties arising in any manner from or in any manner
related, directly or indirectly, to Gladstone's service or employment as a
director, officer and/or an employee of the Corporation including, without
limitation, the circumstances relating to the termination thereof; excepting
only the continuing obligations of the Corporation resulting from the provisions
of the Employment Agreement, and the Option Exercise Agreement and the Split
Dollar Agreement, each entered into by and among the parties hereto bearing the
date of _________ (collectively, the "Surviving Agreements").
(b) The Corporation, on its own behalf and on behalf of its
successors and assigns, hereby waives, releases, and forever and irrevocably
discharges Gladstone, and his agents, attorneys, heirs, representatives and
assigns (collectively, the "Gladstone Released Parties") from any and all
obligations, debts, demands, claims and liabilities of every kind and nature,
either in law or in equity, that the Corporation may now have, may in the future
have or may ever have had against the Gladstone Released Parties arising in any
manner from or in any manner related to, directly or indirectly, Gladstone's
service
-2-
or employment as a director, officer and/or an employee of the Corporation
including, without limitation, the circumstances relating to the termination
thereof; excepting only the continuing obligations of Gladstone resulting from
the provisions of the Surviving Agreements.
2. Miscellaneous. This Agreement constitutes the entire agreement
between the parties hereto with regard to the subject matter hereof and
supersedes all prior negotiations, representations and agreements, either
written or oral, between them except for the Surviving Agreements. There are no
conditions, agreements, or representations between the parties except those
expressed herein. This Agreement may be altered, modified, amended, or repealed
only by a duly executed written instrument signed by the parties hereto. This
Agreement shall be governed by the law of the State of Maryland, without giving
effect to the conflicts of laws provisions thereof. Each party binds himself or
itself and his or its heirs, successors, legal representatives and assigns in
respect to all covenants and agreements contained herein. Except as specifically
contemplated herein, nothing herein shall be construed as giving any right or
benefit hereunder to anyone other than the parties hereto.
-2-
IN WITNESS WHEREOF, the parties have executed this Agreement under
seal as of the date first hereinabove written.
GLADSTONE:
WITNESS:
- ------------------ --------------------------------- (Seal)
David J. Gladstone
AMERICAN CAPITAL STRATEGIES, LTD.,
A Delaware Corporation
By: (Seal)
---------------------------------
Name:
---------------------------
Title
---------------------------
-3-