Exhibit 10.11
EMPLOYMENT CONTRACT
BETWEEN: TreeSource Industries, Inc.
(formerly WTD Industries, Inc.), an Oregon corporation
Employer
AND: Jess R. Drake, an individual Employee
DATE: October 31, 1998
AGREEMENT
1. Employment Term. The term of employment under this Agreement shall begin on
the 4th day of November, 1998, and continue until the third anniversary thereof,
unless earlier terminated as provided in paragraph 6.1 herein.
2. Employment Duties. During the term of this Agreement, Employee shall be the
President and Chief Executive Officer of Employer, and, subject to shareholder
approval, a voting member of the Board of Directors, and shall:
2.1 Devote Employee's full business time and attention to performing
services on behalf of Employer as may be assigned to Employee from time to time
by the Board of Directors.
2.2 Comply with the policies, standards and regulations established by
Employer from time to time.
3. Compensation.
3.1 Base Compensation. Employer shall pay Employee an initial base
compensation of $350,000 per year payable in equal monthly installments. Each
year thereafter Employee shall receive a reasonable annual increase in base
compensation if such an increase is provided generally to other executive
employees of the company, or as deemed appropriate by the Board of Directors.
3.2 Bonus. Employee shall receive a signing bonus of $100,000 upon
execution hereof by Employer and Employee. In addition, Employee shall receive
annual bonuses as follows:
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3.2.1 At the end of Employer's fiscal year, Employee shall
receive an annual bonus conditioned upon his performance against performance
objectives and target goal, which target goal and objectives shall be
achievable, realistic, reasonable, and mutually established in good faith by
Employer and Employee.
3.2.2 If Employee meets the target goal mutually set at the
beginning of each year, he shall receive, within ninety (90) days after the end
of each fiscal year, a bonus equal to 60% (the "target bonus") of his then
current annual salary (Employee's "base"). If Employee exceeds the target goal
he shall receive a correspondingly greater bonus, up to three times the target
bonus amount. The goals and objectives to be applied in determining Employee's
eligibility for a bonus during the first three full fiscal years of employment
shall be developed in accordance with the following criteria:
(a) From the date of hire through April 30, 2000, (i) the
target bonus shall be based solely upon non-financial goals, (ii) any bonus with
respect to an additional 60% of Employee's base shall be based upon equally
weighted non-financial and financial goals, and (iii) any bonus with respect to
the third 60% of Employee's base shall be based solely upon financial goals.
Within ninety (90) days of the commencement of Employer's next fiscal year, May
1, 1999, Employee shall be eligible to receive a prorated bonus for work
performed from the date of hire to that time.
(b) During the fiscal year ending April 30, 2001, (i) the
target bonus shall be based solely upon non-financial goals, (ii) any bonus with
respect to an additional 60% of Employee's base shall be based 75% upon
financial goals and 25% upon non-financial goals, and (iii) any bonus with
respect to the third 60% of Employee's base shall be based solely upon financial
goals.
(c) During the fiscal year ending April 30, 2002, (i) the
target bonus shall be based 80% upon financial goals and 20% upon non-financial
goals, and (ii) any bonus with respect to the second and third 60% of Employee's
base shall be based solely upon financial goals.
3.3 Stock Options. Upon execution hereof by the parties, and subject to
any corporate or shareholder action required to permit such issuance, Employee
shall receive stock options in a number sufficient to represent a potential $5.0
million gain based upon a stock price of $10.00 per share and an option exercise
price equal to 85% of the common stock's value as of the date of the grant,
which shares, except as hereafter provided, shall vest according to the
following schedule: (1) one-fourth upon execution hereof; (2) an additional
one-fourth on each anniversary of this
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agreement. In the event that a senior lender under Employer's Credit and
Security Agreement declares Employer in default and accelerates, or there is a
change in control (as defined herein), or Employer terminates Employee, except
under paragraphs 6.1.4 or 6.1.5 or under circumstances where Employee has been
grossly negligent or has exhibited willful misconduct in the performance of his
duties, the stock options will immediately vest. Nothing herein shall be
construed to preclude Employee from receiving additional grants of stock
options, to the extent deemed appropriate by the Board, if Employer provides
other senior management employees such grants. Employee shall be eligible to
receive such other grants on a non-discriminatory basis. A change of control is
defined as any sale, transfer or disposition of all or substantially all the
assets of Employer or the merger of Employer with another company that results
in the shareholders of Employer obtaining less than 50% of the voting equity of
the resulting company, or an individual or company in any manner acquires or
controls more than 50% of the voting equity of Employer.
3.4 Other Benefits. Base compensation and bonus compensation paid to
Employee shall be in addition to any contribution made by the Employer for the
benefit of Employee to any qualified pension plan or 401k plan maintained by
Employer for the exclusive benefit of its employees or employee. Employer shall
provide to Employee and Employee's spouse and dependent children, if any, at
least the same coverage and participation that the Employer provides to other
management personnel and their families with respect to accident insurance and
disability insurance. If such insurance is available at standard rates or
better, Employer shall provide Employee extended disability insurance coverage
in the amount equal to 60% of Employee's annual base salary. Employer shall
provide Employee with four weeks of paid vacation and such sick leave benefits
that Employer provides to other management employees. The Employee will not be
eligible for any medical, dental or life insurance coverage.
4. Relationship Is Employer-Employee. The relationship between Employer and
Employee is that of employer-employee. Employer shall have the authority to
determine the assignment of work and specific duties to be performed by
Employee.
5. Expenses. Employee shall be entitled to reimbursement from Employer for all
actual documented expenses incurred by Employee in the performance of Employee's
duties under this Agreement in accordance with Employer's policies for executive
employees. In addition, Employee's reasonable actual expenses associated with
his relocation shall be paid by Employer. Such expenses include reasonable costs
associated with the sale of his home, including real estate commissions, costs
associated with temporary living quarters not to exceed six months, the search
for suitable housing, the closing costs incurred on account of the purchase of a
home, and reasonable costs associated with the move of his furniture and
furnishings, and storage, if any.
6. Termination.
6.1 Reasons for Termination. Employee's employment with Employer shall
terminate only upon occurrence of any of the following events:
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6.1.1 Mutual written agreement between Employer and Employee;
6.1.2 Employee's death;
6.1.3 Employee shall suffer a permanent disability. For purposes
of this Agreement, "permanent disability" shall be defined as Employee's
inability due to physical or mental illness or other cause, to perform the
majority of Employee's usual duties for a period of six (6) months or more;
6.1.4 Employee's willful and continual failure and refusal to
comply with the reasonable express directives of the Board of Directors of
Employer;
6.1.5 Conviction of a felony or any crime involving fraud or
dishonesty in the performance of, or that reflects upon Employee's ability to
perform, Employee's duties on behalf of Employer;
6.1.6 Upon forty-five (45) days' prior written notice by Employer
or Employee to the other.
6.2 Payment Upon Termination.
6.2.1 If Employee's employment is terminated pursuant to the
terms of paragraphs 6.1.4 or 6.1.5, or if Employee terminates his employment
pursuant to paragraph 6.1.6, and paragraph 6.3 does not otherwise apply, the
base compensation payable to Employee pursuant to paragraph 3.1 shall be
prorated to the date of such termination and shall be payable on the first day
of the month following such termination date.
6.2.2 If Employer terminates Employee's employment pursuant to
paragraph 6.1.6, Employee shall receive the following:
(a) Employer shall pay Employee payments as provided
herein. If Employee is terminated prior to the scheduled expiration of this
Agreement, an amount equal to two times Employee's last base annual salary and a
pro-rata share of that year's target bonus amount, to the extent earned at the
date of termination, based upon Employee's length of service that year, within
thirty (30) days of the date of Employee's termination.
(b) Within thirty (30) days of the date of Employee's
termination, Employer shall pay Employee all of Employee's accrued vacation.
(c) To the extent permitted under Employer's benefit
plans, Employer shall continue to provide Employee with the same accident, basic
disability insurance, and additional disability insurance which was provided to
Employee during the term of Employee's employment. Employer shall, to the extent
permitted, continue to
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provide those benefits until Employee finds other employment, or for a one year
period, whichever date first occurs.
6.3 In the event Employee is demoted or his title or position is
otherwise materially adversely changed by Employer, Employee is removed as a
voting member of the Board of Directors (other than by shareholder action),
Employer reduces Employee's annual salary or reduces Employee's bonus potential
to less than three times target (60% of annual salary), Employee, at his option,
may give notice to the board of his intention to terminate as provided in
paragraph 6.1.6 and receive the benefits provided in paragraph 6.2.2. In such
event the sums to be paid to Employee pursuant to said paragraph 6.2.2 shall be
placed by Employer in an escrow account within 15 days of said notice by
Employee with escrow instructions to release said sums to Employee at the end of
the 45-day notice period.
6.4 Employer agrees and represents that it has obtained agreements from
its lenders to subordinate their claims to those of Employee, so that Employee's
claims for payment of any kind provided for hereunder would receive first
priority over theirs, and to except from any contractual restrictions on
Employer its agreements with Employee as provided for herein. Copies of those
agreements are attached as Exhibit A hereto.
7. Confidentiality. Employee acknowledges that during the course of his
employment by Employer he may be exposed to or have disclosed to him or may
develop information which is proprietary to the Employer ("Confidential
Information"). Confidential Information may include, without limitation,
information concerning trade secrets, source code, designs, licenses, costs,
customer lists, profits, markets, marketing plans, price data and any other
information of a similar nature to the extent not generally known within the
trade. Employee shall not make use of any Confidential Information except in the
performance of his duties for Employer, he shall maintain such information in
confidence and he shall not use any of such information in connection with any
other employment.
8. Nonsolicitation. During the severance period, Employee will not within the
United States of America solicit any employee to work for a direct competitor of
Employer. Nothing herein shall be construed to prevent Employee from hiring
persons who respond to advertisements of general circulation, or whose names are
independently developed by an employment firm, or who initiate contacts with
Employee about employment with Employee. Employee shall not be prevented from
providing a reference for any Employer employee seeking a position with any
company or offering advice to that company about said employee if requested.
9. Confidentiality and Nonsolicitation After Termination of Employment. All of
the terms of paragraphs 7 and 8 shall remain in full force and effect for a
period of two (2) years after the termination of Employee's employment if all
payments as provided herein have been timely made to Employee.
10. Notice. Any notices permitted or required under this Agreement shall be
given in writing and may be delivered and served personally upon Employee or
upon an officer of
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Employer, or alternatively, may be deposited in the United States mail, postage
prepaid by certified or registered mail, addressed to the parties at their last
known address. Such notice, if mailed within the state of Oregon, shall be
deemed delivered upon the second day following the date postmarked. If mailed
outside the state of Oregon, the notice shall be deemed delivered upon the fifth
day following the date postmarked.
11. Waiver of Breach. The waiver by either Employer or Employee of a breach of
any provision of this Agreement shall not operate or be construed as a waiver of
any other provision or of any subsequent breach of the same provision by either
Employer or Employee.
12. Binding Effect and Assignment. This Agreement shall be binding upon and
inure to the benefit of both Employer and Employee and their respective
successors, heirs and legal representatives, but neither this Agreement nor any
rights hereunder may be assigned by either Employer or Employee without the
prior written consent of the other party.
13. Amendment. No amendment or variation of the terms and conditions of this
Agreement shall be valid unless the same is in writing and signed by both
Employer and Employee.
14. Integration. This Agreement embodies the entire agreement of the parties
with respect to Employee's employment with Employer. There are no promises,
terms, conditions or obligations other than those contained herein. This
Agreement shall supersede all prior communications, representations or
agreements, either verbal or written, between the parties.
15. Paragraph Headings. The paragraph headings appearing in this Agreement are
not to be construed as interpretations of the text, but are inserted for
convenience of and reference by the reader only.
16. Interpretation. This Employment Contract shall be interpreted according to
the laws of the state of Oregon.
EMPLOYER: EMPLOYEE:
TREESOURCE INDUSTRIES, INC.
By: /s/ Robert J. Riecke /s/ Jess R. Drake
-------------------------------- --------------------------------
Title:Vice President-Administration
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Date: 11/3/98 Date: 10/31/98
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Exhibit A
Consent and Subordination
THE UNDERSIGNED LENDER is one of the secured creditors of TreeSource
Industries, Inc. (formerly WTD Industries, Inc.), pursuant to a Credit and
Security Agreement dated as of November 30,1992. Lender agrees as follows:
1. Lender has reviewed the Employment Contract (in the form attached
hereto as Exhibit A and without any subsequent amendment or modification, the
"Employment Contract"), by and between TreeSource Industries, Inc. (the
"Employer") and Jess R. Drake (the Employee").
2. Lender hereby consents to the provisions of the Employment Contract
and agrees that the same shall be exempt from any contractual restrictions set
forth in the Credit and Security Agreement.
3. Upon the occurrence of an event entitling employee to give notice
pursuant to paragraph 6.3 or a breach by Employer of the Employment Contract
("Trigger Event") and following written notice of such Trigger Event provided to
Lenders, the Lenders agree that Employee shall be entitled to receive any
amounts owed under Section 6 of the Employment Contract up to a maximum amount
not to exceed $1,100,000, prior to any payment to the Lenders on their claims
under the Credit and Security Agreement. The Lenders shall be subrogated to the
rights of Employee to receive payment from Employer to the extent of any payment
or distribution made to Employee under this paragraph to which Lenders would
otherwise be entitled. No payment or distribution made to Employee, directly or
indirectly, of any cash, property or securities (including, without limitation,
any proceeds of Lenders' collateral under the Credit and Security Agreement)
pursuant to this paragraph, to which Lender would otherwise be entitled shall be
deemed a payment or distribution by Employer to Lenders on account of their
claims under the Credit and Security Agreement. Nothing contained in this
paragraph is intended to or shall: (a) impair, as among Employer, its creditors
other than Employee, and the Lenders, the obligations owed by Employer to the
Lenders; (b) affect the relative rights, as against Employer and the collateral
under the Credit and Security Agreement, of the Lenders and the creditors of
Employer other than Employee; or (c) prevent the Lenders from exercising all
rights and remedies otherwise permitted under applicable law and the Credit and
Security Agreement, subject only to the rights of Employee under this paragraph,
if any, to receive payment otherwise payable to the Lenders. The failure of
Employer to comply with the terms of the Employment Contract shall constitute an
Event of Default under Section 7.01E of the Credit and Security Agreement.
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4. This Consent and Subordination shall become effective upon receipt
by Employer of identical agreements executed by each of Employer's Lenders under
the Credit and Security Agreement.
Dated this 29 day of October, 1998.
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Its:
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